Mattel 2005 Annual Report Download - page 43

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Over the long term, assuming cash flows from operating activities remain strong, Mattel plans to use its free
cash flows to invest in strategic acquisitions and to return funds to shareholders through cash dividends and,
depending on market conditions, share repurchases. However, the ability to implement successfully the capital
deployment plan is directly dependent on Mattel’s ability to generate strong cash flows from operating activities.
There is no assurance that Mattel will continue to generate strong cash flows from operating activities or achieve
its targeted goals from investing activities.
The repatriation of foreign earnings under AJCA did not change management’s view of Mattel’s capital and
investment framework. The movement of cash into the US from offshore may allow Mattel to reduce its seasonal
working capital borrowings in the US and will provide Mattel with greater flexibility to fund activities in other
areas in accordance with its capital and investment framework.
Operating Activities
Cash flows generated from operating activities were $466.7 million during 2005, compared to
$570.4 million in 2004 and $604.8 million in 2003. The decrease in cash flows from operating activities in 2005
from 2004 was primarily due to lower net income and a change in working capital requirements, mainly due to
payments made in 2005 related to year-end 2004 accruals to vendors and foreign tax authorities. The decrease in
cash flows from operating activities in 2004 from 2003 was primarily due to higher working capital requirements
attributable to payments made in 2004 related to year end 2003 accruals for incentive compensation and the
shareholder litigation settlement. Additionally, Mattel entered 2004 with relatively lower levels of accounts
receivable and inventories than in 2003 due to working capital improvements achieved during 2003.
Investing Activities
Cash flows used for investing activities were $82.2 million during 2005, and primarily related to
investments in tooling to support existing and new products and Mattel’s long-term information technology
strategy, partially offset by proceeds from the sale of marketable securities. Cash flows used for investing
activities were lower in 2005 as compared to 2004 due to higher proceeds from the sale of investments and lower
payments for businesses acquired in 2005, partially offset by higher investments in other property, plant and
equipment in 2005 as a result of investment in Mattel’s long-term information technology strategy and spending
associated with the construction of the new American Girl Place®in Los Angeles. In 2004, Mattel used cash
flows for investing activities of $108.1 million. Capital expenditures were partially offset by proceeds from the
sale of investments and property, plant and equipment, primarily related to the disposal of property in Mexico
that was no longer needed when manufacturing operations in Mexico were combined as part of the financial
realignment plan. The decrease in cash flows used for investing activities in 2004 as compared to 2003 was
mainly due to higher spending in 2003 associated with the construction of the new American Girl Place®in New
York City, expansion of manufacturing facilities in Mexico as part of the financial realignment plan, and reduced
spending in 2004 on information technology. In 2003, Mattel used cash flows for investing activities of
$180.8 million, primarily to support existing and new products, its long-term information strategy, certain
financial realignment plan initiatives and the construction of the new American Girl Place®in New York City
that opened in the fourth quarter of 2003. These costs were partially offset by the sale of investments in 2003.
Financing Activities
Cash flows used for financing activities increased $71.0 million to $537.3 million in 2005 compared to
2004, primarily due to the repayment of $150.0 million of 6
1
⁄
8
% senior notes in July 2005 and the 10.15%
mortgage note for $39.1 million in November 2005 upon maturity, higher dividends paid and an increase in
treasury stock repurchases in 2005, partially offset by $225.0 million of proceeds from the MAPS term loan
facility and $100.0 million under the MAPS revolving loan facility. In 2004, cash flows used for financing
activities decreased $88.1 million from 2003, primarily due to the repayment of $150.0 million of 6% senior
notes in 2003 upon maturity, partially offset by increased dividends paid in 2004 and reduced cash from
employee stock option exercises.
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