Mattel 2011 Annual Report Download - page 77

Management considered all available evidence under existing tax law and anticipated expiration of tax
statutes and determined that a valuation allowance of $38.0 million was required as of December 31, 2011 for
those loss and tax credit carryforwards that are not expected to provide future tax benefits. In addition,
management determined that a valuation allowance of $4.3 million was required as of December 31, 2011 for
those deferred tax assets for which there is not sufficient evidence as to its ultimate utilization, primarily related
to certain foreign affiliates. Changes in the valuation allowance for 2011 include increases in the valuation
allowance for 2011 foreign losses without benefits, and decreases in the valuation allowance for expiration and
projected utilization of tax loss and tax credit carryforwards. Management believes it is more-likely-than-not that
Mattel will generate sufficient taxable income in the appropriate future periods to realize the benefit of the
remaining net deferred income tax assets of $542.8 million. Changes in enacted tax laws, audits in various
jurisdictions around the world, settlements or acquisitions, could negatively impact Mattel’s ability to fully
realize all of the benefits 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
2011 2010 2009
(In thousands)
Provision at US federal statutory rates ............................... $339,736 $ 296,389 $231,016
(Decrease) increase resulting from:
Foreign earnings taxed at different rates, including withholding taxes . . (139,476) (138,352) (82,029)
Foreign losses without income tax benefit ........................ 2,883 5,398 6,148
State and local taxes, net of US federal benefit .................... 4,833 12,535 5,486
Adjustments to previously accrued taxes ......................... (6,800) (638) (28,840)
Foreign tax credit benefit, net of cost to repatriate foreign earnings .... — (16,200) —
Other ..................................................... 989 2,830 (438)
Provision for income taxes ........................................ $202,165 $ 161,962 $131,343
In assessing whether uncertain tax positions should be recognized in its financial statements, 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.
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.
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