Mattel 2006 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2006 Mattel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 133

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133

For the purchase of foreign currencies, fair value reflects the amount, based on dealer quotes, that Mattel
would pay at maturity for contracts involving the same currencies and maturity dates, if they had been entered
into as of December 31, 2006. For the sale of foreign currencies, fair value reflects the amount, based on dealer
quotes, that Mattel would receive at maturity for contracts involving the same currencies and maturity dates, if
they had been entered into as of December 31, 2006. The differences between the fair value and the contract
amounts are expected to be fully offset by currency transaction gains and losses on the underlying hedged
transactions.
In addition to the contracts involving the US dollar detailed in the above table, Mattel also had contracts to
sell British pound sterling for the purchase of Euro. As of December 31, 2006, these contracts had a contract
amount of $57.6 million and a fair value of $58.9 million.
Had Mattel not entered into hedges to limit the effect of currency exchange rate fluctuations on its results of
operations and cash flows, its income before income taxes would have decreased by approximately $1 million in
2006 and $3 million in 2005, and increased by approximately $38 million in 2004.
Interest Rate Risk
In December 2005, Mattel, MAPS, Bank of America, N.A., and other financial institutions executed 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 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 varying rates selected by Mattel based on Eurodollar rates or
bank reference rates. On December 15, 2006, in addition to the required payment of $50.0 million, MAPS
prepaid an incremental $125.0 million of the MAPS term loan facility. The remaining $50.0 million principal
amount, consisting of $14.3 million due on December 15, 2007 and $35.7 million due on December 9, 2008, was
prepaid on January 16, 2007. As of December 31, 2006, there was no balance outstanding on the MAPS
revolving loan facility.
In June 2006, Mattel issued $100.0 million of unsecured Floating Rate Senior Notes due June 15, 2009.
Interest on the Floating Rate Senior Notes is based on the three-month US Dollar LIBOR plus 40 basis points
with interest payable quarterly beginning September 15, 2006.
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.
Interest Rate Sensitivity
An assumed 50 basis point movement in interest rates on Mattel’s variable rate borrowings would have had
an immaterial impact on its results of operations for the year ended December 31, 2006.
55