Mattel 2012 Annual Report Download - page 81

Mattel files multiple state and local income tax returns and remains subject to examination in various of these
jurisdictions, including California for the 2008 through 2012 tax years, New York for the 2007 through 2012 tax years,
and Wisconsin for the 2008 through 2012 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 2006 through 2012
tax years, Brazil, Mexico and Netherlands for the 2007 through 2012 tax years. Based on the current status of state and
foreign audits, Mattel may recognize a benefit of up to approximately $11 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 2012, income was positively impacted by net tax benefits of $16.0 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 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 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 carryforwards 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 audits and tax filings in various jurisdictions
around the world, settlements, and enacted tax law changes.
On January 2, 2013, The American Taxpayer Relief Act (“Tax Act”) was signed into law. As a result of
certain provisions of the Tax Act, Mattel’s provision for income taxes for the three months ended March 31,
2013 will be positively impacted by approximately $4 million to $5 million, primarily related to the extension of
certain 2012 business tax credits.
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 $5.2 billion as of
December 31, 2012. 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.
US GAAP requires that windfall income 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 windfall income tax benefits
totaling $35.8 million, $24.2 million, and $7.5 million, in 2012, 2011, and 2010, respectively.
Note 4—Employee Benefit Plans
Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all
employees of these companies. These plans include defined benefit pension plans, defined contribution retirement
plans, postretirement benefit plans, and deferred compensation and excess benefit plans. In addition, Mattel makes
contributions to government-mandated retirement plans in countries outside the US where its employees work.
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