Mattel 2008 Annual Report Download

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DELIVER
2008 ANNUAL REPORT

Table of contents

  • Page 1
    2008 ANNUAL REPORT DELIVER

  • Page 2
    DELIVER on better execution

  • Page 3
    ... to display industry-leading innovation, and as a result, we have been awarded new toy licenses for World Wrestling Entertainment's WWE®, Disney/Pixar's Toy Story and HIT Entertainment's Thomas & Friends™, which will help the company grow in 2010 and beyond. Our product quality and our oversight...

  • Page 4
    MATTEL, INC. FORM 10-K 2008

  • Page 5
    ... using the market price as of the close of business June 30, 2008 was $6,172,602,667. Number of shares outstanding of registrant's common stock, $1.00 par value, as of February 23, 2009: 358,466,402 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Mattel, Inc. 2009 Notice of Annual Meeting...

  • Page 6
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services ...PART IV...

  • Page 7
    ... 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 8
    ... are developed or adapted for particular international markets. Mattel's products are sold directly to retailers and wholesalers in most European, Latin American, and Asian countries, and in Australia, Canada, and New Zealand, and through agents and distributors in those countries where Mattel has...

  • Page 9
    ... Statements-Segment Information." Manufacturing and Materials Mattel manufactures toy products for all segments in both company-owned facilities and through third-party manufacturers. Products are also purchased from unrelated entities that design, develop, and manufacture those products. To...

  • Page 10
    ...with companies that manufacture girls' toys and with children's book publishers and retailers. Mattel's International segment competes with global toy companies including Bandai, Hasbro, Lego, Tomy, and MGA Entertainment, and other national and regional toy companies and manufacturers of video games...

  • Page 11
    ... world. Products within the Domestic segment are sold directly to retailers, including discount and free-standing toy stores, chain stores, department stores, other retail outlets, and, to a limited extent, wholesalers by Mattel Girls & Boys Brands US and Fisher-Price Brands US. Mattel also operates...

  • Page 12
    ...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 Disney Princesses, CARSâ„¢ and Toy Story...

  • Page 13
    ... foreign product safety requirements. Nonetheless, Mattel has experienced, and may in the future experience, issues in products that result in recalls, withdrawals, or replacements of products. A product recall could have a material adverse effect on Mattel's results of operations and financial...

  • Page 14
    ... of the Board and Chief Executive Officer Executive Vice President of Mattel and President, 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...

  • Page 15
    ... 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 16
    ... adversely affected. The recent global economic conditions and financial crisis adversely impacted Mattel's business and financial results in 2008. Mattel designs, manufactures, and markets a wide variety of toy products worldwide through sales to customers and directly to consumers. Our performance...

  • Page 17
    ...puzzles, educational toys, media-driven products, and fashion-related toys. Mattel competes domestically and internationally with a wide range of large and small manufacturers, marketers and sellers of toys, video games, consumer electronics and other play products, as well as retailers, which means...

  • Page 18
    ... changes in the purchasing policies or patterns of its major customers could have a significant impact on Mattel's business and operating results. A small number of customers account for a large share of Mattel's net sales. In 2008, Mattel's three largest customers, Wal-Mart, Toys "R" Us and Target...

  • Page 19
    ..., 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, capitalize on Mattel's scale advantage, and improve its supply chain. These initiatives...

  • Page 20
    ...Mattel's products by consumers, licensors and Mattel's retailer customers, which may materially and adversely affect its business operations, decrease sales and increase costs. Recalls may also increase competitive pressures from other toy manufacturers. Product recalls, withdrawals, or replacements...

  • Page 21
    ...toy industry and the products Mattel produces, as well as enhancing penalties of noncompliance. Some of the new legal mandates may materially decrease Mattel's sales, increase its costs or otherwise have a material adverse effect on Mattel's business. Mattel is subject to various laws and government...

  • Page 22
    ... of China, where many of Mattel's manufacturing facilities and third-party manufacturers are located. The design, development and manufacture of Mattel's products could suffer if a significant number of Mattel's employees or the employees of its third-party manufacturers or their suppliers contract...

  • Page 23
    ... part upon the success of these programs. If Mattel does not successfully market its products or if media or other advertising or promotional costs increase, these factors could have a material adverse effect on Mattel's business, financial condition, and results of operations. Mattel depends on key...

  • Page 24
    ... and distribution facilities in California, New Jersey, and Texas, all of which are used by the Domestic 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, Atlanta...

  • Page 25
    ... that is owned by Mattel) and used by the International segment. Mattel also has leased retail and related office space in China. Mattel's principal manufacturing facilities are located in China, Indonesia, Thailand, Malaysia, and Mexico. See Item 1 "Business-Manufacturing and Materials." For leases...

  • Page 26
    ... securities. Issuer Purchases of Equity Securities During 2008, 2007, and 2006, the Board of Directors authorized Mattel to increase its share repurchase program by $500.0 million, $750.0 million, and $250.0 million, respectively. During 2008, Mattel repurchased 4.9 million shares at a cost of $90...

  • Page 27
    ..., Mattel's Board of Directors authorized a $500.0 million increase to Mattel's share repurchase program. 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 of restricted shares for employee...

  • Page 28
    .... Comparison of Five Year Cumulative Total Return Mattel, Inc., S&P 500, and S&P 500 Consumer Staples Index 200 150 DOLLARS S&P 500 Consumer Staples Index $123.92 100 Mattel, Inc. $98.09 S&P 500 $89.82 50 0 2003 2004 Mattel, Inc. S&P 500 2005 2006 2007 2008 S&P 500 Consumer Staples...

  • Page 29
    Item 6. Selected Financial Data. For the Year Ended December 31, 2008 2007 2006 2005 2004 (In thousands, except per share and percentage information) Operating Results: Net sales ...Gross profit ...% of net sales ...Operating income ...% of net sales ...Income before income taxes ...Provision for ...

  • Page 30
    ... with MGA Entertainment, Inc., a unanimous jury verdict was rendered against MGA and its Chief Executive Officer; and Mattel was awarded new toy licenses for the WWE® Wrestling, Disney/Pixar's Toy Story, and HIT Entertainment's Thomas and Friends™, which will help Mattel grow in 2010 and...

  • Page 31
    ...international markets, and fewer entertainment-related products in 2009. As a result, Mattel is managing its business based on realistic revenue assumptions and taking actions intended to improve profitability and strengthen its balance sheet A modest price increase for Mattel's spring 2009 product...

  • Page 32
    ... and Polly Pocket®. Worldwide gross sales of Wheels products increased 4% as compared to 2007, including a 1 percentage point benefit from changes in currency exchange rates, primarily due to Speed Racer® sales. Worldwide gross sales of Entertainment products, which includes games and puzzles and...

  • Page 33
    ... offset by the benefit of price increases, favorable changes in currency exchange rates, and lower product recall costs as compared to 2007. Advertising and Promotion Expenses Advertising and promotion expenses increased to 12.2% of net sales in 2008, from 11.9% in 2007 due primarily to lower...

  • Page 34
    ...segment income decreased 29% to $161.0 million in 2008, primarily due to lower gross profit driven by higher input costs, higher costs of distribution, and mix, partially offset by the benefit of price increases and lower product recall costs as compared to 2007, and higher advertising and promotion...

  • Page 35
    ... 2007 Product Recalls, which increased other selling and administrative expenses by approximately $35 million. Higher investments in the business, including design and development costs and expansion in international markets, the impact of foreign exchange rates, increases in employee-related costs...

  • Page 36
    ... 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 37
    ... 2007 Product Recalls, which increased other selling and administrative expenses by approximately $35 million. Higher investments in the business, including design and development costs and expansion in international markets, the impact of foreign exchange rates, increases in employee-related costs...

  • Page 38
    ...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 2% from the prior year, primarily due to the continued softness in the direct...

  • Page 39
    ... due to increased sales volume, offset by higher other selling and administrative expenses and the impact of the 2007 Product Recalls, which decreased International segment operating income by approximately $47 million. Global Cost Leadership Program During the middle of 2008, Mattel initiated its...

  • Page 40
    ... by increased costs associated with manufacturing and distribution of products or shortages in raw materials or component parts. Additionally, Mattel's ability to issue long-term debt and obtain seasonal financing could be adversely affected by factors such as the current global economic crisis and...

  • Page 41
    ... increased by approximately $13 million as compared to 2007 as a result of certain customers facing financial difficulties. Mattel sponsors defined benefit pension plans and postretirement benefit plans for employees of the company. In 2008, actual returns for Mattel's defined benefit pension plans...

  • Page 42
    ... current assets), and acquisitions totaling $58.4 million for the intellectual property rights related to Whac-a-Mole® and the acquisition of Sekkoia SAS, which owns the Blokus® trademark and trade name rights. Cash flows used for investing activities were higher in 2008 as compared to 2007 mainly...

  • Page 43
    Inventories increased $57.2 million, reflecting higher input costs during the year, earlier production to meet supply chain requirements, including longer lead times for certain international markets, and lower fourth quarter sales. Accounts payable and accrued liabilities decreased $83.2 million ...

  • Page 44
    Commitments In the normal course of business, Mattel enters into debt agreements, contractual arrangements to obtain and protect Mattel's right to create and market certain products, and for future purchases of goods and services to ensure availability and timely delivery. These arrangements include...

  • Page 45
    ...20, 2009, and the date for responses to that amended complaint has not yet arrived. Effects of Inflation Inflation rates in the US and in major foreign countries where Mattel does business have not had a significant impact on its results of operations or financial position during 2008, 2007, or 2006...

  • Page 46
    ... the world. Products within the Domestic segment are sold directly to retailers, including discount and free-standing toy stores, chain stores, department stores, other retail outlets and, to a limited extent, wholesalers, and directly to consumers. Products within the International segment are...

  • Page 47
    ... customer orders and forecasts, taking into account historical trends, results of market research and current market information. Mattel ships products in accordance with delivery schedules specified by its customers, who usually request delivery within three months. In anticipation of retail sales...

  • Page 48
    ... the next annual selling cycle. The following table summarizes Mattel's obsolescence reserve at December 31: 2008 2007 2006 (In millions, except percentage information) Allowance for obsolescence ...As a percentage of total inventory ... $ 59.1 $ 10.8% 51.7 $ 10.8% 43.3 10.1% The increases in...

  • Page 49
    ...additional products were recalled, withdrawn from retail stores, or replaced at the request of consumers as a result of safety or quality issues (collectively, the "2007 Product Recalls"). In the second quarter of 2008, Mattel determined that certain products had been shipped into foreign markets in...

  • Page 50
    ...; 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 trend rates (for other postretirement benefit plans). Management believes that these assumptions are "critical accounting estimates...

  • Page 51
    ... in 2008, 2007, and 2006. Assuming all other benefit plan assumptions remain constant, a one percentage point decrease in the expected return on plan assets would result in an increase in benefit plan expense during 2009 of approximately $2.5 million. The health care cost trend rates used by Mattel...

  • Page 52
    ... to develop the estimates could materially affect key financial measures, including net income. The following weighted average assumptions were used in determining the fair value of options granted: 2008 2007 2006 Expected life (in years) ...Risk-free interest rate ...Volatility factor ...Dividend...

  • Page 53
    ... benefits is based on management's assessment of all relevant information, including prior audit experience, the status of current audits, conclusions of tax audits, lapsing of applicable statutes of limitations, identification of new issues, and any administrative guidance or developments. Mattel...

  • Page 54
    .... Net sales, as reported in the consolidated statements of operations, include the impact of sales adjustments such as trade discounts and other allowances. Gross sales represent sales to customers, excluding the impact of sales adjustments, the 2007 Product Recalls, and the 2008 Product Withdrawal...

  • Page 55
    ... exposure for Mattel during 2008, 2007, and 2006. Mattel seeks to mitigate its exposure to market risk by monitoring its currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts primarily to hedge its purchase and sale of...

  • Page 56
    ... $16 million in 2008, increased by approximately $7 million in 2007, and decreased by approximately $1 million in 2006. Interest Rate Risk To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines with a number of...

  • Page 57
    In June 2006, Mattel issued $100.0 million of unsecured Floating Rate Senior Notes due June 15, 2009 and $200.0 million of unsecured 6.125% Senior Notes due June 15, 2011. Interest on the Floating Rate Senior Notes is based on the three-month LIBOR plus 40 basis points with interest payable ...

  • Page 58
    ...-15(f)). Mattel's management, including Robert A. Eckert, its principal executive officer, and Kevin M. Farr, its principal financial officer, evaluated the effectiveness of Mattel's internal control over financial reporting using the framework in Internal Control- Integrated Framework issued by the...

  • Page 59
    ... financial statements, during the year ended December 31, 2006, Mattel, Inc. changed 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 reasonable assurance regarding...

  • Page 60
    ... any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP Los Angeles, California February 26, 2009 56

  • Page 61
    ...) Stockholders' Equity Common stock $1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued ...Additional paid-in capital ...Treasury stock at cost; 82.9 million shares and 80.0 million shares in 2008 and 2007, respectively ...Retained earnings ...Accumulated other comprehensive...

  • Page 62
    MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year 2008 2007 2006 (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 63
    ... OF CASH FLOWS 2008 For the Year 2007 (In thousands) 2006 Cash Flows From Operating Activities: Net income ...$ 379,636 $ 599,993 $ 592,927 Adjustments to reconcile net income to net cash flows from operating activities: Net loss (gain) on sale of other property, plant, and equipment ...6,831...

  • Page 64
    ... plans, net prior service cost, and net actuarial loss ...Currency translation adjustments ...Comprehensive income ...Purchase of treasury stock ...Issuance of treasury stock for stock option exercises ...Other issuance of treasury stock ...Restricted stock units ...Deferred compensation ...Share...

  • Page 65
    ... or purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment. Mattel records an allowance for doubtful accounts based on management's assessment of the business environment, customers' financial condition, historical collection experience...

  • Page 66
    ... carrying value of an asset may not be recoverable. Any potential impairment identified is assessed by evaluating the operating performance and future undiscounted cash flows of the underlying assets. When property is sold or retired, the cost of the property and the related accumulated depreciation...

  • Page 67
    ...Promotion Costs Costs of media advertising are expensed the first time the advertising takes place, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of catalog production and mailing...

  • Page 68
    ...: 2008 2007 2006 Expected life (in years) ...Risk-free interest rate ...Volatility factor ...Dividend yield ...Weighted average fair value per granted option ... 4.8 4.7 5.1 3.2% 4.6% 4.9% 25.6% 22.8% 28.0% 3.7% 2.8% 2.8% $3.67 $4.76 $4.51 Mattel recognized compensation expense of $9.5 million...

  • Page 69
    ... of 2.0 years. The 2008 compensation cost includes $1.5 million of RSU expense associated with performance RSUs granted under Mattel's January 1, 2008-December 31, 2010 Long Term Incentive Plan performance cycle as described in "Note 7 to the Consolidated Financial Statements- Employee Benefit Plans...

  • Page 70
    ... 1, 2008, in cases where a market is not active. Mattel has considered FSP No. FAS 157-3 in its determination of estimated fair values as of December 31, 2008, and the impact was not material. New Accounting Pronouncements SFAS No. 141(R) In December 2007, the FASB issued SFAS No. 141(R), Business...

  • Page 71
    ... beginning after November 15, 2008. Mattel does not expect the adoption of SFAS No. 161 to have a material effect on its financial statements. FSP No. FAS 132(R)-1 In December 2008, the FASB issued FSP No. FAS 132(R)-1, Employers' Disclosures about Postretirement Benefit Plan Assets. FSP No. FAS 132...

  • Page 72
    ... 2008, Mattel acquired the intellectual property rights related to Whac-a-Mole® for $23.5 million, including acquisition costs, which is included within amortizable identifiable intangibles. In August 2007, Mattel acquired the rights to manufacture, distribute and market several game properties...

  • Page 73
    ... The fair value of the interest rate swaps is based on dealer quotes using cash flows discounted at relevant market interest rates. Note 4-Income Taxes Consolidated pre-tax income consists of the following: 2008 For the Year 2007 (In thousands) 2006 US operations ...Foreign operations ... $ (37,808...

  • Page 74
    ... principally 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...

  • Page 75
    ... audit experience, the status of current audits, conclusions of tax audits, lapsing of applicable statutes of limitations, identification of new issues, and any administrative guidance or developments. A reconciliation of unrecognized tax benefits is as follows: 2007 2008 (In millions) Unrecognized...

  • Page 76
    ... of nonqualified stock options and vesting of other stock compensation awards resulted in (decreases)/ increases to additional paid-in-capital for related income tax benefits totaling ($2.3) million, $5.7 million, and $8.5 million, in 2008, 2007, and 2006, respectively. Note 5-Product Recalls and...

  • Page 77
    ... retail stores in these markets and, although not required to do so, also withdrew the products from the US and other markets because they did not meet Mattel's internal standards (the "2008 Product Withdrawal"). During 2008, incremental reserve charges related to the 2007 Product Recalls and 2008...

  • Page 78
    ... 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: 2008 For the Year 2007 2006 (In millions) Defined benefit pension plans...

  • Page 79
    ... For the Year 2007 2006 2008 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 rate...

  • Page 80
    ... of year ...Actual return on plan assets ...Employer contributions ...Participant contributions ...Impact of currency exchange rate changes ...Benefits paid ...Plan assets at fair value, end of year ...Net Amount Recognized in Consolidated Balance Sheets Funded status, end of year ...Current accrued...

  • Page 81
    ...Mattel's domestic defined benefit pension and postretirement benefit plans are as follows: December 31, 2008 2007 Defined benefit pension plans: Discount rate ...Weighted average rate of future compensation increases ...Postretirement benefit plans: Discount rate ...Annual increase in Medicare Part...

  • Page 82
    ... 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 2008, 2007, and 2006, $15.4 million, $73.5 million...

  • Page 83
    ...-December 31, 2010 LTIP performance cycle, during 2008, Mattel granted performance RSUs under the Mattel, Inc. 2005 Equity Compensation Plan to officers and certain employees providing services to Mattel. Performance RSUs are units that may become payable in shares of Mattel's common stock at the...

  • Page 84
    ...to expense relating to the performance-related component as the 2008 actual results were below the 2008 performance threshold at the minimum award level and no shares were earned. During 2008, Mattel recognized $1.5 million of share-based compensation expense in 2008 for the market-related component...

  • Page 85
    ... Sales Corp. and Fisher-Price, Inc. (which are wholly-owned subsidiaries of Mattel) can sell eligible trade receivables from Wal-Mart and Target to Mattel Factoring, Inc. ("Mattel Factoring"), a Delaware corporation and wholly-owned, consolidated subsidiary of Mattel. Mattel Factoring is a special...

  • Page 86
    ... the cost of servicing the trade receivables sold. The fair value of the net servicing asset totaled $0.2 million and $1.9 million as of December 31, 2008 and 2007, respectively. Until the Master Agreement was terminated on February 9, 2007, Mattel International Holdings B.V., a company incorporated...

  • Page 87
    ...12% and 7.11% as of December 31, 2008 and 2007, respectively. During 2008, Mattel repaid $50.0 million of Medium-term notes upon maturity. In June 2006, Mattel issued $100.0 million of unsecured Floating Rate Senior Notes due June 15, 2009 and $200.0 million of unsecured 6.125% Senior Notes due June...

  • Page 88
    ... Stock Mattel is authorized to issue up to 3.0 million shares of $1.00 par value preferred stock, of which none is currently outstanding. Common Stock Repurchase Program During 2008, 2007, and 2006, the Board of Directors authorized Mattel to increase its share repurchase program by $500.0 million...

  • Page 89
    ...and shares of common stock to officers, employees, and other persons providing services to Mattel. Generally, options vest and become exercisable contingent upon the grantees' continued employment or service with Mattel. Nonqualified stock options are granted at not less than 100% of the fair market...

  • Page 90
    ... currently realizable based on the ordering of deductions under the tax law. As of December 31, 2008, total unrecognized compensation cost related to unvested share-based payments totaled $69.2 million and is expected to be recognized over a weighted-average period of 2.0 years. Stock Option Review...

  • Page 91
    ...average exercise price of $18.12, and weighted average remaining life of 5.3 years. The total grant date fair value of stock options vested during 2008, 2007, and 2006 totaled $7.5 million, $5.3 million, and $3.3 million, respectively. Mattel uses treasury shares purchased under its share repurchase...

  • Page 92
    ... tax benefits related to RSU compensation expense recognized in the consolidated statements of operations during 2008, 2007, and 2006 totaled $7.9 million, $4.6 million, and $1.0 million, respectively. The following table summarizes the number and weighted average grant date fair value of Mattel...

  • Page 93
    ... other comprehensive loss to Mattel's results of operations was $7.8 million, $24.1 million, and $2.3 million during 2008, 2007, and 2006, respectively. As of December 31, 2008, $4.2 million of pre-tax unrealized gains ($4.9 million net of tax benefit) and December 31, 2007, $22.0 million of pre-tax...

  • Page 94
    ... $0.7 million, $1.0 million, and $1.1 million in 2008, 2007, and 2006, respectively. Commitments In the normal course of business, Mattel enters into contractual arrangements to obtain and protect Mattel's right to create and market certain products, and for future purchases of goods and services to...

  • Page 95
    ... expense for 2008, 2007, and 2006 was $241.2 million, $243.3 million, and $261.2 million, respectively. As of December 31, 2008, Mattel had approximately $296 million of outstanding commitments for purchases of inventory, other assets, and services in fiscal year 2009. Insurance Mattel has a wholly...

  • Page 96
    ...the second phase of the trial. The jury found that defendants MGA, Larian, and MGA Entertainment (HK) Limited infringed Mattel's copyrights in the Bratz design drawings and other Bratz works. The jury awarded Mattel total damages of approximately $100 million against the defendants for the copyright...

  • Page 97
    ... 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 cases were commenced in the following United...

  • Page 98
    ... the presence of lead in excess of applicable standards in the paint on some parts of some of the toys; those toys recalled on November 21, 2006 and August 14, 2007, related to magnets; and the red and green toy blood pressure cuffs voluntarily withdrawn from retail stores or replaced at the request...

  • Page 99
    ... Mattel and Fisher-Price in August and September 2007 and children, either directly or through their parents as "next friends," who have had contact with those toys. The actions in Canada generally allege that defendants were negligent in allowing their products to be manufactured and sold with lead...

  • Page 100
    ... 2006; the CPLeg/RJ case is related to the August 2007 recall of magnetic products; and the IBEDEC case is related to the August and September 2007 recalls of magnetic products and products with non-approved paint containing lead exceeding the limits established by applicable regulations and Mattel...

  • Page 101
    ... have been brought in special courts that provide expedited judgments on cases involving amounts below $7,000 and in consumer defense agencies (PROCONs). Generally, these claims focus on alleged failures by Mattel to make refunds in cash or replace recalled products with new toys in the proper time...

  • Page 102
    ...®, and Kung Fu Panda® products, and games and puzzles (collectively "Entertainment"). Fisher-Price Brands-including Fisher-Price®, Little People®, BabyGear™, and View-Master® (collectively "Core Fisher-Price®"), Sesame Street®, Dora the Explorer®, Winnie the Pooh™, Go-Diego-Go!®, and...

  • Page 103
    ... includes costs not allocated to individual segments, including charges related to incentive compensation, share-based payments, corporate headquarters functions managed on a worldwide basis, and the impact of changes in foreign currency rates on intercompany transactions. 2008 For the Year 2007 (In...

  • Page 104
    ...264 Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances. December 31, 2008 2007 (In thousands) Assets Domestic: Mattel Girls & Boys Brands US ...Fisher-Price Brands US ...American Girl Brands ...Total Domestic ...International ...Corporate...

  • Page 105
    ...% of worldwide consolidated net sales for 2008, 2007, and 2006, respectively, as follows: For the Year 2008 2007 2006 (In billions) Wal-Mart ...Toys "R" Us ...Target ... $1.1 0.7 0.5 $1.1 0.7 0.6 $1.1 0.8 0.5 The Mattel Girls & Boys Brands US and Fisher-Price Brands US segments sell products to...

  • Page 106
    Note 14-Supplemental Financial Information December 31, 2008 2007 (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 107
    ... average number of common and potential common shares ...Dividends declared per common share ...Common stock market price: High ...Low ...Year Ended December 31, 2007 Net sales ...Gross profit ...Advertising and promotion expenses ...Other selling and administrative expenses ...Operating income...

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    ... Registered Public Accounting Firm, included in Part II, "Item 8. Financial Statements and Supplementary Data" of this report. Changes in Internal Control Over Financial Reporting Mattel continues to implement a conversion to new and upgraded financial and human resources information technology...

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    ... standards 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 of its Audit, Compensation and Governance and Social Responsibility Committees of the Board of Directors on its corporate website at http...

  • Page 110
    ... Management's Report on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2008 and 2007 ...Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006 ...Consolidated...

  • Page 111
    ....5 Underwriting Agreement dated June 8, 2006, between Mattel and Banc of America Securities LLC and Citigroup Global Markets Inc. Form of Floating Rate Notes due June 15, 2009 Form of 6.125% Notes due June 15, 2011 Form of Supplemental Indenture between Mattel and The Bank of New York Trust Company...

  • Page 112
    ... Letter Agreement between Mattel and Robert A. Eckert entered into on April 4, 2005 regarding the Mattel, Inc. 2005 Supplemental Executive Retirement Plan Amendment to Executive Employment Agreement between Mattel and Robert A. Eckert, effective as of December 31, 2008 Executive Employment Agreement...

  • Page 113
    ... Executive Retirement Plan Amendment to Amended and Restated Executive Employment Agreement between Mattel and Kevin M. Farr, effective as of December 31, 2008 Executive Employment Agreement dated November 13, 2000 between Mattel and Thomas A. Debrowski Letter agreement between Mattel and Thomas...

  • Page 114
    ... Compensation Plan for Non-Employee Directors (as amended and restated effective January 1, 2009) Mattel, Inc. 2005 Supplemental Executive Retirement Plan (as amended and restated effective January 1, 2009) The Fisher-Price Pension Plan (1994 Restatement) Fifth Amendment to the Fisher-Price Pension...

  • Page 115
    ... Outside Directors (Annual Grant) under the 1996 Plan, as amended Form of Option Grant Agreement (Three Year Vesting) under the 1996 Plan, as amended Form of Grant Agreement for a Restricted Stock Grant under the Mattel, Inc. 1996 Stock Option Plan Mattel, Inc. 1997 Premium Price Stock Option Plan...

  • Page 116
    ... Senior Executives under the Mattel, Inc. 2005 Equity Compensation Plan - for Mr. Stockton and other LTIP award recipients Form of Grant Agreement for August 1, 2005 grant to Robert A. Eckert of NQSOs under the 2005 Plan Form of Grant Agreement for August 1, 2006 and August 1, 2007 grants to Robert...

  • Page 117
    ...of NQSOs under the 2005 Plan Form of Grant Agreement for May 11, 2006 Annual Grants to Outside Directors of RSUs under the 2005 Plan 113 8-K 001-05647 99.6 August 5, 2005 10.95 8-K 001-05647 99.4 August 4, 2006 10.96 8-K 001-05647 99.2 May 18, 2007 10.97 8-K 001-05647 99.1 October...

  • Page 118
    ... under the 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...

  • Page 119
    ... A. ECKERT Robert A. Eckert KEVIN M. FARR Kevin M. Farr Chairman of the Board and Chief Executive Officer (principal executive officer) Chief Financial Officer (principal financial officer) Senior Vice President and Corporate Controller (principal accounting officer) Director February 26, 2009...

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    ...RONALD L. SARGENT Ronald L. Sargent DEAN A. SCARBOROUGH Dean A. Scarborough Director February 26, 2009 /s/ Director February 26, 2009 /s/ Director February 26, 2009 /s/ Director February 26, 2009 /s/ CHRISTOPHER A. SINCLAIR Christopher A. Sinclair /s/ G. CRAIG SULLIVAN G. Craig Sullivan...

  • Page 121
    ... Net Operations Deductions (In thousands) Balance at End of Year Allowance for Doubtful Accounts Year ended December 31, 2008 ...Year ended December 31, 2007 ...Year ended December 31, 2006 ...Allowance for Inventory Obsolescence Year ended December 31, 2008 ...Year ended December 31, 2007 ...Year...

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    EXHIBIT 11.0 MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON AND POTENTIAL COMMON SHARE BASIC 2008 For the Year 2007 2006 2005 (In thousands, except per share amounts) 2004 Net income applicable to common shares ...Applicable Shares for Computation of Net Income Per Share: Weighted ...

  • Page 123
    ... MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited; in thousands, except ratios) 2008 2007 For the Year 2006 2005 2004 Earnings Available for Fixed Charges: Income from continuing operations before income taxes and cumulative effect of changes in accounting...

  • Page 124
    ... 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, 2009 By: Robert A. Eckert Chairman and Chief Executive Officer...

  • Page 125
    ... 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, 2009 By: Kevin M. Farr Chief Financial Officer (Principal...

  • Page 126
    ... Board and Chief Executive Officer Thomas A. Debrowski Executive Vice President, Worldwide Operations Kevin M. Farr Chief Financial Officer Alan Kaye Senior Vice President, Human Resources Geoff Massingberd Senior Vice President, Corporate Responsibility Robert Normile Senior Vice President, General...

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    ... The Bank of New York Mellon Trust Company, N.A. 700 South Flower Street, Suite 500 Los Angeles, CA 90017 MEDIA RELATIONS Financial media should contact: Lisa Marie Bongiovanni, Vice President, Corporate Communications at 310-252-3524 INVESTOR RELATIONS Institutional investors, analysts, brokers...

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