Mattel 2002 Annual Report Download - page 51

Manufacturing Risk
Mattel owns and operates manufacturing facilities and utilizes third-party manufacturers throughout Asia,
primarily in China, Indonesia, Malaysia and Thailand. A risk of political instability and civil unrest exists in
these countries, which could temporarily or permanently damage Mattel’s manufacturing operations located
there. Mattel’s business, financial position and results of operations would be negatively impacted by a
significant disruption to its manufacturing operations or suppliers.
Financing Matters
Increases in interest rates, both domestically and internationally, could negatively affect Mattel’s cost of
financing both its operations and investments. Foreign currency exchange fluctuations may affect Mattel’s
reportable income and cash flows. Any reduction in Mattel’s credit ratings could increase the cost of obtaining
financing. Additionally, Mattel’s ability to issue long-term debt and obtain seasonal borrowing could be
adversely affected by factors such as an inability to meet its debt covenant requirements, which include
maintaining consolidated debt-to-capital and interest coverage ratios. Mattel’s ability to conduct its operations
could be negatively impacted should these or other adverse conditions affect its primary sources of liquidity.
Advertising and Promotion
Mattel’s products are marketed worldwide through a diverse spectrum of advertising and promotional
programs. Mattel’s ability to sell products is dependent in part upon the success of such programs. If Mattel does
not successfully market its products or if media or other advertising or promotional costs increase, these factors
could have a material adverse affect on Mattel’s business, financial condition and results of operations.
Success of New Initiatives
Mattel has announced initiatives to improve the execution of its core business, globalize and extend Mattel’s
brands, catch new industry trends and develop people, including a supply chain initiative and a long-term
information technology strategy. Such initiatives involve complex decision making as well as extensive and
intensive execution, and the success of such initiatives is not assured. Failure to successfully implement any of
these initiatives could have a material adverse effect on Mattel’s business, financial condition and results of
operations.
Changes in Laws and Regulations
Mattel operates in a highly regulated environment in the US and internationally. US federal, state and local
governmental entities and foreign governments regulate many aspects of Mattel’s business including its products
and the importation and exportation of its products. Such regulations may include taxes, trade restrictions,
regulations regarding financial matters, environmental regulations, advertising directed toward children, safety
and other administrative and regulatory restrictions. Changes in laws or regulations may lead to increased costs
or the interruption of normal business operations.
Acquisition, Dispositions and Takeover Defenses
Mattel may engage in acquisitions, mergers or dispositions, which may affect the profit, revenues, profit
margins, debt-to-equity ratios, capital expenditures, or other aspects of Mattel’s business. There can be no
assurance that Mattel will be able to identify suitable acquisition targets or that, if identified, it will be able to
acquire such targets on acceptable terms. Additionally, there can be no assurance that Mattel will be successful in
integrating any acquired company into its overall operations, or that any such acquired company will operate
profitably or will not otherwise adversely impact Mattel’s results of operations. In addition, Mattel has certain
anti-takeover provisions in its bylaws that may make it more difficult for a third party to acquire Mattel without
its consent, which may adversely affect Mattel’s stock price.
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