Mattel 2005 Annual Report Download - page 18

For additional information regarding foreign currency contracts, see “International Segment” above,
Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and Item 8 “Financial Statements and
Supplementary Data—Note 8 to the Consolidated Financial Statements.”
Seasonal Financing
Mattel maintains and periodically amends or replaces a domestic unsecured committed revolving credit
facility with a commercial bank group that is used as the primary source of financing for the seasonal working
capital requirements of its domestic subsidiaries. The agreement in effect was amended and restated in March
2005 and the expiration date of the facility was extended to March 23, 2010. The other terms and conditions of
the amended and restated facility are substantially similar to those contained in the previous facility. Interest is
charged at various rates selected by Mattel, ranging from market commercial paper rates to the bank reference
rate. The domestic unsecured committed revolving credit facility contains a variety of covenants, including
financial covenants that require Mattel to maintain certain consolidated debt-to-capital and interest coverage
ratios. Specifically, Mattel is required to meet these financial covenant ratios at the end of each fiscal quarter and
fiscal year, using the formulae specified in the credit agreement to calculate the ratios. Mattel was in compliance
with such covenants at the end of each fiscal quarter and fiscal year in 2005. As of December 31, 2005, Mattel’s
consolidated debt-to-capital ratio, as calculated per the terms of the credit agreement, was 0.33 to 1 (compared to
a maximum allowed of 0.50 to 1) and Mattel’s interest coverage ratio was 11.81 to 1 (compared to a minimum
allowed of 3.50 to 1).
On December 9, 2005, Mattel, Mattel Asia Pacific Sourcing Limited (“MAPS”), a wholly-owned subsidiary
of Mattel, Bank of America, N.A., as a lender and administrative agent, and other financial institutions executed
a Credit Agreement (the “MAPS facility”) which provides for (i) a term loan facility of $225.0 million consisting
of a term loan advanced to MAPS in the original principal amount of $225.0 million, with $50.0 million of such
amount to be repaid by MAPS on each of December 15, 2006 and December 15, 2007, and the remaining
aggregate principal amount of $125.0 million to be repaid on December 9, 2008 and (ii) a revolving loan facility
consisting of revolving loans advanced to MAPS in the maximum aggregate principal amount at any time
outstanding of $100.0 million, with a maturity date of December 9, 2008. Interest is charged at various rates
selected by Mattel based on Eurodollar rates or bank reference rates. In connection with the MAPS facility,
Mattel executed a Continuing Guaranty Agreement pursuant to which Mattel unconditionally guaranteed the
obligations of MAPS arising pursuant to the MAPS facility. The MAPS facility contains a variety of covenants,
including financial covenants that require Mattel to maintain certain consolidated debt-to-capital and interest
coverage ratios at the end of each fiscal quarter and fiscal year, using the formulae specified and ratios allowed in
the MAPS facility to calculate the ratios. The formulae specified in the MAPS facility are the same as those
required by the domestic unsecured committed revolving credit facility. Mattel was in compliance with such
covenants at December 31, 2005. See Item 7 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources—Seasonal Financing” and Item 8 “Financial
Statements and Supplementary Data”—Note 5 to the Consolidated Financial Statements.”
To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of
individual short-term credit lines with a number of banks. As of December 31, 2005, foreign credit lines total
approximately $187 million, a portion of which are used to support letters of credit. Mattel expects to extend
these credit lines throughout 2006.
In October 2005, two major credit rating agencies changed Mattel’s long-term credit rating outlook to
negative and one of the credit rating agencies reduced Mattel’s short-term credit rating. Management does not
expect these actions to have a significant impact on Mattel’s ability to obtain financing or to have a significant
negative impact on Mattel’s liquidity or results of operations.
Mattel believes its cash on hand at the beginning of 2006, amounts available under its domestic unsecured
committed revolving credit facility, the MAPS facility, its uncommitted money market facility, and its foreign
credit lines will be adequate to meet its seasonal financing requirements in 2006. As of December 31, 2005,
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