Mattel 2012 Annual Report Download - page 28

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Significant changes in currency exchange rates or the ability to transfer capital across borders could have
a significant adverse effect on Mattel’s business and results of operations.
Mattel operates facilities and sells products in numerous countries outside the United States. During 2012,
Mattel’s net sales to international customers comprised 46% of Mattel’s total consolidated net sales.
Management expects that sales to international customers will continue to account for a significant portion of
Mattel’s sales. Furthermore, Mattel’s net investment in its foreign subsidiaries and its results of operations and
cash flows are subject to changes in currency exchange rates and regulations. Highly inflationary economies of
certain foreign countries can result in foreign currency devaluation, which negatively impacts Mattel’s
profitability. Mattel seeks to mitigate the exposure of its results of operations to fluctuations in currency
exchange rates by aligning its prices with the local currency cost of acquiring inventory, distributing earnings in
US Dollars, and partially hedging this exposure using foreign currency forward exchange contracts. These
contracts are primarily used to hedge Mattel’s purchase and sale of inventory, and other intercompany
transactions denominated in foreign currencies. Government action may restrict Mattel’s ability to transfer
capital across borders and may also impact the fluctuation of currencies in the countries where Mattel conducts
business or has invested capital. Significant changes in currency exchange rates, reductions in Mattel’s ability to
transfer its capital across borders, and changes in government-fixed currency exchange rates, including the
Chinese yuan and Venezuelan bolivar fuerte, could have a significant adverse effect on Mattel’s business and
results of operations.
If global economic conditions deteriorate, Mattel’s business and financial results could be adversely
affected.
Mattel designs, manufactures, and markets a wide variety of toy products worldwide through sales to
customers and directly to consumers. Mattel’s performance is impacted by the level of discretionary consumer
spending, which remains relatively weak in the United States and in many countries around the world in which
Mattel does business. Consumers’ discretionary purchases of toy products may be impacted by job losses,
foreclosures, bankruptcies, reduced access to credit, significantly falling home prices, lower consumer
confidence, and other macroeconomic factors that affect consumer spending behavior. Any of these factors can
reduce the amount which consumers spend on the purchase of Mattel’s products. Deterioration of global
economic conditions or disruptions in credit markets in the markets in which Mattel operates could potentially
have a material adverse effect on Mattel’s liquidity and capital resources, including increasing Mattel’s cost of
capital or its ability to raise additional capital if needed, or otherwise adversely affect Mattel’s business and
financial results.
In addition to experiencing potentially lower revenues during times of economic difficulty, in an effort to
maintain sales during such times, Mattel may need to increase promotional spending or take other steps to
encourage retailer and consumer purchase of its products. Those steps may lower net sales, increase costs and/or
decrease operating margins.
Failure to successfully implement new initiatives could have a significant adverse effect on Mattel’s
business, financial condition and results of operations.
Mattel has announced, and in the future may announce, initiatives to reduce its costs, increase its efficiency,
improve the execution of its core business, globalize and extend Mattel’s brands, catch new trends, create new
brands, and offer new innovative products, enhance product safety, develop people, improve productivity,
simplify processes, maintain customer service levels, as well as initiatives designed to drive sales growth,
capitalize on Mattel’s scale advantage, and improve its supply chain. These initiatives involve investment of
capital and complex decision-making as well as extensive and intensive execution, and the success of these
initiatives is not assured. Failure to successfully implement any of these initiatives, or the failure of any of these
initiatives to produce the results anticipated by management, could have a significant adverse effect on Mattel’s
business, financial condition, and results of operations.
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