Mattel 2000 Annual Report Download - page 25

twenty three
Mattel, Inc. and Subsidiaries
FINANCIAL POSITION
Mattel’s cash and short-term investments decreased slightly to
$232.4 million at year end 2000 compared to $247.4 million at year
end 1999. The repayment of the $100.0 million 6-3/4% Senior Notes,
the reduction in short-term borrowings, and the funding of the
Consumer Software business, including repayment of Learning
Company’s $201.0 million 5-1/2% Senior Notes, was offset by proceeds
received from the issuance of the Euro Notes and the term loan and
cash generated from continuing operations. The disposition of
Learning Company is expected to have a positive impact on Mattel’s
cash position, since it will no longer need to fund the losses
generated by that business. Accounts receivable, net decreased by
$162.4 million to $839.6 million at year end 2000, principally due to
improved cash collections. Inventories increased by $53.4 million to
$489.7 million at year end 2000. Mattel intends to move toward a
more optimal inventory level through its current focus on improving
its supply chain performance. Property, plant and equipment, net
decreased $77.0 million to $647.8 million at year end 2000, largely
due to depreciation. Intangibles decreased $63.8 million to $1.14
billion at year end 2000, mainly due to goodwill amortization. Other
noncurrent assets increased by $331.0 million to $765.7 million at
year end 2000, principally due to increased noncurrent deferred tax
assets resulting from operating losses. Net investment in discontin-
ued operations decreased by $450.4 million to $11.5 million at year
end 2000, primarily due to the disposition of Learning Company.
Short-term borrowings decreased $143.1 million compared to
1999 year end, primarily due to the repayment of debt. Current por-
tion of long-term debt increased by $29.6 million, largely due to the
reclassification of $30.5 million in medium-term notes maturing in
2001 from long-term debt.
A summary of Mattel’s capitalization is as follows (in millions):
As of Year End
2000 1999
Medium-term notes $ 510.0 18% $ 540.5 17%
Senior notes 690.7 25 400.0 13
Other long-term debt obligations 41.7 1 42.4 2
Total long-term debt 1,242.4 44 982.9 32
Other long-term liabilities 165.5 6 163.0 5
Stockholders’ equity 1,403.1 50 1,962.7 63
$2,811.0 100% $3,108.6 100%
Total long-term debt increased by $259.5 million at year end
2000 compared to year end 1999 due to issuance of Euro 200 million
Notes and a $200.0 million term loan, partially offset by the repay-
ment of $100.0 million of senior notes. Mattel expects to satisfy its
future long-term capital needs through the retention of corporate
earnings and the issuance of long-term debt instruments. In
November 1998, Mattel filed its current universal shelf registration
statement allowing it to issue up to $400.0 million of debt and equity
securities, all of which was available to be issued as of December 31,
2000. Stockholders’ equity of $1.4 billion at year end 2000 decreased
$559.6 million from year end 1999, primarily due to cumulative losses
from discontinued operations, common dividends declared and the
unfavorable effect of foreign currency translation, partially offset by
income from continuing operations and cash received from exercise
of employee stock options.
LIQUIDITY
Mattel’s primary sources of liquidity over the last three years have
been cash on hand at the beginning of the year, cash flows generated
from continuing operations, long-term debt issuances and short-term
seasonal borrowings. Operating activities generated cash flows from
continuing operations of $555.1 million during 2000, compared to
$430.5 million in 1999 and $586.2 million in 1998. The increase in
cash flows from operating activities in 2000 is largely due to increased
income from continuing operations and increased cash collections.
Mattel invested its cash flows during the last three years mainly
in additions to tooling in support of new products and construction
of new manufacturing facilities. In 1998, Mattel also invested in its
acquisitions of Pleasant Company and Bluebird Toys PLC.
Over the last three years, Mattel received cash inflows from the
issuance of long-term debt and short-term borrowings, which were
primarily used to support operating activities, repay long-term debt
and, in 1998, to fund acquisitions. In 2000, Mattel received proceeds
from the issuance of a term loan and Euro Notes, which were used to
repay its 6-3/4% Senior Notes upon maturity and support operating
activities. In 1999, Mattel increased its short-term borrowings to
support its operating activities and to fund the Consumer Software
segment. During 1999, Mattel repaid $30.0 million of its medium-
term notes. In 1998, Mattel received cash flows from the issuance of
senior notes and medium-term notes, which were used to fund its
1998 acquisitions, retire higher-cost debt and support operating
activities. In 1998, Mattel repaid the long-term debt and mortgage
note assumed as part of the Pleasant Company acquisition. During
the last three years, Mattel paid dividends on its common stock and,
in 1998 and 1999, Mattel repurchased treasury stock. In 2000, Mattel
did not repurchase treasury stock.
Mattel announced during the third quarter of 2000 a change
in its dividend policy consisting of a reduction in the annual cash div-
idend from $0.36 per share to $0.05 per share. No quarterly dividend
for the fourth quarter of 2000 was declared. The $0.05 per share
annual dividend rate under the new dividend policy is expected to
become effective in December 2001, when and as declared by the
board of directors. The reduction of the dividend will result in annual
cash savings of approximately $130 million. Mattel currently intends
to use the cash savings to reduce debt, and thereby strengthen the
balance sheet. In addition, the disposition of Learning Company is
expected to result in improved cash flows since Mattel is no longer
required to fund this business.
SEASONAL FINANCING
Mattel expects to finance its seasonal working capital requirements
for the coming year by using existing and internally generated cash,
issuing commercial paper, selling certain trade receivables and using
various short-term bank lines of credit. Mattel’s domestic unsecured
committed revolving credit facility provides $1.0 billion in short-term
borrowings from a commercial bank group. In first quarter 2000,
Mattel implemented a 364-day, $400.0 million unsecured committed