Mattel 2008 Annual Report Download - page 84

price of Mattel’s common stock on the date of grant, reduced by the present value of estimated dividends to be
paid during the performance period as the awards are not credited with dividend equivalents for actual dividends
paid on Mattel’s common stock. The fair value of the market-related component is estimated at the grant date
using a Monte Carlo valuation methodology. Share-based compensation is recognized as expense over the
performance period using a straight-line expense attribution approach reduced for estimated forfeitures. During
2008, $0 was charged to expense relating to the performance-related component as the 2008 actual results were
below the 2008 performance threshold at the minimum award level and no shares were earned. During 2008,
Mattel recognized $1.5 million of share-based compensation expense in 2008 for the market-related component.
Note 8—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 global commercial bank group that is used as the primary source of financing for
the seasonal working capital requirements of its domestic subsidiaries. As of December 31, 2008, Mattel had
available incremental borrowing resources totaling approximately $1.0 billion under its domestic unsecured
committed revolving credit facility. The agreement 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 certain financial covenants, including requirements for Mattel
to maintain certain consolidated ratios for debt-to-capital and interest coverage. Specifically, Mattel is required to
meet these financial covenants 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 2008. As of December 31, 2008, Mattel’s consolidated debt-to-capital ratio, as
calculated per the terms of the credit agreement, was 0.36 to 1 (compared to a maximum allowed of 0.50 to 1)
and Mattel’s interest coverage ratio was 9.05 to 1 (compared to a minimum required 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.
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 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 prepayments, 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 avails itself of
individual short-term credit lines with a number of banks. As of December 31, 2008, foreign credit lines totaled
approximately $162 million, a portion of which are used to support letters of credit. Mattel expects to extend the
majority of these credit lines throughout 2009.
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