REPORT OF THE AUDIT COMMITTEE
To
the fullest extent permitted under applicable laws and regulations, the following Report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission
(“SEC”) or subject to Regulations 14A or 14C of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or the liabilities of Section 18 of the Exchange Act. To the fullest extent permitted under applicable laws and
regulations, the Report of the Audit Committee shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent Mattel specifically incorporates it by reference.
The Audit Committee operates pursuant to a written charter
adopted by the Board of Directors. In November 2003, the Board of Directors amended and restated the charter of the Audit Committee, a copy of which is attached to this Proxy Statement as
Exhibit A
and may be found in the “Corporate
Governance” section of Mattel’s corporate Web site,
http://www.mattel.com
. A copy may also be obtained free of charge by mailing a request in writing to: Secretary, Mail Stop M1-1516, Mattel, Inc., 333 Continental Blvd., El Segundo,
CA 90245-5012.
The Board of Directors has determined that each
of the members of the Audit Committee, including Michael J. Dolan (who is anticipated to join the Audit Committee effective April 19, 2004), meets the SEC and New York Stock Exchange (“NYSE”) independence requirements for members of audit
committees. Mr. Loeb serves on the Audit Committee despite having served as Acting Chief Executive Officer of Mattel from February to May 2000. Mr. Loeb was not a member of the Audit Committee during the brief period during which he served as Acting
Chief Executive Officer. In connection with the departure of Mattel’s former Chief Executive Officer on February 3, 2000, Mr. Loeb agreed to the request of the Board of Directors that he serve on an interim basis as the Acting Chief Executive
Officer of Mattel. Mr. Loeb stepped down as Acting Chief Executive Officer on May 15, 2000, in connection with Mr. Eckert’s appointment as Mattel’s new Chief Executive Officer. Mr. Loeb had been a long-term, valued member of the Audit
Committee prior to the time that Mattel’s Board of Directors asked him to serve as Acting Chief Executive Officer due to unusual and exigent circumstances. After his service as Acting Chief Executive Officer ended, Mattel’s Board of
Directors determined, pursuant to the listing standards of the NYSE, that Mr. Loeb’s unique situation presented exceptional circumstances pursuant to which his continued service on the Audit Committee was required in the best interests of
Mattel and its stockholders.
The Board of Directors has
further determined in its business judgment that each member of the Audit Committee is “financially literate,” as such term is used in the listing standards of the NYSE; and the Board has determined that Eugene P. Beard, the Chair of the
Audit Committee, is an “audit committee financial expert” as such term is defined in Item 401(h) of Regulation S-K promulgated by the SEC. The Board has also determined that Mr. Beard has “accounting or related financial management
expertise,” as such term is used in the listing standards of the NYSE.
The Committee’s responsibility is to assist the Board in its oversight of the (a) quality and integrity of Mattel’s financial reports, (b) the independence and qualifications of Mattel’s independent
auditor, (c) the performance of Mattel’s internal audit function and (d) the compliance by Mattel with legal and regulatory requirements. Management of Mattel has the responsibility for Mattel’s financial statements as well as
Mattel’s financial reporting process, principles and internal controls. Mattel’s independent auditors are responsible for performing an audit of Mattel’s annual financial statements and expressing an opinion as to the conformity of
such financial statements with generally accepted accounting principles.
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In this context, the Audit Committee has reviewed and discussed the audited financial statements of
Mattel as of and for the year ended December 31, 2003 with management, the senior internal auditing officer of Mattel and the independent auditors. The Audit Committee has discussed with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as currently in effect. In addition, the Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and it has discussed with the independent auditors their independence from Mattel.
The Audit Committee has also considered whether the independent auditors’ provision of non-audit services to Mattel is
compatible with maintaining the auditors’ independence.
The members of the Audit Committee are not engaged in the accounting or auditing profession and, consequently, are not experts in matters involving auditing or accounting including in respect of auditor independence. As such, it is not the
duty of the Audit Committee to plan or conduct audits or to determine that Mattel’s financial statements fairly present Mattel’s financial position and results of operation and are in accordance with generally accepted accounting
principles and applicable laws and regulations. Each member of the Committee is entitled to rely on (i) the integrity of those persons within Mattel and of the professionals and experts (such as the independent auditor) from which the Committee
receives information, (ii) the accuracy of the financial and other information provided to the Committee by such persons, professionals or experts absent actual knowledge to the contrary and (iii) representations made by management or the
independent auditor as to any information technology services of the type described in Rule 2-01(c)(4)(ii) of Regulation S-X and other non-audit services provided by the independent auditor to Mattel.
Based on the reports and discussions described above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be included in Mattel’s Annual Report on Form 10-K for the year ended December 31, 2003, for filing with the SEC.
AUDIT COMMITTEE
Eugene P. Beard (Chair)
Ronald M. Loeb
Christopher A. Sinclair
John L. Vogelstein
March 12, 2004
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