Mattel 2012 Annual Report Download - page 48

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During 2012, Mattel realized gross cost savings before severance charges and investments of approximately $93
million (or approximately $77 million in net cost savings). The gross cost savings included approximately $53 million
of structural cost savings and approximately $40 million of legal cost savings. Of the gross cost savings realized in
2012, approximately $55 million was reflected within other selling and administrative expenses, approximately $27
million within gross profit, and approximately $11 million within advertising and promotion expenses.
Mattel exceeded its Operational Excellence 2.0 goal by realizing approximately $187 million of cumulative
gross cost savings throughout the program.
During 2013, Mattel will initiate the third phase of its cost savings program, Operational Excellence 3.0,
which targets additional cumulative cost savings of approximately $150 million by the end of 2014, with up to
70% of the expected savings to be realized in gross margin. The cost savings program is designed to generate
sustainable cost savings through the following primary initiatives:
• Manufacturing efficiencies through automation, Lean, design for manufacturing, enterprise quality, and
packaging optimization,
• Indirect procurement,
• Operational efficiencies, and
• Enhanced International clustering.
Income Taxes
Mattel’s effective tax rate on income before income taxes in 2012 was 17.8%, as compared to 20.8% in
2011. The 2012 income tax provision includes 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.
Mattel’s effective tax rate on income before income taxes in 2011 was 20.8%, as compared to 19.1% in
2010. The 2011 income tax provision includes 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.
Mattel’s effective tax rate on income before income taxes in 2010 was 19.1% and the 2010 income tax
provision includes net tax benefits of $16.8 million, primarily related to the release of a valuation allowance
related to the anticipated utilization of excess foreign tax credit carryforwards, 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, partially offset by the incremental tax cost to repatriate earnings from certain foreign
subsidiaries for which income taxes had not been previously provided.
Mattel expects its full year 2013 effective tax rate to be approximately 22% to 23%.
Liquidity and Capital Resources
Mattel’s primary sources of liquidity are its cash and equivalents balances, access to short-term borrowing
facilities, including its $1.40 billion domestic unsecured committed revolving credit facility (“Credit Facility”),
and issuances of long-term debt securities. Cash flows from operating activities could be negatively impacted by
decreased demand for Mattel’s products, which could result from factors such as adverse economic conditions
and changes in public and consumer preferences, or by increased costs associated with manufacturing and
distribution of products or shortages in raw materials or component parts. Additionally, Mattel’s ability to issue
long-term debt and obtain seasonal financing could be adversely affected by factors such as global economic
crises and tight credit environments, an inability to meet its debt covenant requirements, which include
maintaining consolidated debt-to-earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and
interest coverage ratios, or a deterioration of Mattel’s credit ratings. Mattel’s ability to conduct its operations
could be negatively impacted should these or other adverse conditions affect its primary sources of liquidity.
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