Mattel 2005 Annual Report Download - page 31

(b) Effective on January 1, 2002, Mattel adopted Statement of Financial Accounting Standards (“SFAS”) No.
142, Goodwill and Other Intangible Assets. In accordance with the adoption of SFAS No. 142, Mattel
ceased amortization of goodwill effective January 1, 2002. Operating income in 2001 includes goodwill
amortization of $46.1 million.
(c) The provision for income taxes in 2005 was negatively impacted by incremental tax expense of
$107.0 million resulting from Mattel’s decision to repatriate $2.4 billion in previously unremitted foreign
earnings under the American Jobs Creation Act (“AJCA”), partially offset by $38.6 million of tax benefit
primarily relating to audit settlements with certain tax authorities in both the US and abroad. The provision
for income taxes in 2004 was positively impacted by a $65.1 million tax benefit related to an audit
settlement with the US Internal Revenue Service (“IRS”).
(d) The Consumer Software segment, which was comprised primarily of The Learning Company, Inc.
(“Learning Company”), was reported as a discontinued operation effective March 31, 2000, and the
consolidated financial statements were reclassified to segregate the operating results of the Consumer
Software segment. In 2002, Gores Technology Group completed the sale and liquidation of non-cash
proceeds related to the sales of the education and productivity divisions of the former Learning Company,
Mattel received $43.3 million in cash proceeds from Gores Technology Group and recognized a gain on the
disposal of discontinued operations of $27.3 million, net of taxes of $16.0 million, in the consolidated
statement of operations in 2002.
(e) The cumulative effect of change in accounting principle, net of tax, in 2002, relates to the adoption of
SFAS No. 142 and an impairment of goodwill upon adoption, and in 2001 relates to the adoption of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and the
related notes. See Item 8 “Financial Statements and Supplementary Data.”
Overview
Mattel designs, manufactures and markets a broad variety of toy products worldwide through sales to its
customers and directly to consumers. Mattel’s business is dependent in great part on its ability each year to redesign,
restyle and extend existing core products and product lines, to design and develop innovative new products and
product lines, and to successfully market those products and product lines. Mattel plans to continue to focus on its
portfolio of traditional brands that have historically had worldwide appeal, to create new brands utilizing its
knowledge of children’s play patterns and to target customer and consumer preferences around the world.
Mattel’s portfolio of brands and products are grouped in the following categories:
Mattel Girls & Boys Brands—including Barbie®fashion dolls and accessories (“Barbie®”), Polly Pocket!™
and Disney Classics (collectively “Other Girls Brands”), Hot Wheels®, Matchbox®and Tyco®R/C vehicles
and playsets (collectively “Wheels”) and Harry Potter™, Yu-Gi-Oh!™, Batman™, Justice League™,
MegaMan™and games and puzzles (collectively “Entertainment”).
Fisher-Price Brands—including Fisher-Price®, Little People®, Rescue Heroes®, BabyGear™and
View-Master®(collectively “Core Fisher-Price®”), Sesame Street®, Barney™, Dora the Explorer™,
Winnie the Pooh, InteracTV™and See ‘N Say®(collectively “Fisher-Price®Friends”) and Power Wheels®.
American Girl Brands—including Just Like You™, the historical collection and Bitty Baby®. American Girl
Brands products are sold directly to consumers and its children’s publications are also sold to certain
retailers.
On October 10, 2005, Mattel announced the consolidation of its domestic Mattel Girls & Boys Brands and
Fisher-Price Brands divisions into one division. The creation of the new “Mattel Brands” division, which will
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