Mattel 2011 Annual Report Download - page 78

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A reconciliation of unrecognized tax benefits is as follows:
2011 2010 2009
(In millions)
Unrecognized tax benefits at January 1 ..................................... $252.6 $230.0 $ 80.3
Increases for positions taken in current year ................................. 13.5 14.8 9.4
Increases for positions taken in a prior year .................................. 2.3 14.9 194.3
Decreases for positions taken in a prior year ................................. (1.0) (4.3) (30.2)
Decreases for settlements with taxing authorities ............................. (1.4) (1.7) (23.0)
Decreases for lapses in the applicable statute of limitations ..................... (3.4) (1.1) (0.8)
Unrecognized tax benefits at December 31 .................................. $262.6 $252.6 $230.0
Of the $262.6 million of unrecognized tax benefits as of December 31, 2011, $254.5 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 2011, Mattel recognized $1.4 million of interest and penalties related to unrecognized tax benefits,
which is reflected in provision for income taxes in the consolidated statements of operations. As of December 31,
2011, Mattel had accrued $12.9 million in interest and penalties related to unrecognized tax benefits. Of this
balance, $12.4 million would impact the effective tax rate if recognized.
In the normal course of business, Mattel is regularly audited by federal, state, local and foreign tax
authorities. The IRS is currently auditing Mattel’s 2008 and 2009 federal income tax returns. The IRS audit plan
calls for the completion of the current examination in the second quarter of 2012. In the fourth quarter of 2011,
the IRS issued several Notices of Proposed Adjustments (“NOPA”) related to its examination. The NOPAs are
not final, as the IRS has not issued its final examination report. Mattel is currently in discussions with the IRS in
an effort to reach a resolution of all issues. 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 2011 tax years,
New York for the 2004 through 2011 tax years, and Wisconsin for the 2008 through 2011 tax years. Mattel files
multiple foreign income tax returns and remains subject to examination in major foreign jurisdictions, including
Hong Kong and Venezuela for the 2005 through 2011 tax years, and Brazil, Mexico and Netherlands for the 2006
through 2011 tax years. Based on the current status of the IRS audit, there is insufficient information to quantify
any significant changes in unrecognized tax benefits in the next twelve months. Based on the current status of
state and foreign audits, Mattel may recognize a benefit of up to approximately $10 million related to the
settlement of tax audits and/or the expiration of statutes of limitations in 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 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.
In 2011, income was positively impacted by net tax benefits of $6.8 million, primarily 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 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
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