Mattel 2002 Annual Report Download - page 36

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Liquidity and Capital Resources
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. Cash flows from continuing operations 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 increased costs associated with manufacturing and distribution of products or
realized shortages in raw materials or component parts. Additionally, Mattel’s ability to issue long-term debt and
obtain seasonal borrowing could be adversely affected by factors such as an inability to meet its debt covenant
requirements, which include maintaining consolidated debt-to-capital 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.
Operating Activities
Operating activities generated cash flows from continuing operations of $1.156 billion during 2002,
compared to $756.8 million in 2001 and $555.1 million in 2000.The increase in cash flows from operating
activities in 2002 was largely due to increased income from continuing operations and improved working capital.
The improvement in working capital was driven by lower accounts receivable resulting from shorter payment
terms to customers and improved cash collections and lower inventory levels due to supply chain initiatives.
While Mattel will continue to strive for working capital improvement in 2003, management does not expect to
generate the same magnitude of cash from working capital improvements as in 2002. The increase in cash flows
in 2001 compared to 2000 was primarily attributable to higher income from continuing operations and increased
cash collections. In addition, the disposition of Learning Company in the fourth quarter of 2000 resulted in
improved cash flows since Mattel was no longer required to fund this business.
Investing Activities
Mattel invested its cash flows during the last three years in tooling to support existing and new products,
expansion of its existing North American manufacturing facilities in anticipation of the closure of the Murray,
Kentucky, plant in mid-2002, and its long-term information technology strategy. In 2001, Mattel acquired
Pictionary®for approximately $29 million, of which approximately $21 million was paid in 2001, $3 million in
2002 and the remaining $5 million will be paid over the next 2 years.
Financing Activities
For the years ended 2002 and 2001, Mattel utilized cash flows from operating activities to repay both long-
term debt and short-term borrowing obligations as part of its goal to improve its debt-to-capital ratio. In 2002,
Mattel repaid approximately $422 million in long-term debt obligations, largely related to the $200.0 million
term loan, 200 million Euro Notes and $30.0 million of medium-term notes. In 2001, Mattel utilized cash flows
from operating activities to repay approximately $176 million of short-term borrowing obligations and
$30.5 million of medium-term notes. In 2000, Mattel received proceeds from issuance of the aforementioned
$200.0 million term loan and 200 million Euro Notes, which were used to repay its 6
3
⁄
4
% Senior Notes upon
maturity and to support operating activities.
During the third quarter of 2000, Mattel announced a change in its dividend policy consisting of a reduction
in the annual cash dividend from $0.36 per share to $0.05 per share when and as declared by the board of
directors. The $0.05 per share annual dividend rate under the new dividend policy became effective in December
2001. The reduction of the dividend resulted in cash savings of approximately $135 million in 2002 and
$132 million in 2001.
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