Mattel 2014 Annual Report Download - page 46

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 $971.7 million in cash and equivalents as of December 31, 2014, approximately $765 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 annually by its domestic operations, the unused Credit Facility of
$1.60 billion as of December 31, 2014, and access to both long-term and short-term public and private debt
markets at highly competitive interest rates are available to fund domestic operations and obligations. If these
sources are not adequate, Mattel also has the ability to repatriate highly taxed foreign earnings, receive
repayment of intercompany loans to foreign subsidiaries, and distribute liquidating dividends from foreign
subsidiaries, all of which would have a very nominal impact, if any, on Mattel’s tax liabilities. Mattel believes
that its policy to indefinitely reinvest the earnings of its foreign subsidiaries will not result in and is not
reasonably likely to result in a material change to Mattel’s liquidity position.
Current Market Conditions
Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange
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, 2014, Mattel had available
incremental borrowing resources totaling $1.60 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 in 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.
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