Mattel 2010 Annual Report Download - page 75

Of the $252.6 million of unrecognized tax benefits as of December 31, 2010, $244.8 million would impact
the effective tax rate if recognized, however a valuation allowance would likely be recorded against certain
capital losses included in this amount.
During 2010, Mattel recognized $1.4 million of interest and penalties related to unrecognized tax benefits.
As of December 31, 2010, Mattel had accrued $14.6 million in interest and penalties related to unrecognized tax
benefits. Of this balance, $13.9 million would impact the effective tax rate if recognized.
During 2009, Mattel finalized tax positions related to the recognition of a capital loss from the liquidation of
certain Canadian subsidiaries acquired as part of The Learning Company acquisition, as well as capitalization of
certain costs that had been previously deducted on its tax returns. In the event the unrecognized tax benefit
related to the capital loss tax position were to later meet the financial statement recognition requirements, it is
uncertain as to whether there would be any benefit to Mattel’s provision for income taxes as projected capital
gain income in the carryforward period to utilize this capital loss may not be sufficient and a valuation
allowance, up to the full amount, would likely be required. These tax positions are reported as a $191.8 million
increase in tax positions taken in a prior year and a $21.4 million increase in settlements with taxing authorities
in the table above. These tax positions have no net income statement impact.
In the normal course of business, Mattel is regularly audited by federal, state, local, and foreign tax
authorities. The Internal Revenue Service (“IRS”) is currently auditing Mattel’s 2008 and 2009 federal income
tax returns. In the first quarter of 2010, Mattel reached a resolution with the IRS regarding all open issues
relating to the examination of Mattel’s US federal income tax returns for the years 2006 and 2007. The resolution
did not have a material impact on Mattel’s 2010 consolidated financial statements. Mattel files multiple state and
local income tax returns and remains subject to examination in various of these jurisdictions, including California
for the 2005 through 2010 tax years, New York for the 2004 through 2010 tax years, and Wisconsin for the 2007
through 2010 tax years. Mattel files multiple foreign income tax returns and remains subject to examination in
major foreign jurisdictions, including Hong Kong, Mexico and Venezuela for the 2004 through 2010 tax years,
Brazil for the 2005 through 2010 tax years, and the Netherlands for the 2006 through 2010 tax years. Significant
changes in unrecognized tax benefits are not expected during the next twelve months. The ultimate settlement of
any particular issue with the applicable taxing authority could have a material impact on Mattel’s consolidated
financial statements.
In 2010, income was positively impacted by net tax benefits of $16.8 million. The August 2010 enactment
of the foreign tax credit provisions in the Education Jobs and Medicaid Assistance Act (“EJMA”) will impair
Mattel’s ability to utilize certain foreign tax credits expected to be generated in future years, which will provide
Mattel with greater capacity in future years to utilize excess foreign tax credit carryfowards from prior years. As
a result of the EJMA and other elements of Mattel’s current US tax position, Mattel formalized a plan to
repatriate earnings from certain foreign subsidiaries in order to be able to fully utilize excess foreign tax credit
carryforwards from prior years. The combination of these events resulted in the recognition of a discrete gross
tax benefit of $59.1 million related to the anticipated utilization of excess foreign tax credits carryforwards, for
which a valuation allowance had previously been provided, partially offset by a discrete tax expense of $42.9
million related to the incremental cost to repatriate earnings from certain foreign subsidiaries for which taxes had
not been previously provided. In addition, Mattel also recognized discrete tax benefits of $0.6 million related to
reassessments of prior years’ tax liabilities based on the status of current audits and tax filings in various
jurisdictions around the world, settlements, and enacted tax law changes. In 2009, income was positively
impacted by net tax benefits of $28.8 million related to reassessments of prior years’ tax liabilities based on the
status of audits in various jurisdictions around the world, settlements, and enacted law changes.
The cumulative amount of undistributed earnings of foreign subsidiaries that Mattel intends to indefinitely
reinvest and upon which no deferred US income taxes have been provided is approximately $3.9 billion as of
December 31, 2010. Management periodically reviews the undistributed earnings of its foreign subsidiaries and
reassesses the intent to indefinitely reinvest such earnings.
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