Mattel 2006 Annual Report Download - page 19

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,
2006.
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, 2006, foreign credit lines totaled
approximately $200 million, a portion of which are used to support letters of credit. Mattel expects to extend the
majority of these credit lines throughout 2007.
In June 2006, Mattel issued $100.0 million of unsecured floating rate senior notes (“Floating Rate Senior
Notes”) due June 15, 2009 and $200.0 million of unsecured 6.125% senior notes (“6.125% Senior Notes”) due
June 15, 2011 (collectively “Senior Notes”). Interest on the Floating Rate Senior Notes is based on the three-
month US Dollar London Interbank Offered Rate (“LIBOR”) plus 40 basis points with interest payable quarterly
beginning September 15, 2006. Interest on the 6.125% Senior Notes is payable semi-annually beginning
December 15, 2006. The 6.125% Senior Notes may be redeemed at any time at the option of Mattel at a
redemption price equal to the greater of (i) the principal amount of the notes being redeemed plus accrued
interest to the redemption date, or (ii) a “make whole” amount based on the yield of a comparable US Treasury
security plus 20 basis points.
In June 2006, Mattel entered into two interest rate swap agreements on the $100.0 million Floating Rate
Senior Notes, each in a notional amount of $50.0 million, for the purpose of hedging the variability of cash flows
in the interest payments due to fluctuations of the LIBOR benchmark interest rate. These cash flow hedges are
accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative
Instruments and Hedging Activities, whereby the hedges are reported in Mattel’s consolidated balance sheets at
fair value, with changes in the fair value of the hedges reflected in accumulated other comprehensive loss. Under
the terms of the agreements, Mattel receives quarterly interest payments from the swap counterparties based on
the three-month LIBOR plus 40 basis points and makes semi-annual interest payments to the swap counterparties
based on a fixed rate of 5.87125%. The three-month LIBOR rate used to determine interest payments under the
interest rate swap agreements resets every three months, matching the variable interest on the Floating Rate
Senior Notes. The agreements expire in June 2009, which corresponds with the maturity of the Floating Rate
Senior Notes.
In October 2005, a major credit rating agency maintained its long-term rating for Mattel at BBB, but
changed its long-term outlook to negative and reduced its short-term rating to A-3. In March 2006, this same
credit rating agency reduced Mattel’s long-term credit rating to BBB- and changed the outlook from negative to
stable. Also in October 2005, another major credit rating agency maintained its long-term rating for Mattel at
Baa2, but changed its long-term outlook to negative. In May 2006, another major credit rating agency reduced
Mattel’s long-term credit rating to BBB. 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 2007, amounts available under its domestic unsecured
committed revolving credit facility, the MAPS facility, and its foreign credit lines will be adequate to meet its
seasonal financing requirements in 2007. As of December 31, 2006, Mattel had available incremental borrowing
resources totaling approximately $1.3 billion under its domestic unsecured committed revolving credit facility,
the MAPS facility and foreign credit lines.
Mattel has a $300.0 million domestic receivables sales facility that is a sub-facility of Mattel’s domestic
unsecured committed revolving credit facility. The outstanding amount of receivables sold under the domestic
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