Mattel 2007 Annual Report Download - page 108

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 2008 through 2011 and contain
provisions for future minimum payments as shown in the following table:
Minimum
Payments
(In thousands)
2008 ........................................................................... $ 55,000
2009 ........................................................................... 31,000
2010 ........................................................................... 30,000
2011 ........................................................................... 7,000
$123,000
Royalty expense for 2007, 2006, and 2005 was $243.3 million, $261.2 million, and $225.6 million,
respectively.
As of December 31, 2007, Mattel had outstanding commitments for purchases of inventory, other assets,
and services totaling $321.8 million in fiscal year 2008.
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, 2007 and 2006 totaled $19.3 million and $20.3 million, respectively, and is
included in other noncurrent liabilities. Loss reserves are accrued based on Mattel’s estimate of the aggregate
liability for claims incurred.
Litigation
With regard to the claims against Mattel described below, Mattel intends to defend itself vigorously.
Management cannot reasonably determine the scope or amount of possible liabilities that could result from an
unfavorable settlement or resolution of these claims, and except as noted below, no reserves for these claims
have been established as of December 31, 2007. However, it is possible that an unfavorable resolution of the
claims could have a material adverse effect on Mattel’s financial condition and results of operations, and there
can be no assurance that Mattel will be able to achieve a favorable settlement or resolution of these claims.
Litigation Related to Carter Bryant and MGA Entertainment, Inc.
In April 2004, Mattel filed a lawsuit in Los Angeles County Superior Court against Carter Bryant
(“Bryant”), a former Mattel design employee. The suit alleges that Bryant aided and assisted a Mattel competitor,
MGA Entertainment, Inc. (“MGA”), during the time he was employed by Mattel, in violation of his contractual
and other duties to Mattel. In September 2004, Bryant asserted counterclaims against Mattel, including
counterclaims in which Bryant sought, as a putative class action representative, to invalidate Mattel’s
Confidential Information and Proprietary Inventions Agreements with its employees. In December 2004, MGA
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