Mattel 2005 Annual Report Download - page 74

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As of December 31, 2005, Mattel has federal and foreign loss carryforwards totaling $426.2 million and tax
credit carryforwards of $219.2 million. Utilization of these loss and tax credit carryforwards is subject to annual
limitations. Mattel’s loss and tax credit carryforwards expire in the following periods (in millions):
Loss
Carryforwards
Tax Credit
Carryforwards
2006 – 2010 ...................................................... $ 77.4 $ 113.2
Thereafter ........................................................ 145.4 96.5
No expiration date ................................................. 203.4 9.5
Total ........................................................ $ 426.2 $ 219.2
Management considered all available evidence and determined that a valuation allowance of $201.8 million
was required as of December 31, 2005 for those loss and tax credit carryforwards that are not expected to provide
future tax benefits. Changes in the valuation allowance for 2005 include an increase in the valuation allowance
for 2005 losses without benefit, and a decrease in the valuation allowance for loss carryforwards which expired
during 2005 and were written off. Management believes that it is more likely than not that Mattel will generate
sufficient taxable income in the appropriate carryforward periods to realize the benefit of the remaining net
deferred income tax assets of $533.9 million.
Differences between the provision for income taxes at the US federal statutory income tax rate and the
provision in the consolidated statements of operations are as follows (in thousands):
For the Year
2005 2004 2003
Provision at US federal statutory rates ................................ $228,217 $243,689 $259,299
Increase (decrease) resulting from:
Foreign earnings taxed at different rates, including withholding taxes . . . (70,942) (68,175) (56,620)
Losses without income tax benefit ............................... 10,110 7,730 4,903
State and local taxes, net of US federal benefit ..................... 583 6,825 195
Repatriation of foreign earnings under AJCA, including state taxes ..... 107,010 — —
Adjustments to previously accrued taxes .......................... (38,572) (65,100) —
Other ...................................................... (1,376) (1,438) (4,555)
Provision for income taxes ......................................... $235,030 $123,531 $203,222
On October 22, 2004, the American Jobs Creation Act (“AJCA”) was signed into law. Among its various
provisions, AJCA creates a temporary incentive for US corporations to repatriate accumulated income earned
abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign
corporations. Mattel repatriated $2.4 billion in foreign earnings during 2005. The statement of operations for the
year ended December 31, 2005 includes a provision for income taxes of $107.0 million for the total amount of
earnings repatriated. Management’s domestic reinvestment plan for the reinvestment and repatriation of foreign
earnings under AJCA was completed and approved by Mr. Eckert, Mattel’s Chairman and Chief Executive
Officer, on April 14, 2005. Mattel’s Board of Directors approved this domestic reinvestment plan on
November 18, 2005.
The cumulative amount of undistributed earnings of foreign subsidiaries that Mattel intends to permanently
invest and upon which no deferred US income taxes have been provided is $1.2 billion as of December 31, 2005.
The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in whole or in part
by foreign tax credits. The extent of this offset would depend on many factors, including the method of
distribution and specific earnings distributed.
In the normal course of business, Mattel is regularly audited by federal, state and foreign tax authorities.
Management establishes reserves for certain tax return positions that are likely to be challenged by the applicable
taxing authority. The ultimate settlement of any particular issue with the applicable taxing authority could have a
material impact on Mattel’s consolidated financial statements.
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