Mattel 2006 Annual Report Download - page 88

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Mattel and participating employees to an excess benefit plan, earns various rates of return. The liability for these
plans as of December 31, 2006 and 2005 was $50.6 million and $52.0 million, respectively, and is included in
other noncurrent liabilities in the consolidated balance sheets. Mattel has purchased group trust-owned life
insurance contracts designed to assist in funding these programs. The cash surrender value of these policies,
valued at $62.5 million and $58.7 million as of December 31, 2006 and 2005, respectively, are held in an
irrevocable grantor trust, the assets of which are subject to the claims of Mattel’s creditors and are included in
other noncurrent assets in the consolidated balance sheets.
Incentive Compensation Plans
Mattel has annual incentive compensation plans under which officers and key employees may earn incentive
compensation based on Mattel’s performance and subject to certain approvals of the Compensation Committee of
the Board of Directors. For 2006, 2005, and 2004, $93.7 million, $22.0 million and $41.8 million, respectively,
was charged to expense for awards under these plans.
The Mattel 2003 Long-Term Incentive Plan (the “LTIP”) was approved by Mattel’s stockholders in May
2003. The LTIP is intended to motivate and retain key executives of Mattel who regularly and directly make or
influence decisions that affect the medium- and long-term success of Mattel. The LTIP replaces the Long-Term
Incentive Plan approved in November 2000 and is effective as of January 1, 2003. Awards are based upon the
financial performance of Mattel during a specified performance period and are settled in cash or unrestricted or
restricted common stock of Mattel. In March 2003, the Compensation Committee of Mattel’s Board of Directors
established a January 1, 2003—December 31, 2006 performance cycle under the LTIP and in March 2005, the
Compensation Committee established a January 1, 2005—December 31, 2007 performance cycle under the
LTIP. For 2006, $14.8 million was charged to expense for LTIP awards. No amounts were charged to expense in
2005 or 2004 for LTIP awards.
Note 5—Seasonal Financing and Debt
Seasonal Financing
Mattel maintains and periodically amends or replaces a $1.3 billion 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 2006. As of December 31,
2006, Mattel’s consolidated debt-to-capital ratio, as calculated per the terms of the credit agreement, was 0.29 to
1 (compared to a maximum allowed of 0.50 to 1) and Mattel’s interest coverage ratio was 11.72 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 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
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