Mattel 2006 Annual Report Download - page 101

Download and view the complete annual report

Please find page 101 of the 2006 Mattel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 133

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133

Rental expense under operating leases amounted to $86.9 million, $77.6 million and $73.7 million for 2006,
2005 and 2004, respectively, net of sublease income of $1.1 million, $1.3 million and $1.7 million in 2006, 2005
and 2004, respectively.
Commitments
In the normal course of business, Mattel enters into contractual arrangements to obtain and protect Mattel’s
right to create and market certain products, and for future purchases of goods and services to ensure availability
and timely delivery. Such arrangements include royalty payments pursuant to licensing agreements and
commitments for future inventory purchases. Certain of these commitments routinely contain provisions for
guaranteed or minimum expenditures during the term of the contracts. Current and future commitments for
guaranteed payments reflect Mattel’s focus on expanding its product lines through alliances with businesses in
other industries.
Licensing and similar agreements provide for terms extending from 2007 through 2011 and contain
provisions for future minimum payments as shown in the following table (in thousands):
Minimum
Payments
2007 ............................................................................. $ 39,000
2008 ............................................................................. 38,000
2009 ............................................................................. 24,000
2010 ............................................................................. 21,000
2011 ............................................................................. 13,000
Thereafter ......................................................................... —
$135,000
Royalty expense for 2006, 2005 and 2004 was $261.2 million, $225.6 million and $204.5 million,
respectively.
As of December 31, 2006, Mattel had outstanding commitments for purchases of inventory, other assets and
services totaling $372.9 million in fiscal year 2007.
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, 2006 and 2005 totaled $20.3 million and $22.1 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 LeapFrog Enterprises, Inc.
Fisher-Price, Inc. (“Fisher-Price”), a subsidiary of Mattel, was sued for patent infringement by LeapFrog
Enterprises, Inc. in a lawsuit filed in October 2003 in the United States District Court for the District of
Delaware, and in September 2004, Mattel was joined to the lawsuit as a defendant. The lawsuit alleged that
Fisher-Price’s PowerTouch™system infringed a LeapFrog patent relating to an electronic learning device for
92