Mattel 1998 Annual Report Download - page 43

Mattel, Inc. and Subsidiaries 41
year would have the following effect on the accumulated postretire-
ment benefit obligation and the service and interest cost recognized
as of and for the year ended December 31, 1998 (in thousands):
One Percentage Point
Increase Decrease
Accumulated postretirement benefit obligation $3,531 $(3,009)
Service and interest cost 256 (218)
The Company also maintains a contributory postretirement
benefit plan for domestic employees of Mattel. The ongoing costs
and obligations associated with the Mattel, Inc. plan are not significant
to the Company’s financial position and results of operations during
any year.
Incentive Awards
The Company’s Long-Term Incentive Plan is a three-year plan available
to certain key executives of Mattel, Inc. Interim awards are paid
annually based upon the financial performance of the Company
over a three-year period. Amounts charged to operating expense
in 1998, 1997 and 1996 under the current plan were $10.8 million,
$13.8 million and $3.9 million, respectively.
The Company also has annual incentive compensation plans
for officers and key employees based on the Company’s performance
and subject to certain approvals of the Compensation/Options
Committee of the board of directors. For the years ended
December 31, 1998, 1997 and 1996, $11.7 million, $23.2 million and
$12.9 million, respectively, were charged to operating expense for
awards under the Mattel plans and $10.0 million, in 1996, for Tyco.
Prior to the merger,Tyco had a Long-Term Incentive Plan for
certain senior executives, under which Tyco awarded Restricted
Stock Units (“RSU”). The aggregate fair market value of the RSUs
was being amortized to compensation expense by Tyco over the
restriction period. At the time of the 1997 merger, the RSUs were
converted into approximately 244 thousand shares of Mattel common
stock which approximated the fair value of the RSUs on the merger
consummation date and the remaining unamortized amount of $5.1
million was charged to expense.
Note 4 - Seasonal Financing and Long-Term Debt
Seasonal Financing
The Company maintains and periodically amends or replaces an
unsecured committed revolving credit agreement with a commercial
bank group that is used as the primary source of financing the seasonal
working capital requirements of its domestic and certain foreign
affiliates. The agreement in effect during 1998 consisted of a
committed unsecured facility providing a total of $1.0 billion in
seasonal financing. Within the facility, up to $700.0 million was a
standard revolving credit line available for advances and backup for
commercial paper issuances (a five-year facility that expires in 2003).
Interest was charged at various rates selected by the Company,
ranging from market commercial paper rates to the bank reference
rate. The remaining $300.0 million (a five-year facility that expires
in 2003) was available for nonrecourse purchases of certain trade
accounts receivable of the Company by the commercial bank
group providing the credit line. The agreement required the
Company to meet financial covenants for consolidated debt-to-
capital and interest coverage and the Company was in compliance
with such covenants during 1998. This agreement will continue to
be in effect during 1999. In addition, the Company avails itself of
uncommitted domestic facilities provided by certain banks to issue
short-term money market loans.
To meet seasonal borrowing requirements of certain foreign
affiliates, the Company negotiates individual financing arrangements,
generally with the same group of banks that provided credit in the
prior year. Foreign credit lines total approximately $370 million, a
portion of which is used to support letters of credit. The Company
expects to extend these credit lines throughout year 2000 and
believes available amounts will be adequate to meet its seasonal
financing requirements. The Company also enters into agreements
with banks of its foreign affiliates for nonrecourse sales of certain of
its foreign subsidiary receivables.
Interest rates charged on the Company’s working capital
credit lines are adjusted on a periodic basis; therefore, the carrying
amounts of such obligations are a reasonable approximation of their
fair value. Information relating to Mattel and Tyco’s domestic and
foreign credit lines and other short-term borrowings is summarized
as follows (in thousands):
For the Year
1998 1997 1996
Balance at end of year
Domestic $ 79,175 $ - $ -
Foreign 54,831 17,468 28,924
Maximum amount outstanding
Domestic $1,076,600 $558,000 $567,000
Foreign 141,000 67,000 113,000
Average borrowing
Domestic $ 400,800 $178,000 $215,000
Foreign 58,000 40,000 72,000
Weighted average interest rate on average borrowing
Domestic (computed daily) 5.6% 5.7% 6.6%
Foreign (computed monthly) 20.3% 11.9% 11.6%
6-3/4% Senior Notes
In May 1993, the Company issued $100.0 million aggregate principal
amount of 6-3/4% Senior Notes maturing May 15, 2000. Interest is
payable semiannually on the fifteenth day of May and November. At
December 31, 1998 and 1997, the bid prices for the 6-3/4% Senior
Notes, as provided by one of the underwriters, were $1,014.00 and
$1,011.85, respectively, based on a par value of $1,000.00.
6% and 6-1/8% Senior Notes
In July 1998, the Company issued $300.0 million aggregate principal
amount of senior notes, $150.0 million of which were 6% Senior
Notes maturing July 15, 2003 and $150.0 million of which were 6-1/8%
Senior Notes maturing July 15, 2005. Interest is payable semiannually
on the fifteenth day of January and July. At December 31, 1998, the
bid prices for the 6% and 6-1/8% Senior Notes, as provided by one
of the underwriters, was $1,004.40 and $998.65, respectively, based
on a par value of $1,000.00. The proceeds of these notes were
used to finance the acquisitions of Pleasant Company and Bluebird.