Mattel 2012 Annual Report Download - page 27

In addition, as a result of the seasonal nature of Mattel’s business, Mattel may be significantly and adversely
affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the
year, by unforeseen events, such as terrorist attacks, economic shocks, earthquakes or other catastrophic events,
that harm the retail environment or consumer buying patterns during its key selling season, or by events, such as
strikes, disruptions in transportation or port delays, that interfere with the manufacture or shipment of goods
during the critical months leading up to the holiday purchasing season.
Mattel has significant customer concentration, so that economic difficulties or changes in the purchasing
policies or patterns of its key customers could have a significant impact on Mattel’s business and operating
results.
A small number of customers account for a large share of Mattel’s net sales. In 2012, Mattel’s three largest
customers, Wal-Mart, Toys “R” Us, and Target, in the aggregate, accounted for approximately 37% of net sales,
and its ten largest customers, in the aggregate, accounted for approximately 47% of net sales. While the
concentration of Mattel’s business with a relatively small number of customers may provide certain benefits to
Mattel, such as potentially more efficient product distribution and decreased costs of sales and distribution, this
concentration may expose Mattel to a material adverse effect if one or more of Mattel’s large customers were to
significantly reduce purchases for any reason, favor competitors or new entrants, or increase their direct
competition with Mattel by expanding their private-label business. Customers make no binding long-term
commitments to Mattel regarding purchase volumes and make all purchases by delivering one-time purchase
orders. Any customer could reduce its overall purchases of Mattel’s products, reduce the number and variety of
Mattel’s products that it carries and the shelf space allotted for Mattel’s products, or otherwise seek to materially
change the terms of the business relationship at any time. Any such change could significantly harm Mattel’s
business and operating results.
Liquidity problems or bankruptcy of Mattel’s key customers could have a significant adverse effect on
Mattel’s business, financial condition and results of operations.
Mattel’s sales to customers are typically made on credit without collateral. There is a risk that key customers
will not pay, or that payment may be delayed, because of bankruptcy, contraction of credit availability to such
customers, weak retail sales or other factors beyond the control of Mattel, which could increase Mattel’s
exposure to losses from bad debts. In addition, if key customers were to cease doing business as a result of
bankruptcy or significantly reduce the number of stores operated, it could have a significant adverse effect on
Mattel’s business, financial condition, and results of operations.
Significant increases in the price of commodities, transportation, or labor, if not offset by declines in other
input costs, or a reduction or interruption in the delivery of raw materials, components and finished
products from Mattel’s vendors could negatively impact Mattel’s financial results.
Cost increases, whether resulting from rising costs of materials, transportation, services, labor or compliance
with existing or future regulatory requirements could impact the profit margins realized by Mattel on the sale of
its products. Because of market conditions, timing of pricing decisions, and other factors, there can be no
assurance that Mattel will be able to offset any of these increased costs by adjusting the prices of its products.
Increases in prices of Mattel’s products may not be sustainable and could result in lower sales. Mattel’s ability to
meet customer demand depends, in part, on its ability to obtain timely and adequate delivery of materials, parts
and components from its suppliers and internal manufacturing capacity. Mattel has experienced shortages in the
past, including shortages of raw materials and components. Although Mattel works closely with suppliers to
avoid these types of shortages, there can be no assurance that Mattel will not encounter these problems in the
future. A reduction or interruption in supplies or in the delivery of finished products, whether resulting from
more stringent regulatory requirements, disruptions in transportation, port delays, labor strikes, lockouts, an
outbreak of a severe public health pandemic, the occurrence or threat of wars or other conflicts, or otherwise, or a
significant increase in the price of one or more supplies, such as fuel or resin (which is an oil-based product used
in plastics), could negatively impact Mattel’s financial results.
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