Mattel 2007 Annual Report Download - page 97

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
$100.0 million, with a maturity date of December 9, 2008. Interest was charged at various 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 a result of such pre-payments, the
MAPS term loan facility terminated in accordance with its terms, but the MAPS revolving loan facility remained
in effect. On March 26, 2007, Mattel terminated the MAPS revolving loan facility. Mattel did not incur any early
termination penalties in connection with the termination of the MAPS revolving loan facility.
To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel obtains individual
short-term credit lines with a number of banks. As of December 31, 2007, 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 2008.
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 with 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 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.
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