Mattel 2001 Annual Report Download - page 37

Mattel’s total debt to capital ratio, including current portion of long-term debt, improved from 52% at year
end 2000 to 42% at year end 2001 due to the repayment of debt combined with improvement in its operating
results. Mattel continues to target a goal of reducing the year end ratio to approximately one-third of capital.
Commitments
In the normal course of business, Mattel enters into debt arrangements and contractual arrangements for
future purchases of goods and services to ensure availability and timely delivery, and to obtain and protect
Mattel’s right to create and market certain products. These arrangements include commitments for future
inventory purchases and licensing payments. Certain of these commitments routinely contain provisions for
guaranteed or minimum expenditures during the term of the contracts.
Mattel’s commitments for debt and other contractual arrangements is summarized as follows (in
thousands):
Payments Due by Period
Total 2002 2003 2004 Thereafter
Long-term debt .......................... $1,231,009 $210,090 $380,849 $ 50,939 $589,131
Licensing minimums ...................... 379,000 106,000 84,000 81,000 108,000
Inventory purchases ....................... 121,000 121,000 — — —
Operating leases .......................... 168,100 38,800 29,800 26,800 72,700
Capitalized leases ......................... 10,100 300 300 300 9,200
Total .................................. $1,909,209 $476,190 $494,949 $159,039 $779,031
Discontinued Operations
In May 1999, Mattel completed its merger with Learning Company, pursuant to which Learning Company
was merged with and into Mattel, with Mattel being the surviving corporation. Due to substantial losses
experienced in its Consumer Software segment, which was comprised primarily of Learning Company, Mattel’s
board of directors, on March 31, 2000, resolved to dispose of its Consumer Software segment. As a result of
this decision, the Consumer Software segment was reported as a discontinued operation effective March 31,
2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the
liabilities and operating results of the Consumer Software segment.
On October 18, 2000, Mattel disposed of Learning Company to an affiliate of Gores Technology Group in
return for a contractual right to receive future consideration based on income generated from its business
operations and/or the net proceeds derived by the new company upon the sale of its assets or other liquidation
events, or 20% of its enterprise value at the end of five years. In the fourth quarter of 2001, Mattel received
proceeds totaling $10.0 million from Gores Technology Group as a result of liquidation events related to Gores
Technology’s sale of the entertainment and education divisions. Mattel also incurred additional costs of
approximately $10 million in 2001 related to the wind down of the Consumer Software segment. Accordingly,
no income was recorded in the consolidated statement of operations for discontinued operations.
With respect to Gores Technology Group’s disposition of the education division, there is additional
contingent consideration that may be received by Mattel. At December 31, 2001, Mattel had net obligations
related to its discontinued Consumer Software segment of approximately $24 million. Mattel believes that it
has adequately reserved for future obligations of this segment. Any additional proceeds that are recognized will
be recorded as part of the discontinued operations.
In December 2000 and January 2001, Mattel entered into worldwide, multi-year licensing agreements with
Vivendi Universal Publishing and THQ, respectively, for the development and publishing of gaming,
educational and productivity software based on Mattel’s brands, which Mattel had previously developed and
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