Mattel 2014 Annual Report Download - page 45

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.
During 2013, Mattel initiated Operational Excellence 3.0, which targeted cumulative gross cost savings of
approximately $175 million by the end of 2014. Mattel exceeded its Operational Excellence 3.0 goal by realizing
approximately $179 million of cumulative gross cost savings throughout the program. The cost savings program
was 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.
During 2014, Mattel realized gross cost savings before severance charges and investments of approximately
$119 million (or approximately $74 million in net cost savings). Of the gross cost savings realized in 2014,
approximately $77 million was reflected within gross profit, approximately $35 million within other selling and
administrative expenses, and approximately $7 million within advertising and promotion expenses.
In 2015, Mattel has initiated the next phase of its cost savings program, Funding Our Future, which targets
additional cumulative gross cost savings of approximately $250 million to $300 million by the end of 2016. The
cost savings program is designed to generate cost savings through various initiatives, including structural and
process improvements and supply chain optimization.
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 income tax provision included net tax benefits of $42.6 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, partially offset by a tax charge related to a 2014 tax
restructuring for the HIT Entertainment and MEGA Brands operations.
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. 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.
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
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