Mattel 2013 Annual Report Download - page 79

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A reconciliation of unrecognized tax benefits is as follows:
For the Year
2013 2012 2011
(In thousands)
Unrecognized tax benefits at January 1 .............................. $285,560 $262,560 $252,570
Increases for positions taken in current year .......................... 12,997 14,800 13,480
Increases for positions taken in a prior year ........................... 14,289 21,030 2,280
Decreases for positions taken in a prior year .......................... (186,555) (700) (980)
Decreases for settlements with taxing authorities ....................... (5,135) (800) (1,390)
Decreases for lapses in the applicable statute of limitations .............. (9,786) (11,330) (3,400)
Unrecognized tax benefits at December 31 ........................... $111,370 $285,560 $262,560
Of the $111.4 million of unrecognized tax benefits as of December 31, 2013, $106.9 million would impact
the effective tax rate if recognized.
During 2013, Mattel recognized $1.0 million of interest and penalties related to unrecognized tax benefits,
which are reflected in provision for income taxes in the consolidated statements of operations. As of
December 31, 2013, Mattel accrued $6.1 million in interest and penalties related to unrecognized tax benefits. Of
this balance, $5.4 million would impact the effective tax rate if recognized.
In August 2013, Mattel reached a settlement with the Internal Revenue Service (“IRS”) Office of Appeals
regarding all unresolved issues in the IRS’s examination of Mattel’s 2008 and 2009 federal income tax returns.
As a result, Mattel’s total unrecognized tax benefits decreased by $190.0 million. A majority of the decrease
related to a capital loss for which Mattel recognized no financial statement benefit.
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 2010 and 2011 federal income tax returns. The IRS audit plan
calls for the completion of the current examination in the first quarter of 2014. While it is reasonably possible
that a significant increase or decrease in Mattel’s unrecognized tax benefits may occur in the next twelve months
related to this IRS audit, a current estimate of the range of reasonably possible outcomes cannot be made at this
time.
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 2013 tax years, New York for the 2007 through
2013 tax years, and Wisconsin for the 2008 through 2013 tax years. Mattel files multiple foreign income tax
returns and remains subject to examination in major foreign jurisdictions, including Hong Kong for the 2007
through 2013 tax years, Brazil, Mexico and Netherlands for the 2008 through 2013 tax years. Based on the
current status of state and foreign audits, Mattel believes it is reasonably possible that in the next 12 months, the
total unrecognized tax benefits could decrease by approximately $17 million related to the settlement of tax
audits and/or the expiration of statutes of limitations. The ultimate settlement of any particular issue with the
applicable taxing authority could have a material impact on Mattel’s consolidated financial statements.
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.
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 $5.9 billion as of
December 31, 2013. Management periodically reviews the undistributed earnings of its foreign subsidiaries and
reassesses the intent to indefinitely reinvest such earnings. It is not practicable for Mattel to determine the
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