Mattel 2006 Annual Report Download - page 80

Deferred income taxes are provided principally for tax credit carryforwards, net operating loss
carryforwards, research and development expenses, depreciation, employee compensation-related expenses and
certain other reserves that are recognized in different years for financial reporting and income tax reporting
purposes. Mattel’s deferred income tax assets (liabilities) are comprised of the following (in thousands):
December 31,
2006 2005
Tax credit carryforwards .................................................. $228,085 $ 219,218
Research and development expenses ......................................... 184,508 172,852
Loss carryforwards ....................................................... 133,752 177,316
Allowances and reserves .................................................. 95,189 89,161
Intangible assets ......................................................... 29,714 54,780
Deferred compensation .................................................... 68,097 45,310
Other .................................................................. 64,007 46,058
Gross deferred income tax assets ........................................ 803,352 804,695
Intangible assets ......................................................... (36,382) (35,884)
Other .................................................................. (15,820) (33,056)
Gross deferred income tax liabilities ..................................... (52,202) (68,940)
Deferred income tax asset valuation allowances ................................ (185,459) (201,809)
Net deferred income tax assets .............................................. $565,691 $ 533,946
Net deferred income tax assets are reported in the consolidated balance sheets as follows (in thousands):
December 31,
2006 2005
Prepaid expenses and other current assets ...................................... $ 72,406 $ 58,390
Other noncurrent assets ..................................................... 503,168 495,914
Current liabilities .......................................................... (1,148) (1,396)
Other noncurrent liabilities .................................................. (8,735) (18,962)
$565,691 $533,946
As of December 31, 2006, Mattel has federal and foreign loss carryforwards totaling $359.1 million and tax
credit carryforwards of $228.1 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
2007 – 2011 ...................................................... $ 56.6 $ 129.9
Thereafter ........................................................ 106.7 88.7
No expiration date ................................................. 195.8 9.5
Total ........................................................ $ 359.1 $ 228.1
Management considered all available evidence and determined that a valuation allowance of $185.5 million
was required as of December 31, 2006 for those loss and tax credit carryforwards that are not expected to provide
future tax benefits. Of the total valuation allowance of $185.5 million, $4.9 million relates to items whereby the
realization, if any, would result in a credit to goodwill rather than income tax expense. Changes in the valuation
allowance for 2006 include increases in the valuation allowance for 2006 foreign losses without benefits,
including losses of Radica Games Limited (“Radica”), acquired by Mattel in 2006, and a decrease in the
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