Mattel 2006 Annual Report Download - page 17

nation. See Item 1A “Risk Factors—Factors That May Affect Future Results” and Item 8 “Financial Statements
and Supplementary Data—Note 10 to the Consolidated Financial Statements.”
Licenses and Distribution Agreements
Mattel has license agreements with third parties that permit Mattel to utilize the trademark, characters or
inventions of the licensor in products that Mattel sells. A number of these licenses relate to product lines that are
significant to Mattel’s business and operations.
Mattel has entered into agreements to license entertainment properties from, among others, Disney
Enterprises, Inc. (including Disney characters such as Winnie the Pooh and Disney Princesses, CARS™from
Pixar, and all Disney films and television properties for use in Mattel’s DVD board games, such as Scene It?™,
sold in North America), Viacom International, Inc. relating to its Nickelodeon properties (including
Dora the Explorer™, Go-Diego-Go!™, and SpongeBob SquarePants™), Origin Products Limited relating to
Polly Pocket!™, Warner Bros. Consumer Products (including Batman™, Superman™, and Justice League™),
Sesame Workshop (relating to its Sesame Street®properties including Elmo).
Royalty expense during 2006, 2005 and 2004 was $261.2 million, $225.6 million and $204.5 million,
respectively. See “Product Design and Development” and Item 8 “Financial Statements and Supplementary
Data—Note 9 to the Consolidated Financial Statements.”
Mattel also licenses a number of its trademarks, characters and other property rights to others for use in
connection with the sale of non-toy products that do not compete with Mattel’s products. Mattel distributes some
third-party finished products that are independently designed and manufactured.
Trademarks, Copyrights and Patents
Most of Mattel’s products are sold under trademarks, trade names and copyrights, and a number of those
products incorporate patented devices or designs. Trade names and trademarks are significant assets of Mattel in
that they provide product recognition and acceptance worldwide.
Mattel customarily seeks patent, trademark or copyright protection covering its products, and it owns or has
applications pending for US and foreign patents covering many of its products. A number of these trademarks
and copyrights relate to product lines that are significant to Mattel’s business and operations. Mattel believes its
rights to these properties are adequately protected, but there can be no assurance that its rights can be
successfully asserted in the future or will not be invalidated, circumvented or challenged.
Commitments
In the normal course of business, Mattel enters into contractual arrangements for future purchases of goods
and services to ensure availability and timely delivery, and to obtain and protect Mattel’s right to create and
market certain products. 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.
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. Licensing and similar agreements with terms extending
through 2011 contain provisions for future guaranteed minimum payments aggregating approximately
$135.0 million. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Commitments” and Item 8 “Financial Statements and Supplementary Data—Note 9 to the
Consolidated Financial Statements.”
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