Mattel 2006 Annual Report Download - page 82

a settlement with a state tax authority for tax years 1997 and 1998. Of the $63.0 million of total income tax
benefits recorded, $57.5 million represents refunds of previously paid taxes, recorded as an expense in previous
years. These refunds were recorded as a reduction to income tax expense in the period the refunds were received
by Mattel. The remainder of the tax benefit recorded in 2006 is a net reduction to total income tax reserves
resulting from tax settlements with foreign and state tax authorities.
In 2005, Mattel reduced its total income tax reserves by $38.6 million as a result of tax settlements reached
with various tax authorities and reassessments of tax exposures based on the status of current audits in various
jurisdictions around the world. In 2004, Mattel reached a settlement with the Internal Revenue Service (“IRS”)
regarding the examination of Mattel’s US federal income tax returns for the years 1998 through 2001. The
settlement resulted in a net benefit of $65.1 million from changes in tax estimates, and the benefit is reflected in
the 2004 provision for income taxes in the consolidated statement of operations. During 2005, the IRS completed
its examination of the Mattel, Inc. US federal income tax returns for 2002 and 2003.
In the normal course of business, Mattel is regularly audited by federal, state and foreign tax authorities.
Mattel is currently under audit by the IRS for the 2004 and 2005 tax years. The ultimate settlement of any
particular issue with the applicable taxing authority could have a material impact on Mattel’s consolidated
financial statements.
Accounting principles generally accepted in the United States of America require that tax benefits related to
the exercise of nonqualified stock options and stock warrants be credited to additional paid-in-capital. The
exercise of nonqualified stock options resulted in an increase in additional paid-in-capital for related income tax
benefits totaling $8.5 million in 2006, and an increase in additional paid-in-capital totaling $4.3 million in 2005.
Note 4—Employee Benefit Plans
Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially
all employees of these companies. These plans include defined benefit pension plans, defined contribution
retirement plans, postretirement benefit plans, and deferred compensation and excess benefit plans. In addition,
Mattel makes contributions to government-mandated retirement plans in countries outside the US where its
employees work.
A summary of retirement plan expense is as follows (in millions):
For the Year
2006 2005 2004
Defined benefit pension plans ...................................... $ 21.7 $ 22.2 $ 15.2
Defined contribution retirement plans ................................ 29.7 29.6 27.8
Postretirement benefit plans ........................................ 3.7 4.9 5.0
Deferred compensation and excess benefit plans ........................ 4.5 3.2 3.1
Government-mandated plans outside the US ........................... 0.6 0.3 0.9
$ 60.2 $ 60.2 $ 52.0
Defined Benefit Pension and Postretirement Benefit Plans
Mattel provides defined benefit pension plans for eligible domestic employees, which satisfy the
requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). Some of Mattel’s foreign
subsidiaries have defined benefit pension plans covering substantially all of their eligible employees. Mattel
funds these plans in accordance with the terms of the plans and local statutory requirements, which differ for
each of the countries in which the subsidiaries are located. Mattel also has unfunded postretirement health
insurance plans covering certain eligible domestic employees.
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