Mattel 2012 Annual Report Download - page 49

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, 2012, 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
accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, factoring,
purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of
shipment.
Mattel sponsors defined benefit pension plans and postretirement benefit plans for its employees. Actual
returns below the expected rate of return, along with changes in interest rates that affect the measurement of the
liability, would impact the amount and timing of Mattel’s future contributions to these plans.
Capital and Investment Framework
To guide future capital deployment decisions, with a goal of maximizing stockholder value, Mattel’s Board
of Directors established the following capital and investment framework:
• To maintain approximately $800 million to $1 billion in year-end cash available to fund a substantial
portion of seasonal working capital,
• To maintain a year-end debt-to-capital ratio of about 35%,
• To invest approximately $180 million to $200 million in capital expenditures annually to maintain and
grow the business,
• To make strategic opportunistic acquisitions, and
• To return excess funds to stockholders through dividends and share repurchases.
Over the long term, assuming cash flows from operating activities remain strong, Mattel plans to use its free
cash flows to invest in strategic acquisitions and to return funds to stockholders through cash dividends and share
repurchases. Mattel’s share repurchase program has no expiration date and repurchases will take place from time
to time, depending on market conditions. The ability to successfully implement the capital deployment plan is
directly dependent on Mattel’s ability to generate strong cash flows from operating activities. There is no
assurance that Mattel will continue to generate strong cash flows from operating activities or achieve its targeted
goals for investing activities.
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