Mattel 2013 Annual Report Download - page 46

Beginning in 2013, Mattel initiated the next phase of its cost savings program, Operational Excellence 3.0,
which targets cumulative gross cost savings of approximately $175 million by the end of 2014. The cost savings
program is designed to generate sustainable cost savings through the following primary initiatives:
• Manufacturing efficiencies through automation, Lean manufacturing principles, design for
manufacturing, enterprise quality, and packaging optimization,
• Indirect procurement, and
• Operational efficiencies related to enhanced International clustering and realignment of North America
operations.
During 2013, Mattel realized gross cost savings before severance charges and investments of approximately
$60 million (or approximately $39 million in net cost savings). Of the gross cost savings realized in 2013,
approximately $51 million was reflected within gross profit, approximately $8 million within other selling and
administrative expenses, and approximately $1 million within advertising and promotion expenses.
Income Taxes
Mattel’s effective tax rate on income before income taxes in both 2013 and 2012 was 17.8%. The 2013
income tax provision included net tax benefits of $32.2 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 2012 was 17.8%, as compared to 20.8% in
2011. The 2012 income tax provision included net tax benefits of $16.0 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 2011 was 20.8%, and the 2011 income tax
provision included 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.
Liquidity and Capital Resources
Mattel’s primary sources of liquidity are its cash and equivalents balances, access to short-term borrowing
facilities, including its $1.60 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.
Of Mattel’s $1.04 billion in cash and equivalents as of December 31, 2013, approximately $895 million is
held by foreign subsidiaries. Mattel may need to accrue and pay additional income taxes if some or all of the
undistributed earnings of foreign subsidiaries were repatriated. Mattel does not intend nor foresee a need to
repatriate undistributed earnings of foreign subsidiaries. Mattel has several liquidity options to fund its domestic
operations and obligations, including investing and financing activities such as dividends, share repurchases, and
debt service. Positive cash flows generated by its domestic operations, the unused Credit Facility of $1.60 billion
as of December 31, 2013, and access to both long-term and short-term public and private debt markets at highly
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