Mattel 2011 Annual Report Download - page 79

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 audits and tax filings in various jurisdictions around the world, settlements, and
enacted tax 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 $4.5 billion as of
December 31, 2011. Management periodically reviews the undistributed earnings of its foreign subsidiaries and
reassesses the intent to indefinitely reinvest such earnings.
The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in part by
foreign tax credits. The extent of this offset would depend on many factors, including the method of distribution,
and specific earnings distributed.
Accounting principles generally accepted in the United States of America require that tax benefits related to
the exercise of nonqualified stock options and vesting of other stock compensation awards be credited to
additional paid-in-capital in the period in which such amounts reduce current taxes payable. The exercise of
nonqualified stock options and vesting of other stock compensation awards resulted in an increase to additional
paid-in-capital for related income tax benefits totaling $24.2 million, $7.5 million, and $36.7 million, in 2011,
2010, and 2009, respectively.
Note 4—Product Recalls and Withdrawals
During 2007, Mattel recalled products with high-powered magnets that may become dislodged and other
products, some of which were produced using non-approved paint containing lead in excess of applicable
regulatory and Mattel standards. During the second half of 2007, additional products were recalled, withdrawn
from retail stores, or replaced at the request of consumers as a result of safety or quality issues (collectively, the
“2007 Product Recalls”). In the second quarter of 2008, Mattel determined that certain products had been shipped
into foreign markets in which the products did not meet all applicable regulatory standards for those markets.
None of these deficiencies related to lead or magnets. Mattel withdrew these products from retail stores in these
markets and, although not required to do so, also withdrew the products from the US and other markets because
they did not meet Mattel’s internal standards (the “2008 Product Withdrawal”).
The following table summarizes Mattel’s reserves and reserve activity for the 2007 Product Recalls and the
2008 Product Withdrawal:
Product Returns/
Redemptions Other Total
(In thousands)
Balance at December 31, 2008 ................................... $3,605 $ 1,338 $ 4,943
Reserves used .................................................. (1,297) (311) (1,608)
Changes in estimates ............................................ (2,370) 707 (1,663)
Impact of currency exchange rate changes ........................... 77 (26) 51
Balance at December 31, 2009 ................................... $ 15 $1,708 $ 1,723
Reserves used .................................................. (15) (1,180) (1,195)
Changes in estimates ............................................ — (528) (528)
Balance at December 31, 2010 ................................... $ — $ — $ —
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