Mattel 2007 Annual Report Download

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commitment
2007 ANNUAL REPORT

Table of contents

  • Page 1
    commitment 2007 ANNUAL REPORT

  • Page 2

  • Page 3
    "Commitment is what transforms a promise into reality." - ABRAHAM LINCOLN

  • Page 4
    ...portfolio, including core Fisher-Price® and toys based on the Disney/Pixar CARS entertainment property. Despite the costs associated with the product recalls, we were also able to achieve improvements in gross margin and overall profitability. Your Board of Directors thoughtfully and aggressively...

  • Page 5
    ... and professional development of our employees. In fact, this year, FORTUNE MAGAZINE NAMED MATTEL TO THE HIGHLY COVETED "100 BEST COMPANIES TO WORK FOR" LIST - an acknowledgement of a belief I have had since my very first day on the job. At the board level, Dean Scarborough, chief executive of...

  • Page 6
    "I couldn't be more proud to be part of Mattel and to work alongside the men and women who make up this great company."

  • Page 7

  • Page 8
    "You have our commitment to continue to advance and improve our business, as well as the overall toy industry."

  • Page 9

  • Page 10

  • Page 11
    ...in its charter) MATTEL, INC. 333 Continental Blvd. El Segundo, CA 90245-5012 (Address of principal executive offices) Delaware (State or other jurisdiction of incorporation or organization) 95-1567322 (I.R.S. Employer Identification No.) (310) 252-2000 (Registrant's telephone number) Securities...

  • Page 12
    ...9B. Other Information ...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships...

  • Page 13
    ... Business. Mattel, Inc. ("Mattel") designs, manufactures, and markets a broad variety of toy products worldwide through sales to its customers and directly to consumers. Mattel's vision is to provide "the world's premier toy brands-today and tomorrow." Management has set six key company strategies...

  • Page 14
    ... game properties, and the expansion of Radica®'s 20Q™, Girl Tech®, and U.B.FUNKEYS™ products. The Fisher-Price Brands US segment includes Fisher-Price®, Little People®, BabyGear™, View-Master®, Sesame Street®, Dora the Explorer™, Go-Diego-Go!™, Mickey Mouse Clubhouse, Winnie the Pooh...

  • Page 15
    ... manufacturers to manufacture its products in the US, Mexico, Brazil, Asia (including China and India), New Zealand, and Australia. To help avoid disruption of its product supply due to political instability, civil unrest, economic instability, changes in government policies, and other risks, Mattel...

  • Page 16
    ...Competition in the manufacture, marketing, and sale of toys is based primarily on quality, play value, and price. Mattel offers a diverse range of products for children of all ages and families that includes, among others, toys for infants and preschoolers, girls' toys, boys' toys, youth electronics...

  • Page 17
    ... centers as a service to its employees and as an outlet for its products. American Girl Brands products are sold directly to consumers and its children's publications are also sold to certain retailers. Mattel has five retail stores, American Girl Place® in Chicago, Illinois, New York, New York...

  • Page 18
    ... Disney characters such as Disney Princesses, CARSâ„¢ from Pixar, High School Musical, Winnie the Pooh, and all Disney films and television properties for use in Mattel's DVD board games, such as Scene It?â„¢, sold in North America), Viacom International, Inc. relating to its Nickelodeon properties...

  • Page 19
    ...Mattel Asia Pacific Sourcing Limited ("MAPS"), a wholly-owned subsidiary of Mattel, Bank of America, N.A., as a lender and administrative agent, and other financial institutions executed a credit agreement ("the MAPS facility") which provided for (i) a term loan facility of $225.0 million consisting...

  • Page 20
    ... Offered Rate ("LIBOR") plus 40 basis points with interest payable quarterly beginning September 15, 2006. Interest on the 6.125% Senior Notes is payable semi-annually beginning December 15, 2006. The 6.125% Senior Notes may be redeemed at any time at the option of Mattel at a redemption price...

  • Page 21
    ...Sales Corp. and Fisher-Price, Inc. to Mattel Factoring for a purchase price equal to the nominal amount of the receivables sold. Mattel Factoring then sells such receivables to the bank group at a slight discount, and Mattel acts as a servicer for such receivables. Mattel has designated Mattel Sales...

  • Page 22
    ... Germany terminated the European trade receivable facility with SGBN because the Company determined the facility was no longer necessary based on projected international cash flows and seasonal financing needs. Government Regulations and Environmental Quality Mattel's toy products sold in the US...

  • Page 23
    ..., American Girl Executive Vice President, Worldwide Operations Chief Financial Officer President, Mattel Brands Senior Vice President, Human Resources Senior Vice President, Corporate Responsibility Senior Vice President, General Counsel and Secretary Senior Vice President, Investor Relations and...

  • Page 24
    ... Vice President-Sales, Marketing and Design of Just Toys, Vice President and General Manager of Baby Care for Gerber Products, Executive Vice President and Chief Operating Officer of Lionel Leisure, Inc., and President of Aviva/Hasbro. Mr. Kaye has been Senior Vice President, Human Resources since...

  • Page 25
    ... and maintain customer service levels; quality control and safety testing; impact of product recalls; reserves for product recalls and other incremental recall-related costs; supply chain operations; import and export licenses; integration of acquired companies and assets; operating efficiencies...

  • Page 26
    ... of toys, video games, consumer electronics and other play products, as well as retailers, which means that Mattel's market position is always at risk. Mattel's ability to maintain its current product sales, and increase its product sales or establish product sales with new, innovative toys, will...

  • Page 27
    ...recent years, consumer goods companies generally, including those in the toy business, have experienced the phenomenon of retail customers developing their own private-label products that directly compete with the products of traditional manufacturers. Some retail chains that are customers of Mattel...

  • Page 28
    ... not limited to rising costs of materials, transportation, services and labor (including but not limited to wages, expenses related to employee health plans and insurance), could impact the profit margins realized by Mattel on the sale of its products. Because of market conditions, timing of pricing...

  • Page 29
    ... and Mattel's retailer customers, which may materially and adversely affect sales and profits. Recalls may also increase competitive pressures from other toy manufacturers. Product recalls, withdrawals, or replacements have resulted in coverage critical of Mattel in the press and media. While Mattel...

  • Page 30
    .... Political developments, including trade relations, and the threat or occurrence of war or terrorist activities could materially impact Mattel, its personnel and facilities, its customers and suppliers, retail and financial markets, and general economic conditions. Mattel's business is worldwide in...

  • Page 31
    ..., and offer new innovative products, enhance product safety, develop people, improve productivity, simplify processes, maintain customer service levels, as well as new initiatives designed to drive sales growth, manage costs, capitalize on Mattel's scale advantage and improve its supply chain. These...

  • Page 32
    ...may include accounting standards, taxation requirements (including changes in applicable income tax rates, new tax laws and revised tax law interpretations), trade restrictions, regulations regarding financial matters, environmental regulations, advertising directed toward children, safety and other...

  • Page 33
    ... segment. Mattel has leased retail and related office space in Chicago, Illinois, New York, New York, and Los Angeles, California for its American Girl Place® stores, Dallas, Texas and Atlanta, Georgia for its American Girl Boutique and Bistro™ and leased retail space in Oshkosh, Wisconsin...

  • Page 34
    ... securities. Issuer Purchases of Equity Securities During 2007, 2006, and 2005, the Board of Directors authorized Mattel to increase its share repurchase program by $750.0 million, $250.0 million, and $500.0 million, respectively. During 2007, Mattel repurchased 35.9 million shares at a cost of $806...

  • Page 35
    ... 2007, the Board of Directors authorized Mattel to increase its share repurchase program by $250.0 million and $500.0 million, respectively. Repurchases will take place from time to time, depending on market conditions. Mattel's share repurchase program has no expiration date. (2) Includes the sale...

  • Page 36
    .... Comparison of Five Year Cumulative Total Return Mattel, Inc., S&P 500, and S&P 500 Consumer Staples Index 2002 to 2007 200 S&P 500 $181.72 150 S&P 500 Consumer Staples Index $162.76 DOLLARS Mattel, Inc. $114.53 100 50 0 2002 2003 Mattel, Inc. S&P 500 2004 2005 2006 2007 S&P 500 Consumer...

  • Page 37
    ..., operating income, net income, net income per common share, balance sheets or cash flows. (b) The provision for income taxes in 2007 was positively impacted by net tax benefits related to prior years of $42.0 million related to reassessments of tax exposures based on the status of current audits...

  • Page 38
    ... ("Barbie®"), Polly Pocket®, Little Mommy®, Disney Classics, Pixel Chix®, and High School Musical (collectively "Other Girls Brands"), Hot Wheels®, Matchbox®, and Tyco® R/C vehicles and playsets (collectively "Wheels"), and CARS™, Radica® products, and games and puzzles (collectively...

  • Page 39
    .... For example, as the world's largest toy company, Mattel believes it can realize cost savings when making purchasing decisions based on a One Mattel philosophy. Product Recalls and Withdrawals During the third quarter of 2007, Mattel recalled products with high-powered magnets that may become...

  • Page 40
    ... unintentional stock option accounting errors. Other non-operating income, net increased from $4.3 million in 2006 to $11.0 million in 2007, primarily due to foreign currency exchange gains. Net income in 2007 was positively impacted by net tax benefits related to prior years of $42.0 million due...

  • Page 41
    ... in currency exchange rates. The 2007 Product Recalls reduced net sales by approximately $48.9 million for sales returns and reserves recorded in 2007. Gross sales in international markets increased 17% as compared to 2006, including a 7 percentage point benefit from changes in currency exchange...

  • Page 42
    ... cost pressures and an 80 basis point negative impact from the 2007 Product Recalls. Advertising and Promotion Expenses Advertising and promotion expenses increased to 11.9% of net sales in 2007, from 11.5% in 2006 due primarily to additional media and promotion to drive consumer demand at retail...

  • Page 43
    ...resulting from price increases and favorable product mix, partially offset by higher advertising and promotion expenses and the impact of the 2007 Product Recalls, which decreased Fisher-Price Brands US segment operating income by approximately $30 million. American Girl Brands gross sales decreased...

  • Page 44
    ...Statements-Share-Based Payments"), costs associated with the opening of the third American Girl Place® retail store in April 2006 and the acquisition of Radica in October 2006, partially offset by savings related to the streamlining of the Mattel Brands organization. Other non-operating income, net...

  • Page 45
    ... by the worldwide success of CARSâ„¢ and Supermanâ„¢ products, which more than offset worldwide sales declines of Batmanâ„¢ and Yu-Gi-Oh!â„¢ products. Worldwide gross sales of Fisher-Price Brands increased 12% to $2.27 billion in 2006 as compared to 2005, including a 1 percentage point benefit from...

  • Page 46
    ... Consolidated Financial Statements-Share-Based Payments"), costs associated with the third American Girl Place® retail store, and additional selling and administrative expenses for Radica (acquired in October 2006), partially offset by savings related to the 2006 streamlining of the Mattel Brands...

  • Page 47
    ...includes games and puzzles and Radica®, increased 61% driven by the success of CARS™ and Superman™ products and Radica® products, which more than offset sales declines in Batman™ and Yu-Gi-Oh!™. Mattel Girls & Boys Brands US segment income increased 29% to $267.2 million in 2006, primarily...

  • Page 48
    ... royalty costs. Income Taxes Mattel's effective tax rate on income before income taxes in 2007 was 14.7% as compared to 13.3% in 2006. The 2007 income tax provision includes net benefits related to prior years of $42.0 million related to reassessments of tax exposures based on the status of current...

  • Page 49
    ... higher accounts receivable. Investing Activities Cash flows used for investing activities were $285.3 million during 2007, primarily due to the acquisition of Origin Products Limited ("Origin") for $79.1 million, the purchase of rights to manufacture, distribute, and market several game properties...

  • Page 50
    ... of stock options, partially offset by lower net borrowings in 2006 and increased dividend payments. During 2007, 2006, and 2005, the Board of Directors authorized Mattel to increase its share repurchase program by $750.0 million, $250.0 million, and $500.0 million, respectively. During 2007, Mattel...

  • Page 51
    ... LIBOR plus 40 basis points with interest payable quarterly beginning September 15, 2006. Interest on the 6.125% Senior Notes is payable semi-annually beginning December 15, 2006. The 6.125% Senior Notes may be redeemed at any time at the option of Mattel at a redemption price equal to the greater...

  • Page 52
    ...Sales Corp. and Fisher-Price, Inc. to Mattel Factoring for a purchase price equal to the nominal amount of the receivables sold. Mattel Factoring then sells such receivables to the bank group at a slight discount, and Mattel acts as a servicer for such receivables. Mattel has designated Mattel Sales...

  • Page 53
    ..., including incentive compensation, royalties, and advertising obligations. The current portion of income taxes payable decreased from $161.9 million at year-end 2006 to $17.1 million at December 31, 2007, primarily due to the reclassification of tax reserves for which a cash tax payment is not...

  • Page 54
    ... by $126.2 million from December 31, 2006, primarily as a result of share repurchases and payment of the annual dividend on common stock in the fourth quarter of 2007, partially offset by net income and proceeds from the exercise of stock options. Mattel's debt-to-capital ratio, including short-term...

  • Page 55
    ... present members of Mattel's Board of Directors breached their fiduciary duties in connection with product safety and reporting practices allegedly related to Mattel's product recalls during August and September 2007. In SEB Investment, plaintiff also sues certain executive officers of Mattel, and...

  • Page 56
    ... Fund, which allows employees to limit or eliminate their exposure to market changes in Mattel's stock price. Furthermore, the Mattel Personal Investment Plan limits an employee's maximum allocation to the Mattel Stock Fund to a percentage of the employee's total account balance, which is currently...

  • Page 57
    ... current and future economic factors in relation to its customers' ability to pay amounts owed to Mattel. Mattel's products are sold throughout the world. Products within the Domestic segment are sold directly to retailers, including discount and free-standing toy stores, chain stores, department...

  • Page 58
    ... materially affect key financial measures, including gross profit, net income and inventories. As more fully described below, valuation of Mattel's inventory could be impacted by changes in public and consumer preferences, demand for product, or changes in the buying patterns of both retailers and...

  • Page 59
    ... of, an obsolescence reserve based on the following factors Customer and/or consumer demand for the item; Overall inventory positions of Mattel's customers; Strength of competing products in the market; Quantity on hand of the item; Standard retail price of the item; Mattel's cost for the item...

  • Page 60
    ... December 31, 2007. Sales Adjustments Mattel routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of...

  • Page 61
    ... average discount rate to be used to measure future plan obligations and interest cost component of plan income or expense; • Rate of future compensation increases (for defined benefit pension plans); • Expected long-term rate of return on plan assets (for funded plans); and • Health care cost...

  • Page 62
    ...rate of return on plan assets is based on management's expectation of earnings on the assets that secure Mattel's funded defined benefit pension plans, taking into account the mix of invested assets, the arithmetic average of past returns, economic and stock market conditions and future expectations...

  • Page 63
    ... method prescribed by Financial Accounting Standards Board ("FASB") Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. In accounting for the income tax benefits associated with employee exercises of share-based payments, Mattel has elected...

  • Page 64
    ... and 2006, respectively. As of December 31, 2007, total unrecognized compensation cost related to unvested share-based payments totaled $54.4 million and is expected to be recognized over a weighted-average period of 2.2 years. Income Taxes Mattel's income tax provision and related income tax assets...

  • Page 65
    .... The 2007 income tax provision includes net benefits related to prior years of $42.0 million related to reassessments of tax exposures based on the status of current audits in various jurisdictions around the world, including settlements, partially offset by enacted tax law changes. In 2006, Mattel...

  • Page 66
    ... applicable taxing authority could have a material impact on Mattel's consolidated financial statements. New Accounting Pronouncements SFAS No. 157 In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance for using fair value to measure assets and liabilities...

  • Page 67
    ... directly comparable GAAP financial measure, net sales, is as follows: 2007 For the Year 2006 (In thousands) 2005 Revenues Domestic: Mattel Girls & Boys Brands US ...Fisher-Price Brands US ...American Girl Brands ...Total Domestic ...International ...Gross sales ...Sales adjustments ...Net sales...

  • Page 68
    ... operations and cash flows. Inventory purchase transactions denominated in the Euro, British pound sterling, Canadian dollar, Mexican peso, Hong Kong dollar, Indonesian rupiah, and Venezuela bolivar were the primary transactions that caused currency transaction exposure for Mattel during 2007, 2006...

  • Page 69
    ... 31, 2007, these contracts had a contract amount of $67.3 million and a fair value of $66.4 million. Had Mattel not entered into hedges to limit the effect of currency exchange rate fluctuations on its results of operations and cash flows, its income before income taxes would have increased by...

  • Page 70
    ... LIBOR plus 40 basis points with interest payable quarterly beginning September 15, 2006. Interest on the 6.125% Senior Notes is payable semi-annually beginning December 15, 2006. The 6.125% Senior Notes may be redeemed at any time at the option of Mattel at a redemption price equal to the greater...

  • Page 71
    ... that Mattel's internal control over financial reporting was effective as of December 31, 2007. The effectiveness of the Company's internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm...

  • Page 72
    ... the year ended December 31, 2006, Mattel, Inc. changed the manner in which it accounts for stock compensation costs and the manner which it accounts for defined benefit pension and other postretirement plans. A company's internal control over financial reporting is a process designed to provide...

  • Page 73
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Cont'd.) Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become...

  • Page 74
    ..., except share data) ASSETS Current Assets Cash and equivalents ...Accounts receivable, less allowances of $21.5 million and $19.4 million in 2007 and 2006, respectively ...Inventories ...Prepaid expenses and other current assets ...Total current assets ...Property, plant, and equipment, net...

  • Page 75
    MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year 2007 2006 2005 (In thousands, except per share amounts) Net Sales ...Cost of sales ...Gross Profit ...Advertising and promotion expenses ...Other selling and administrative expenses ...Operating Income ...Interest ...

  • Page 76
    ... 2007 For the Year 2006 (In thousands) 2005 Cash Flows From Operating Activities: Net income ...$ 599,993 $ 592,927 $ 417,019 Adjustments to reconcile net income to net cash flows from operating activities: Gain on sale of investments ...- - (32,831) Net loss (gain) on sale of other property, plant...

  • Page 77
    ... treasury stock ...Share-based compensation ...Tax impact of stock option exercises ...Dividend equivalents for restricted stock units ...Dividends declared ...Adjustment for initial adoption of SFAS No.158 ...Balance, December 31, 2006 ...Comprehensive income: Net income ...Change in net unrealized...

  • Page 78
    ... market value. Accounts Receivable and Allowance for Doubtful Accounts Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash...

  • Page 79
    ... level below the operating segment for purposes of evaluating whether goodwill is impaired. Mattel's reporting units are: Mattel Girls Brands US, Mattel Boys Brands US, Fisher-Price Brands US, American Girl Brands, and International. Mattel tests goodwill for impairment annually in the third...

  • Page 80
    ... period of future benefits. Direct-response advertising consists primarily of catalog production and mailing costs that are generally amortized within three months from the date the catalogs are mailed. Product Recalls and Withdrawals Mattel establishes a reserve for product recalls and withdrawals...

  • Page 81
    ...-Employee Benefit Plans"). Share-Based Payments Prior to January 1, 2006, Mattel accounted for its employee stock compensation plans based on the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related...

  • Page 82
    ...restricted stock and restricted stock units ("RSUs") to certain employees and non-employee Board members was $14.8 million and $3.6 million in 2007 and 2006, respectively. As of December 31, 2007, total unrecognized compensation cost related to unvested share-based payments totaled $54.4 million and...

  • Page 83
    ... exercise of dilutive stock options, net of assumed treasury share repurchases at average market prices, as applicable. Nonqualified stock options totaling 3.2 million, 22.0 million, and 27.6 million were excluded from the calculation of diluted net income per common share for 2007, 2006, and 2005...

  • Page 84
    ...acquired deferred tax assets and changes to acquired income tax uncertainties to be recognized in earnings, and (vi) requires the expensing of acquisition-related costs as incurred. SFAS 141(R) also requires additional disclosure of information surrounding a business combination to enhance financial...

  • Page 85
    ... with related deferred tax liabilities. On October 3, 2006, Mattel completed its acquisition of Radica Games Limited ("Radica") for net cash paid of $196.4 million, which includes the purchase price and acquisition costs of $235.1 million, net of cash acquired of $38.7 million. Radica manufactures...

  • Page 86
    ... for tax credit carryforwards, research and development expenses, net operating loss carryforwards, 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...

  • Page 87
    ...to realize the benefit of the remaining net deferred income tax assets of $495.9 million. Differences between the provision for income taxes at the US federal statutory income tax rate and the provision in the consolidated statements of operations are as follows: 2007 For the Year 2006 (In thousands...

  • Page 88
    ... income taxes from the scope of SFAS No. 5, Accounting for Contingencies. Mattel records unrecognized tax benefits for US federal, state, local, and foreign tax positions related primarily to transfer pricing, tax credits claimed, tax nexus and apportionment. For each reporting period, management...

  • Page 89
    ...of nonqualified stock options resulted in an increase in additional paid-in-capital for related income tax benefits totaling $5.7 million in 2007 and $8.5 million in 2006. Note 4-Product Recalls and Withdrawals During the third quarter of 2007, Mattel recalled products with high-powered magnets that...

  • Page 90
    ...manufacturers as well as facilities operated by Mattel, are systematically tested prior to being shipped to customers. During 2007, Mattel reversed sales associated with the 2007 Product Recalls, recorded impairment charges for affected inventory, and accrued other recall-related costs. These recall...

  • Page 91
    ...cost included in net income or address the various measurement requirements associated with postretirement benefit plan accounting. The requirement to measure plan assets and benefit obligations as of the date of the fiscal year-end statement of financial position is consistent with Mattel's current...

  • Page 92
    ...: 2007 For the Year 2006 2005 Defined benefit pension plans: Discount rate ...Weighted average rate of future compensation increases ...Long-term rate of return on plan assets ...Postretirement benefit plans: Discount rate ...Annual increase in Medicare Part B premium ...Health care cost trend...

  • Page 93
    ... of future compensation increases, and long-term rates of return on plan assets for Mattel's foreign defined benefit pension plans differ from the assumptions used for Mattel's domestic defined benefit pension plans due to differences in local economic conditions in which the non-US plans are based...

  • Page 94
    ... pension and postretirement benefit plans are as follows: December 31, 2007 2006 Defined benefit pension plans: Discount rate ...Weighted average rate of future compensation increases ...Postretirement benefit plans: Discount rate ...Annual increase in Medicare Part B premium ...Health care cost...

  • Page 95
    ... benefit pension plan assets are not directly invested in Mattel common stock. Mattel believes that the long-term rate of return on plan assets of 8.0% as of December 31, 2007 is reasonable based on historical returns, and based on the fact that the actual return on market value of plan assets...

  • Page 96
    Incentive Compensation Plans Mattel has annual incentive compensation plans under which officers and key employees may earn incentive compensation based on Mattel's performance and subject to certain approvals of the Compensation Committee of the Board of Directors. For 2007, 2006, and 2005, $73.5 ...

  • Page 97
    ...Mattel Asia Pacific Sourcing Limited ("MAPS"), a wholly-owned subsidiary of Mattel, Bank of America, N.A., as a lender and administrative agent, and other financial institutions executed a credit agreement ("the MAPS facility") which provided for (i) a term loan facility of $225.0 million consisting...

  • Page 98
    ... Mattel earns on cash collections prior to remitting the funds to the bank group, partially offset by an estimate of the cost of servicing the trade receivables sold. The fair value of the net servicing asset totaled $1.9 million and $2.3 million as of December 31, 2007 and 2006, respectively...

  • Page 99
    ... nature. The fair value of the net servicing asset was based on an estimate of interest Mattel would earn on cash collections prior to remitting the funds to the purchaser, partially offset by an estimate of the cost of servicing the trade receivables sold. The net servicing asset for the European...

  • Page 100
    ... due June 15, 2011. In June 2006, Mattel entered into two interest rate swap agreements on the $100.0 million Floating Rate Senior Notes, each in a notional amount of $50.0 million, for the purpose of hedging the variability of cash flows in the interest payments due to fluctuations of the LIBOR...

  • Page 101
    ...other comprehensive income (loss), net of tax, are as follows: For the Year 2006 (In thousands) 2007 2005 Net income ...Currency translation adjustments ...Minimum pension liability adjustments ...Defined benefit pension plans, net prior service cost and net actuarial loss ...Net unrealized (loss...

  • Page 102
    ... fair market value during a specified time period. Options were granted to non-employee members of Mattel's Board of Directors under the 1996 Plan with exercise prices equal to the fair market value of Mattel's common stock on the date of grant; such options expire no later than ten years from...

  • Page 103
    ... in 2006. Additionally, for financial reporting purposes, there were other potential tax benefits derived from accelerating the vesting of outstanding stock options prior to the adoption of SFAS No. 123(R). As of December 31, 2007, total unrecognized compensation cost related to unvested share-based...

  • Page 104
    ... and $23.9 million for stock options during 2007 and 2006, respectively, as a component of other selling and administrative expenses. Income tax benefits related to stock option compensation expense recognized in the consolidated statements of operations during 2007 and 2006 totaled $2.5 million and...

  • Page 105
    ...three years from the date of grant. Compensation expense recognized related to grants of restricted stock and RSUs to certain employees and non-employee Board members was $14.8 million and $3.6 million in 2007 and 2006, respectively. Income tax benefits related to RSU compensation expense recognized...

  • Page 106
    ... date fair value of $20.28. Note 9-Financial Instruments Marketable Securities During 2005, Mattel sold marketable securities for proceeds totaling $42.0 million. Gains on sales of these securities totaling $25.8 million, net of transaction costs, were recorded in other non-operating income, net in...

  • Page 107
    ... minimum payments. The American Girl Place® leases in Chicago, Illinois, New York, New York, and Los Angeles, California and American Girl Boutique and Bistro™ leases in Dallas, Texas and Atlanta, Georgia also contain provisions for additional rental payments based on a percentage of the sales of...

  • Page 108
    ...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, 2007 and 2006 totaled $19.3 million and $20.3 million...

  • Page 109
    ... allegedly arising out of the August 2, August 14, September 4, and/or October 25, 2007 voluntary product recalls by Mattel and Fisher-Price, as well as the withdrawal of red and green toy blood pressure cuffs from retail stores or their replacement at the request of consumers. Eighteen of those...

  • Page 110
    ... prevent products manufactured in China from containing lead paint and misled the public with their branding and advertising suggesting that the products were safe. In the Healy and Rusterholtz cases, plaintiffs state claims based on allegations that the toys with magnets recalled on August 14, 2007...

  • Page 111
    ... lawsuit. On November 19, 2007, the California Attorney General, joined by the Los Angeles City Attorney, brought suit against Mattel and Fisher-Price, along with a number of other entities alleged to have manufactured and/or sold children's products that exposed children to lead, in Alameda County...

  • Page 112
    ... v. Mattel Canada, Inc., filed on November 22, 2007). In his individual action, Mr. Fortier alleges that he purchased recalled toys and, as a result, suffered damages, including consequential and incidental damages such as worry, concern, and costs of the products and replacement products, medicines...

  • Page 113
    ... be incurred for employee medical screening, project management, and other costs related to the Beaverton property. General Mattel is also involved in various other litigation and legal matters, including claims related to intellectual property, product liability and labor, as well as environmental...

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    ... natural marketing and design groups that are empowered to create and market toys based on gender and age groups and is expected to more effectively and efficiently leverage Mattel's scale. These changes are consistent with Mattel's ongoing strategy to build brands, cut costs, and develop people in...

  • Page 115
    ...2007 For the Year 2006 (In thousands) 2005 Revenues Domestic: Mattel Girls & Boys Brands US ...Fisher-Price Brands US ...American Girl Brands ...Total Domestic ...International ...Gross sales ...Sales adjustments ...Net sales ...Segment Income Domestic: Mattel Girls & Boys Brands US ...Fisher-Price...

  • Page 116
    ... toy products, which are grouped into three major categories: Mattel Girls & Boys Brands, Fisher-Price Brands, and American Girl Brands. The table below presents worldwide revenues by category: 2007 For the Year 2006 (In thousands) 2005 Worldwide Revenues Mattel Girls & Boys Brands ...Fisher-Price...

  • Page 117
    ... to countries based on location of customer. Long-lived assets principally include goodwill, property, plant, and equipment, net, and identifiable intangibles, net. 2007 For the Year 2006 (In thousands) 2005 Revenues United States ...International: Europe ...Latin America ...Asia Pacific ...Other...

  • Page 118
    Note 12-Supplemental Financial Information December 31, 2007 2006 (In thousands) Inventories include the following: Raw materials and work in process ...Finished goods ...Property, plant, and equipment, net include the following: Land ...Buildings ...Machinery and equipment ...Tools, dies, and ...

  • Page 119
    ... common share ...Common stock market price: High ...Low ...Year Ended December 31, 2006 Net sales ...Gross profit ...Advertising and promotion expenses ...Other selling and administrative expenses (c) ...Operating (loss) income ...Income (loss) before income taxes ...Net income (b) ...Net income per...

  • Page 120
    ...tax benefits related to prior years of $47.3 million, as a result of reassessments of tax exposures based on the status of current audits in various jurisdictions around the world, including settlements, and net income for the first quarter of 2007 included income tax expense of $5.3 million related...

  • Page 121
    ... Based on this evaluation, Robert A. Eckert, Mattel's principal executive officer, and Kevin M. Farr, Mattel's principal financial officer, concluded that these disclosure controls and procedures were effective as of December 31, 2007. Management's Report on Internal Control over Financial Reporting...

  • Page 122
    ... for the Chief Executive Officer, Chief Financial Officer, or Corporate Controller, Mattel will disclose the nature of such amendment or waiver on its corporate website or in a Current Report on Form 8-K. Mattel has posted the Board of Directors' corporate governance guidelines and the charters...

  • Page 123
    ... Data." Page Management's Report on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2007 and 2006 ...Consolidated Statements of Operations for the years ended December 31, 2007, 2006, and 2005...

  • Page 124
    ... among Mattel Factoring, Inc., as Transferor, Mattel, Inc., as Servicer, Bank of America, N.A., as Administrative Agent, and the financial institutions party thereto Credit Agreement dated as of December 9, 2005, among Mattel Asia Pacific Sourcing Limited, as Borrower, Mattel, Inc., as Company, Bank...

  • Page 125
    ... Executive Retirement Plan Consent of Neil B. Friedman to Transfer of Principal Place of Employment Pursuant to Executive Employment Agreement Amended and Restated Executive Employment Agreement dated March 28, 2000 between Mattel and Kevin M. Farr Amendment to Employment Agreement and Stock Option...

  • Page 126
    ... Plan for NonEmployee Directors Mattel, Inc. Amended & Restated Supplemental Executive Retirement Plan as of May 1, 1996 Amendment No. 1 to Mattel, Inc. Amended & Restated Supplemental Executive Retirement Plan Mattel, Inc. 2005 Supplemental Executive Retirement Plan The Fisher-Price Pension Plan...

  • Page 127
    ...the Fisher-Price Pension Plan Ninth Amendment to the Fisher-Price Pension Plan Tenth Amendment to the Fisher-Price Pension Plan The Fisher-Price Section 415 Excess Benefit Plan Mattel, Inc. Personal Investment Plan, January 1, 2006 Restatement Amended and Restated Mattel, Inc. 1996 Stock Option Plan...

  • Page 128
    ... Agreement (Three Year Vesting) under the 1999 Plan, as amended Mattel, Inc. 2005 Equity Compensation Plan ("the 2005 Plan") Form of Grant Agreement as of August 1, 2005 for grants to employees of NonQualified Stock Options ("NQSOs") under the 2005 Plan Form of Grant Agreement as of August 1, 2006...

  • Page 129
    ... of RSUs under the 2005 Plan Form of Grant Agreement as of March 16, 2006 for Initial Grant to Outside Director of NQSOs under the 2005 Plan 119 8-K 001-05647 99.1 August 4, 2006 10.78 8-K 001-05647 99.6 August 4, 2006 10.79 8-K 001-05647 99.5 May 18, 2007 10.80 8-K 001-05647 99...

  • Page 130
    ...2005 Plan Form of Grant Agreement for May 18, 2007 Annual Grants to Outside Directors of RSUs under the 2005 Plan Mattel, Inc. Key Executive Life Insurance Plan (for Robert A. Eckert) Mattel, Inc. Summary of Compensation of the Non-Employee Members of the Board of Directors Computation of Income per...

  • Page 131
    ... stockholders of Mattel without charge. Copies of other exhibits can be obtained by stockholders of Mattel upon payment of twelve cents per page for such exhibits. Written requests should be sent to: Secretary, Mail Stop M1-1516, Mattel, Inc., 333 Continental Blvd., El Segundo, California 90245-5012...

  • Page 132
    ... has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MATTEL, INC. Registrant By: /s/ KEVIN M. FARR Kevin M. Farr Chief Financial Officer Date: February 26, 2008 POWER OF ATTORNEY We, the undersigned directors and officers of Mattel, Inc. do hereby...

  • Page 133
    ... Andrea L. Rich RONALD L. SARGENT Ronald L. Sargent DEAN A. SCARBOROUGH Dean A. Scarborough Director February 26, 2008 /s/ Director February 26, 2008 /s/ Director February 26, 2008 /s/ Director February 26, 2008 /s/ CHRISTOPHER A. SINCLAIR Christopher A. Sinclair /s/ G. CRAIG SULLIVAN...

  • Page 134
    ... II MATTEL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES Balance at Beginning of Year Additions Charged to Net Operations Deductions (In thousands) Balance at End of Year Allowance for Doubtful Accounts Year ended December 31, 2007 ...Year ended December 31, 2006 ...Year...

  • Page 135
    EXHIBIT 11.0 MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON AND POTENTIAL COMMON SHARE BASIC 2007 For the Year 2006 2005 2004 (In thousands, except per share amounts) 2003 Net income applicable to common shares ...Applicable Shares for Computation of Net Income Per Share: Weighted ...

  • Page 136
    ... MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited; in thousands, except ratios) 2007 2006 For the Year 2005 2004 2003 Earnings Available for Fixed Charges: Income from continuing operations before income taxes and cumulative effect of changes in accounting...

  • Page 137
    ... and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 26, 2008 By: Robert A. Eckert Chairman and Chief Executive Officer...

  • Page 138
    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who...

  • Page 139

  • Page 140
    ...and Senior Vice President, Investor Relations H. Scott Topham Senior Vice President and Corporate Controller BUSINESS UNIT EXECUTIVES Ellen L. Brothers Executive Vice President of Mattel and President, American Girl Neil B. Friedman President, Mattel Brands Bryan G. Stockton President, International

  • Page 141
    ...All Rights Reserved. 20Q is a registered trademark of 20Q.net Inc. All Rights Reserved. Winnie the Pooh and Tigger: © Disney. Based on the "Winnie the Pooh" works. © A.A. Milne and E.H. Shepard. Winx Club , all related characters and elements are trademarks of Rainbow S.r.l., © 2006. Yu-Gi-Oh! is...

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