Mattel 2009 Annual Report Download - page 99

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Royalty expense for 2009, 2008, and 2007 was $188.5 million, $241.2 million, and $243.3 million,
respectively.
As of December 31, 2009, Mattel had approximately $267 million of outstanding commitments for
purchases of inventory, other assets, and services in fiscal year 2009.
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, 2009 and 2008 totaled $17.4 million and $18.3 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. Except
as more fully described in “Note 4 to the Consolidated Financial Statements—Product Recalls and Withdrawals,”
management cannot reasonably determine the scope or amount of possible liabilities that could result from an
unfavorable settlement or resolution of these claims, and no reserves for these claims have been established as of
December 31, 2009. However, it is possible that an unfavorable resolution of these 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. Bryant also removed
Mattel’s suit to the United States District Court for the Central District of California. In December 2004, MGA
intervened as a party-defendant in Mattel’s action against Bryant, asserting that its rights to Bratz properties are
at stake in the litigation.
Separately, in November 2004, Bryant filed an action against Mattel in the United States District Court for
the Central District of California. The action sought a judicial declaration that Bryant’s purported conveyance of
rights in Bratz was proper and that he did not misappropriate Mattel property in creating Bratz.
In April 2005, MGA filed suit against Mattel in the United States District Court for the Central District of
California. MGA’s action alleges claims of trade dress infringement, trade dress dilution, false designation of origin,
unfair competition, and unjust enrichment. The suit alleges, among other things, that certain products, themes,
packaging, and/or television commercials in various Mattel product lines have infringed upon products, themes,
packaging, and/or television commercials for various MGA product lines, including Bratz. The complaint also
asserts that various alleged Mattel acts with respect to unidentified retailers, distributors, and licensees have
damaged MGA and that various alleged acts by industry organizations, purportedly induced by Mattel, have
damaged MGA. MGA’s suit alleges that MGA has been damaged in an amount “believed to reach or exceed tens of
millions of dollars” and further seeks punitive damages, disgorgement of Mattel’s profits and injunctive relief.
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