Mattel 2010 Annual Report Download - page 42

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savings by the end of 2010. Mattel exceeded its 2009 goal by realizing approximately $164 million of gross cost
savings before severance charges of approximately $32 million (or approximately $132 million in net cost
savings). Of the gross cost savings realized in 2009, approximately $88 million was reflected within other selling
and administrative expenses, approximately $62 million within gross profit, and approximately $14 million
within advertising and promotion expenses.
In addition, Mattel exceeded its 2010 goal by realizing approximately $61 million of year-over-year
incremental gross cost savings before severance charges of approximately $13 million (or approximately $48
million in net cost savings), for cumulative gross cost savings before severance charges of approximately $225
million. Of the gross cost savings realized in 2010, approximately $27 million was reflected within gross profit,
approximately $20 million within other selling and administrative expenses, and approximately $14 million
within advertising and promotion expenses.
Mattel will continue its focus on margin and efficiency sustainability by targeting additional cumulative cost
savings of approximately $150 million to be achieved by the end of 2012, which is expected to include cost
savings of approximately $75 million in legal costs, which will reduce other selling and administrative expenses,
and approximately $75 million of cost savings, which will be reflected in gross profit, advertising and promotion
expenses, and other selling and administrative expenses, from the launch of the next phase of the Global Cost
Leadership program. Mattel will evaluate its operations for opportunities to identify work streams in which the
company can work together better across geographies, functions, and brands, to leverage its scale more
effectively and efficiently. Mattel is focused on identifying smart solutions and sustainable cost savings. Mattel
expects cost savings from streamlining the more complex work stream initiatives to be back-end loaded and to
require near-term investments, and that its legal costs reflect the fact that Mattel is currently in trial. Mattel
expects to realize the majority of the $150 million savings goal in 2012.
Income Taxes
Mattel’s effective tax rate on income before income taxes in 2010 was 19.1%, as compared to 19.9% in
2009. 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 current 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’s effective tax rate on income before income taxes in 2009 was 19.9%, as compared to 22.2% in
2008. The 2009 income tax provision includes net tax benefits of $28.8 million related to reassessments of prior
years’ tax liabilities based on the status of audits in various jurisdictions around the world, settlements, and
enacted tax law changes.
Liquidity and Capital Resources
Mattel’s primary sources of liquidity are its cash and equivalents balances, access to short-term borrowing
facilities, including its $1.08 billion domestic unsecured committed revolving 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 a global economic crisis that creates
a tight credit environment, 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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