Mattel 2009 Annual Report Download - page 46

those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize
exposure. As of December 31, 2009 and 2008, Mattel had a money market investment fund with an original cost
basis of $85.3 million, which was classified within other current assets as a result of the money market
investment fund halting redemption requests during 2008. During 2009 and 2008, Mattel recorded impairment
charges of approximately $1 million and $4 million, respectively, associated with this investment. Additionally,
during 2009, Mattel received cash proceeds of approximately $73 million related to this investment, and expects
to receive the remaining proceeds, net of the impairment charges, during 2010. As of December 31, 2009, 2008,
and 2007, Mattel had additional long-term investments of $35.0 million.
Mattel is subject to credit risks relating to the ability of counterparties of hedging transactions to meet their
contractual payment obligations. The risks related to creditworthiness and nonperformance have been considered
in the fair value measurements of Mattel’s foreign currency forward exchange contracts. Mattel continues to
closely monitor its counterparties and will take action, as appropriate, to further manage its counterparty credit
risk.
Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity
required to buy inventory or raw materials. Mattel monitors its customers’ financial condition and their liquidity
in order to mitigate Mattel’s accounts receivable collectibility risks and customer terms and credit limits are
adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to ensure collectibility of
accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, factoring or
purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of
shipment.
Mattel sponsors defined benefit pension plans and postretirement benefit plans for employees of the
company. Actual returns below the expected rate of return, along with changes in interest rates that affect the
measurement of the liability, would impact the amount and timing of Mattel’s future contributions to these
plans.
Capital and Investment Framework
To guide future capital deployment decisions, with a goal of maximizing stockholder value, Mattel’s Board
of Directors in 2003 established the following capital and investment framework:
• To maintain approximately $800 million to $1 billion in year-end cash available to fund a substantial
portion of seasonal working capital;
• To maintain a year-end debt-to-capital ratio of about 25%;
• To invest approximately $180 million to $200 million in capital expenditures annually to maintain and
grow the business;
• To make strategic acquisitions consistent with Mattel’s vision of providing “the world’s premier
toy brands—today and tomorrow”; and
• To return excess funds to stockholders through dividends and share repurchases.
Over the long term, assuming cash flows from operating activities remain strong, Mattel plans to use its free
cash flows to invest in strategic acquisitions and to return funds to stockholders through cash dividends and share
repurchases. Mattel’s share repurchase program has no expiration date and repurchases will take place from time
to time, depending on market conditions. The ability to successfully implement the capital deployment plan is
directly dependent on Mattel’s ability to generate strong cash flows from operating activities. There is no
assurance that Mattel will continue to generate strong cash flows from operating activities or achieve its targeted
goals for investing activities.
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