Mattel 2013 Annual Report Download - page 58

expenses. Compensation expense recognized related to grants of restricted stock units was $49.6 million,
$49.5 million, and $39.0 million in 2013, 2012, and 2011, respectively, and is also included within other selling
and administrative expenses. As of December 31, 2013, total unrecognized compensation cost related to unvested
share-based payments totaled $75.9 million and is expected to be recognized over a weighted-average period of
2.0 years.
Income Taxes
Mattel’s income tax provision and related income tax assets and liabilities are based on actual and expected
future income, US and foreign statutory income tax rates, and tax regulations and planning opportunities in the
various jurisdictions in which Mattel operates. Management believes that the accounting estimates related to
income taxes are “critical accounting estimates” because significant judgment is required in interpreting tax
regulations in the US and in foreign jurisdictions, evaluating Mattel’s worldwide uncertain tax positions, and
assessing the likelihood of realizing certain tax benefits. Actual results could differ materially from those
judgments, and changes in judgments could materially affect Mattel’s consolidated financial statements.
Certain income and expense items are accounted for differently for financial reporting and income tax
purposes. As a result, the income tax expense reflected in Mattel’s consolidated statements of operations is
different than that reported in Mattel’s tax returns filed with the taxing authorities. Some of these differences are
permanent, such as expenses that are not deductible in Mattel’s tax return, and some differences reverse over
time, such as depreciation expense. These timing differences create deferred income tax assets and liabilities.
Deferred income tax assets generally represent items that can be used as a tax deduction or credit in Mattel’s tax
returns in future years for which Mattel has already recorded a tax benefit in its consolidated statement of
operations. Mattel records a valuation allowance to reduce its deferred income tax assets if, based on the weight
of available evidence, management believes expected future taxable income is not likely to support the use of a
deduction or credit in that jurisdiction. Management evaluates the level of Mattel’s valuation allowances at least
annually, and more frequently if actual operating results differ significantly from forecasted results.
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 audits, conclusions of tax audits, lapsing of applicable statutes of limitations,
identification of new issues, and any administrative guidance or developments. 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’s effective tax rate on income before income taxes in both 2013 and 2012 was 17.8%. The income
tax provision included net tax benefits of $32.2 million, $16.0 million, and $6.8 million in 2013, 2012, and 2011,
respectively, 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 the normal course of business, Mattel is regularly audited by federal, state, local, and foreign tax
authorities. The ultimate settlement of any particular issue with the applicable taxing authority could have a
material impact on Mattel’s consolidated financial statements.
New Accounting Pronouncements
See Item 8 “Financial Statements and Supplementary Data—Note 1 to the Consolidated Financial
Statements—Summary of Significant Accounting Policies.”
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