Mattel 1999 Annual Report Download - page 31

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Mattel, Inc. and Subsidiaries
Domestic employees of Mattel participate in a contributory postretirement benefit
plan. The ongoing costs and obligations associated with the Mattel, Inc. plan are not signifi-
cant to the financial position and results of operations during any year.
Incentive Awards
In June 1 99 9, the stockholders approved the Amended and Restated Mattel Long-Term
Incentive Plan ( “ Amended and Restated LTIP” ) . The Amended and Restated LTIP is a
three-year plan available to certain key executives of Mattel, Inc. Awards are based
upon the financial performance of Mattel over a three-year period and are paid in the
quarter follow ing the end of the three-year measurement period. No expense was
recorded in 19 99 for awards under the Amended and Restated LTIP. Amounts charged
to operating expense in 1 99 8 and 19 97 under the 1996 - 1 99 8 LTIP were
$1 0.8 million and $ 13 .8 million, respectively.
Mattel also has annual incentive compensation plans for officers and key
employees based on Mattel’s performance and subject to certain approvals of the
Compensation/ Options Committee of the board of directors. No expense was
recorded in 19 99 for awards under these plans. For the years ended December 31 ,
19 98 and 1 99 7, $11.7 million and $ 23 .2 million, respectively, were charged to
operating expense for awards under these plans. For the year ended December 31 ,
19 99 , $ 22 .0 million was charged to operating expense related to a special award.
This special broad-based employee award was approved by Mattel’s board of direc-
tors and was designed to provide a competitive compensation level to retain and
motivate employees of Mattel.
Prior to the May 1 999 merger, Learning Company maintained the 19 90
Long-Term Equity Incentive Plan for certain senior executives. Under this plan,
0.8 million shares of nonvested stock were issued during 1998. The aggregate fair
market value of the nonvested stock was being amortized to compensation expense
over the restriction period. At the time of the 1999 merger, the nonvested stock
became fully vested as a result of change of control provisions and the remaining
unamortized amount of $12.3 million was charged to operating expense in 1999.
Prior to the March 19 97 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 24 4 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 operat-
ing expense.
Note 4 - Seasonal Financing and Long-Term Debt
Seasonal Financing
Mattel maintains and periodically amends or replaces an unsecured committed revolving
credit agreement w ith 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 19 99 consisted of a committed unsecured
facility providing a total of up to $1 .0 billion in seasonal financing ( a five-year facility
that expires in 20 03 ) . Within the facility, up to $7 00 .0 million was a standard revolv-
ing credit line available for advances and backup for commercial paper issuances.
Interest was charged at various rates selected by Mattel, ranging from market commer-
cial paper rates to the bank reference rate. The remaining $3 00 .0 million was avail-
able for nonrecourse purchases of certain trade accounts receivable of Mattel by the
commercial bank group providing the credit line. The agreement required Mattel to
meet financial covenants for consolidated debt-to-capital and interest coverage and
Mattel was in compliance with such covenants during 1 99 9. This agreement w ill con-
tinue to be in effect during 20 00 . In addition, Mattel 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,
Mattel negotiates individual financing arrangements, generally with the same group
of banks that provided credit in the prior year. Foreign credit lines total approximately
$3 70 million, a portion of which is used to support letters of credit. Mattel expects
to extend these credit lines throughout 2 00 0 and believes available amounts w ill be
adequate to meet its seasonal financing requirements. Mattel also enters into agree-
ments with banks of its foreign affiliates for nonrecourse sales of certain of its foreign
subsidiary receivables.
TLC Multimedia Inc., a wholly-owned subsidiary of Learning Company, had a
revolving line of credit, of which $ 40 .0 million was outstanding as of December 31 ,
19 98 . Learning Company was also party to a receivables purchase agreement for
nonrecourse sales of certain domestic trade accounts receivable, of which $ 75 .0 mil-
lion was utilized as of December 31 , 1 99 8. Learning Company had a European
accounts receivable facility for sales with recourse of certain European trade accounts
receivable of up to $ 25 .0 million, which w as fully utilized as of December 3 1, 1 99 8.
Upon consummation of the May 1 99 9 merger, all outstanding borrowings under the
revolving line of credit and the European accounts receivable facility were repaid and
the revolving line of credit and the domestic and European accounts receivable facilities
were terminated by Mattel.
Interest rates charged on Mattel’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’s domestic and foreign
credit lines and other short-term borrowings is summarized as follows ( in thousands) :
For the Year
1999 1998 1997
Balance at end of year
Domestic $ 29 3 ,7 4 4 $ 1 1 9 ,175 $ 35 ,150
Foreign 75 ,8 0 5 7 9 ,83 1 1 7 ,4 6 8
Maximum am ount outstanding
Domestic $
1,2 0 7 ,000 $1,076,600 $558,000
Foreign 117,0 0 0 1 4 1 ,000 6 7 ,0 0 0
Average borrowing
Domestic $ 57 3 ,1 0 0 $ 40 0 ,8 0 0 $ 1 7 8 ,000
Foreign
40,000 58,000 40 ,0 0 0
Weighted average interest rate on average borrow ing
Domestic ( com puted daily)
5.5 % 5.6 % 5 .7 %
Foreign ( computed monthly) 33 .0 % 20.3% 11.9%
6-3/ 4% Senior Notes
In May 19 93 , Mattel issued $ 10 0.0 million aggregate principal amount of 6 -3/ 4% Senior
Notes maturing May 15 , 2 00 0. Interest is payable semiannually on the fifteenth day of
May and November. At December 3 1, 1 99 9 and 1 99 8, the bid prices for the 6-3/ 4%
Senior Notes, as provided by one of the underwriters, were $ 99 9.4 0 and $ 1,0 14 .0 0,
respectively, based on a par value of $1,0 00 .00 . As of December 31 , 199 9, the 6-3/ 4%
Senior Notes are classified in the consolidated balance sheets as a long-term liability because
management has the ability and intent to repay this obligation upon maturity with proceeds
from the issuance of other long-term debt instruments.
5-1/ 2% Senior Convertible Notes ( “ 5 -1/ 2% Notes” )
In October 1 99 5, Learning Company issued $3 50 .0 million aggregate principal amount of
5-1/ 2% Notes maturing November 1 , 20 00 . Interest is payable semiannually on the first
day of May and November. The 5-1/ 2 % Notes are convertible at the option of the hold-
ers into common stock at $ 53 .0 0 per share. The terms of the 5-1/ 2 % Notes provide
for early redemption at the option of the issuer, in whole or in part, at any time on or
after November 2, 19 98 at redemption prices equal to 1 02 .2% of the principal