Mattel 2011 Annual Report Download - page 48

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Income Taxes
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 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 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 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 2012 and 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.
Current Market Conditions
Mattel is exposed to financial market risk resulting from changes in interest and foreign currency rates.
Mattel believes that it has ample liquidity to fund its business needs, including beginning of year cash and
equivalents, cash flows from operations, and access to the commercial paper markets and its Credit Facility,
which it uses for seasonal working capital requirements. As of December 31, 2011, Mattel had available
incremental borrowing resources totaling $1.40 billion under the Credit Facility, and Mattel has not experienced
any limitations on its ability to access this source of liquidity. Market conditions could affect certain terms of
other debt instruments that Mattel enters into from time to time.
Mattel monitors the third-party depository institutions that hold the Company’s cash and equivalents.
Mattel’s emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on
those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks.
Mattel is subject to credit risks relating to the ability of its counterparties of hedging transactions to meet
their contractual payment obligations. The risks related to creditworthiness and nonperformance have been
considered in the fair value measurements of Mattel’s foreign currency forward exchange contracts. Mattel
closely monitors its counterparties and takes action, as necessary, to manage its counterparty credit risk.
Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity
required to buy inventory or raw materials. Mattel monitors its customers’ financial condition and their liquidity
in order to mitigate Mattel’s accounts receivable collectibility risks and customer terms and credit limits are
adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to ensure collectibility of
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