Mattel 2010 Annual Report Download - page 85

billion under certain circumstances, (iii) add an interest rate floor equal to 30-day US Dollar LIBOR plus 1.00%
for base rate loans under the credit facility, (iv) increase the applicable interest rate margins to a range of 2.00%
to 3.00% above the applicable base rate for base rate loans, and 2.5% to 3.5% above the applicable LIBOR rate
for Eurodollar rate loans, depending on Mattel’s senior unsecured long-term debt rating, (v) increase
commitment fees to a range of 0.25% to 0.75% of the unused commitments under the credit facility, and
(vi) replace the consolidated debt-to-capital ratio with a consolidated debt-to-earnings before interest, taxes,
depreciation, and amortization (“EBITDA”) ratio. During 2009, Mattel utilized the accordion feature of the credit
facility to increase the aggregate commitments under the credit facility from $880.0 million to $1.08 billion,
which is the maximum aggregate commitment available under the credit facility. Mattel is required to meet
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 2010. As of December 31, 2010, Mattel’s consolidated debt-to-EBITDA ratio, as calculated per
the terms of the credit agreement, was 1.1 to 1 (compared to a maximum allowed of 3.0 to 1) and Mattel’s
interest coverage ratio was 16.6 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.
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, 2010, foreign credit lines totaled
approximately $174 million, a portion of which are used to support letters of credit. Mattel expects to extend the
majority of these credit lines throughout 2011.
In April 2010, a major credit rating agency changed Mattel’s long-term credit rating from BBB- to BBB and
short-term credit rating from A-3 to A-2, and maintained its outlook at stable. In May 2010, another major credit
rating agency changed Mattel’s long-term credit rating from BBB to BBB+ and its outlook from stable to
positive.
Mattel believes its cash on hand, amounts available under its domestic unsecured committed revolving
credit facility, and its foreign credit lines will be adequate to meet its seasonal financing requirements in 2011.
Mattel has a $300.0 million domestic receivables sales facility that was also amended in connection with the
amendment of the credit facility. The amendment to the receivables sales facility, among other things,
(i) extended the maturity date of the receivables sales facility to March 23, 2012, and (ii) incorporated the credit
facility’s increased applicable interest rate margins described above. The outstanding amount of receivables sold
under the domestic receivables facility may not exceed $300.0 million at any given time, and the amount
available to be borrowed under the credit facility is reduced to the extent of any such outstanding receivables
sold. Under the domestic receivables facility, certain trade receivables are sold to a group of banks, which
currently include, among others, Bank of America, N.A., as administrative agent, The Royal Bank of Scotland
PLC, Wells Fargo Bank, N.A. and Societe Generale, as co-syndication agents, and Citicorp USA, Inc., Mizuho
Corporate Bank, Ltd. and Manufacturers & Traders Trust Company, as co-managing agents. Pursuant to the
domestic receivables facility, Mattel Sales Corp., Fisher-Price, Inc., and Mattel Direct Import, Inc. (which are
wholly-owned subsidiaries of Mattel) can sell eligible trade receivables from Wal-Mart and Target to Mattel
Factoring, Inc. (“Mattel Factoring”), a Delaware corporation and wholly-owned, consolidated subsidiary of
Mattel. Mattel Factoring is a special purpose entity whose activities are limited to purchasing and selling
receivables under this facility. Pursuant to the terms of the domestic receivables facility and simultaneous with
each receivables purchase, Mattel Factoring sells those receivables to the bank group. Mattel records the
transaction, reflecting cash proceeds and sale of accounts receivable in its consolidated balance sheet, at the time
of the sale of the receivables to the bank group.
Sales of receivables pursuant to the domestic receivables sales facility occur periodically, generally
quarterly. The receivables are sold by Mattel Sales Corp., Fisher-Price, Inc., and Mattel Direct Import, Inc. to
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