Mattel 2008 Annual Report Download - page 75

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taxable income in the appropriate future periods to realize the benefit of the remaining net deferred income tax
assets of $554.5 million. Changes in enacted tax laws could negatively impact Mattel’s ability to fully realize all
of the benefit of its remaining net deferred tax assets.
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:
For the Year
2008 2007 2006
(In thousands)
Provision at US federal statutory rates .............................. $170,787 $ 246,189 $ 239,315
Increase (decrease) resulting from:
Foreign earnings taxed at different rates, including withholding
taxes ................................................... (70,399) (122,916) (104,846)
Foreign losses without income tax benefit ....................... 10,985 15,581 15,738
State and local taxes, net of US federal benefit .................... (1,065) 3,263 1,314
Adjustments to previously accrued taxes ........................ — (42,008) (63,016)
Other .................................................... (1,980) 3,296 2,324
Provision for income taxes ....................................... $108,328 $ 103,405 $ 90,829
In 2007, Mattel adopted FIN 48, which clarifies the accounting for income taxes by prescribing the minimum
recognition threshold an uncertain tax position is required to meet before benefits are recognized in the financial
statements. In accordance with FIN 48, Mattel first determines whether it is more-likely-than-not (a greater than
50 percent likelihood) that a tax position will be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, Mattel presumes that the position will be examined by the
appropriate taxing authority that would have full knowledge of all relevant information. For tax positions that
meet the more-likely-than-not recognition threshold, Mattel measures the amount of benefit recognized in the
financial statements at the largest amount of benefit that is greater than 50 percent likely of being realized upon
ultimate settlement. Mattel recognizes unrecognized tax benefits in the first financial reporting period in which
information becomes available indicating that such benefits will more-likely-than-not be realized. FIN 48 also
provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 excludes income taxes from the scope of SFAS No. 5.
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 applies a consistent methodology to measure unrecognized tax benefits and all unrecognized tax
benefits are reviewed periodically and adjusted as circumstances warrant. Mattel’s measurement of its
unrecognized tax 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.
A reconciliation of unrecognized tax benefits is as follows:
2008 2007
(In millions)
Unrecognized tax benefits at January 1 ............................................. $76.0 $122.0
Increases for positions taken in current year .......................................... 14.4 17.4
Increases for positions taken in a prior year .......................................... 1.8 9.6
Decreases for positions taken in a prior year ......................................... (6.4) (44.1)
Decreases for settlements with taxing authorities ...................................... (4.5) (27.1)
Decreases for lapses in the applicable statute of limitations .............................. (1.0) (1.8)
Unrecognized tax benefits at December 31 .......................................... $80.3 $ 76.0
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