Mattel 2012 Annual Report Download - page 18

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currencies, to limit the effect of exchange rate fluctuations on its results of operations and cash flows. See
Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and Item 8 “Financial Statements and
Supplementary Data—Note 9 to the Consolidated Financial Statements—Derivative Instruments.” For financial
information by geographic area, see Item 8 “Financial Statements and Supplementary Data—Note 12 to the
Consolidated Financial Statements—Segment Information.”
American Girl Segment
The American Girl segment is a direct marketer, children’s publisher, and retailer best known for its
flagship line of historical dolls, books, and accessories, as well as the My American Girl and Bitty Baby brands.
American Girl also publishes best-selling Advice & Activity books and the award-winning American Girl
magazine. In January 2013, American Girl introduced Saige™, the 2013 Girl of the Year®doll. American Girl
products are sold primarily in the US.
Manufacturing and Materials
Mattel manufactures toy products for all segments in both company-owned facilities and through third-party
manufacturers. Products are also purchased from unrelated entities that design, develop, and manufacture those
products. To provide greater flexibility in the manufacture and delivery of its products, and as part of a
continuing effort to reduce manufacturing costs, Mattel has concentrated production of most of its core products
in company-owned facilities and generally uses third-party manufacturers for the production of non-core
products.
Mattel’s principal manufacturing facilities are located in China, Indonesia, Malaysia, Mexico, and Thailand.
To help avoid disruption of its product supply due to political instability, civil unrest, economic instability,
changes in government policies, and other risks, Mattel produces its products in multiple facilities across
multiple countries. Mattel believes that the existing production capacity at its own and its third-party
manufacturers’ facilities is sufficient to handle expected volume in the foreseeable future. See Item 1A “Risk
Factors.”
Mattel bases its production schedules for toy products on customer orders and forecasts, taking into account
historical trends, results of market research, and current market information. Actual shipments of products
ordered and order cancellation rates are affected by consumer acceptance of product lines, strength of competing
products, marketing strategies of retailers, changes in buying patterns of both retailers and consumers, and
overall economic conditions. Unexpected changes in these factors could result in a lack of product availability or
excess inventory in a particular product line.
The majority of Mattel’s raw materials is available from numerous suppliers but may be subject to
fluctuations in price.
Competition and Industry Background
Competition in the manufacture, marketing, and sale of toys is based primarily on quality, play value, and
price. Mattel offers a diverse range of products for children of all ages and families that include, among others,
toys for infants and preschoolers, girls’ toys, boys’ toys, youth electronics, hand-held and other games, puzzles,
educational toys, media-driven products, and fashion-related toys. The North America segment competes with
several large toy companies, including Bandai, Hasbro, Jakks Pacific, Leap Frog, Lego, MGA Entertainment,
Spin Master, Tomy, and VTech, many smaller toy companies, and several manufacturers of video games and
consumer electronics. The International segment competes with global toy companies including Bandai, Hasbro,
Lego, MGA Entertainment, Playmobil, Tomy, and VTech, other national and regional toy companies, and
manufacturers of video games and consumer electronics. Foreign regions may include competitors that are strong
in a particular toy line or geographical area but do not compete with Mattel or other international toy companies
worldwide. The American Girl segment competes with companies that manufacture girls’ toys and with
children’s book publishers and retailers.
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