Mattel 2006 Annual Report Download - page 47

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 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
receivables facility may not exceed $300.0 million at any given time, and the amount available to be borrowed
under the credit facility is reduced to the extent of any such outstanding receivables sold. Under the domestic
receivables facility, certain trade receivables are sold to a group of banks, which currently include, among others,
Bank of America, N.A., as administrative agent, Citicorp USA, Inc. and Barclays Bank PLC, as co-syndication
agents, and Societe Generale and BNP Paribas, as co-documentation agents. Pursuant to the domestic receivables
facility, Mattel Sales Corp. and Fisher-Price, Inc. (which are wholly-owned subsidiaries of Mattel) can sell
eligible trade receivables from Wal-Mart and Target to Mattel Factoring, Inc. (“Mattel Factoring”), a Delaware
corporation and wholly-owned, consolidated subsidiary of Mattel. Mattel Factoring is a special purpose entity
whose activities are limited to purchasing and selling receivables under this facility. Pursuant to the terms of the
domestic receivables facility and simultaneous with each receivables purchase, Mattel Factoring sells those
receivables to the bank group. Mattel records the transaction, reflecting cash proceeds and sale of accounts
receivable in its consolidated balance sheet, at the time of the sale of the receivables to the bank group.
Sales of receivables pursuant to the domestic receivables sale facility occur periodically, generally quarterly.
The receivables are sold by Mattel Sales Corp. and Fisher-Price, Inc. to Mattel Factoring for a purchase price
equal to the nominal amount of the receivables sold. Mattel Factoring then sells such receivables to the bank
group at a slight discount, and Mattel acts as a servicer for such receivables. Mattel has designated Mattel Sales
Corp. and Fisher-Price, Inc. as sub-servicers, as permitted by the facility. Mattel’s appointment as a servicer is
subject to termination events that are customary for such transactions. The domestic receivables sales facility is
also subject to conditions to funding, representations and warranties, undertakings and early termination events
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