Mattel 2005 Annual Report Download - page 89

Licensing and similar agreements provide for terms extending from 2006 through 2011 and contain
provisions for future minimum payments as shown in the following table (in thousands):
Minimum
Payments
2006 ............................................................................. $ 60,000
2007 ............................................................................. 50,000
2008 ............................................................................. 30,000
2009 ............................................................................. 30,000
2010 ............................................................................. 20,000
Thereafter ......................................................................... 13,000
$203,000
Royalty expense for 2005, 2004 and 2003 was $225.6 million, $204.5 million and $169.2 million,
respectively.
As of December 31, 2005, Mattel had outstanding commitments for purchases of inventory, other assets and
services totaling $196.6 million and $20.8 million in fiscal years 2006 and 2007, respectively.
Insurance
Mattel has a wholly-owned subsidiary, Far West Insurance Company, Ltd. (“Far West”), that was
established to insure Mattel’s workers’ compensation, general, automobile and product liability risks. Far West
insures the first $1.0 million per occurrence of Mattel’s workers’ compensation, the first $0.5 million for general
and automobile liability risks and the first $2.0 million per occurrence of product liability risks. Various
insurance companies, that have an “A” or better AM Best rating at the time the policies are purchased, reinsure
Mattel’s risk in excess of the amounts insured by Far West. Mattel’s liability for reported and incurred but not
reported claims at December 31, 2005 and 2004 totaled $22.1 million and $20.3 million, respectively, and is
included in the consolidated balance sheets. Loss reserves are accrued based on Mattel’s estimate of the
aggregate liability for claims incurred using a study prepared by an independent actuary.
Litigation
Litigation Related to Learning Company
Following Mattel’s announcement in October 1999 of the expected results of its Learning Company division
for the third quarter of 1999, various Mattel stockholders filed purported class action complaints naming Mattel
and certain of its present and former officers and directors as defendants.
These shareholder complaints were consolidated into two lead cases, one under §10(b) of the Securities
Exchange Act of 1934 (the “Exchange Act”), and the other under §14(a) of the Exchange Act. In November
2002, the United States District Court for the Central District of California permitted the actions to proceed as
class actions.
Several stockholders filed related derivative complaints purportedly on behalf of Mattel. Some of the
derivative suits were consolidated into one lawsuit in Los Angeles County Superior Court in California, which
was dismissed for the plaintiff’s failure to make pre-suit demand on the Board of Directors. An appeal from that
decision was dismissed in July 2003 by stipulation of the parties. Another derivative suit was filed in the
Delaware Court of Chancery, and was dismissed without prejudice in August 2002 in deference to the then-
ongoing California derivative case. A third derivative suit, filed in federal court in the Central District of
California, was dismissed in July 2002, and re-filed in November 2002 as part of the settlement described below.
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