Mattel 2010 Annual Report Download - page 43

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Current Market Conditions
Mattel is exposed to financial market risk resulting from changes in interest and foreign currency rates.
Mattel believes that it has ample liquidity to fund its business needs, including beginning of the year cash and
equivalents, cash flows from operations, and access to its $1.08 billion domestic unsecured committed revolving
credit facility, which it uses for seasonal working capital requirements. As of December 31, 2010, Mattel had
available incremental borrowing resources totaling $1.08 million under this unsecured committed revolving
credit facility, and Mattel has not experienced any limitations on its ability to access this source of liquidity.
Market conditions could affect certain terms of other debt instruments that Mattel enters into from time to time.
Mattel monitors the third-party depository institutions that hold the company’s cash and equivalents.
Mattel’s emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on
those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks. As
of December 31, 2009 and 2008, Mattel had a money market investment fund with an original cost basis of
approximately $85 million, which was classified within other assets as a result of the money market investment
fund halting redemption requests during 2008. During 2010, Mattel reversed approximately $3 million of
impairment charges recorded in 2009 and 2008, when Mattel recorded impairment charges of approximately $1
million and $4 million, respectively, associated with this investment. Mattel received cash proceeds of
approximately $73 million in 2009 and $10 million in 2010 related to this investment, for total proceeds of
approximately $83 million on Mattel’s investment of approximately $85 million.
Mattel is subject to credit risks relating to the ability of its 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
closely monitors its counterparties and takes action, as necessary, to 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 opportunistic acquisitions; and
• To return excess funds to stockholders through dividends and share repurchases.
Over the long term, 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
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