Mattel 2014 Annual Report Download - page 37

takeaway, the impact of lower sales volume on Mattel’s fixed cost manufacturing and distribution base, and
unfavorable product mix, partially offset by price increases and Operational Excellence 3.0 savings offset by
higher input costs.
Advertising and Promotion Expenses
Advertising and promotion expenses primarily consist of: (i) media costs, which primarily include the
media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which
primarily include commercial and website production, merchandising, and promotional costs, (iii) retail
advertising costs, which primarily include consumer direct catalogs, newspaper inserts, fliers, and mailers and
(iv) generic advertising costs, which primarily include trade show costs. Advertising and promotion expenses as
a percentage of net sales increased to 12.2% in 2014 from 11.6% in 2013, primarily as a result of lower sales
volume.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $1.61 billion in 2014, or 26.8% of net sales, as compared to
$1.56 billion in 2013, or 24.1% of net sales. The $53.5 million increase in other selling and administrative
expenses was primarily due to approximately $53 million of transaction, integration, and amortization costs
associated with the MEGA Brands acquisition, the addition of MEGA Brands’ ongoing other selling and
administrative expenses of approximately $51 million, and approximately $25 million of incremental severance
and other termination-related costs, partially offset by lower employee-related expenses, including incentive and
equity compensation, of approximately $51 million, and Operational Excellence 3.0 gross savings of
approximately $35 million.
Non-Operating Items
Interest expense increased by $0.8 million to $79.3 million in 2014, as compared to $78.5 million in 2013,
primarily due to higher average long-term borrowings, partially offset by lower average interest rates. Interest
income increased by $1.8 million to $7.4 million in 2014, as compared to $5.6 million in 2013, primarily due to
higher average invested cash.
Provision for Income Taxes
Mattel’s effective tax rate on income before income taxes in 2014 was 15.0% as compared to 17.8% in
2013. The 2014 and 2013 income tax provisions include net tax benefits of $42.6 million and $32.2 million,
respectively. The 2014 net tax benefits primarily relate 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, partially offset by a tax charge related to a 2014 tax restructuring for the HIT Entertainment and MEGA
Brands operations. The 2013 net tax benefits 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.
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