Mattel 2007 Annual Report Download - page 19

Download and view the complete annual report

Please find page 19 of the 2007 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 142

  • 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
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

Operations—Commitments” and Item 8 “Financial Statements and Supplementary Data—Note 10 to the
Consolidated Financial Statements—Commitments and Contingencies.”
Backlog
Mattel ships products in accordance with delivery schedules specified by its customers, which usually
request delivery within three months. In the toy industry, orders are subject to cancellation or change at any time
prior to shipment. In recent years, a trend toward just-in-time inventory practices in the toy industry has resulted
in fewer advance orders and therefore less backlog of orders. Mattel believes that the amount of backlog orders at
any given time may not accurately indicate future sales.
Financial Instruments
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Mattel seeks
to mitigate its exposure to market risk by monitoring its foreign currency transaction exposure for the year and
partially hedging such exposure using foreign currency forward exchange contracts primarily to hedge its
purchase and sale of inventory, and other intercompany transactions denominated in foreign currencies. These
contracts generally have maturity dates of up to 18 months. In addition, Mattel manages its exposure to currency
exchange rate fluctuations through the selection of currencies used for international borrowings. Mattel does not
trade in financial instruments for speculative purposes.
For additional information regarding foreign currency contracts, see “International Segment” above,
Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and Item 8 “Financial Statements and
Supplementary Data—Note 9 to the Consolidated Financial Statements—Financial Instruments.”
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 expires on
March 23, 2010 and interest is charged at various rates selected by Mattel, ranging from market commercial
paper rates to the bank reference rate. The 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 2007. As of December 31, 2007, Mattel’s
consolidated debt-to-capital ratio, as calculated per the terms of the credit agreement, was 0.35 to 1 (compared to
a maximum allowed of 0.50 to 1) and Mattel’s interest coverage ratio was 13.33 to 1 (compared to a minimum
allowed of 3.50 to 1).
The domestic unsecured committed revolving credit facility is a material agreement and failure to comply
with the financial covenant ratios may result in an event of default under the terms of the facility. If Mattel
defaulted under the terms of the domestic unsecured committed revolving credit facility, its ability to meet its
seasonal financing requirements could be adversely affected.
In December 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 provided 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
9