Mattel 2012 Annual Report Download - page 29

Mattel’s business depends in large part on the success of its vendors and outsourcers, and Mattel’s brands
and reputation may be harmed by actions taken by third-parties that are outside Mattel’s control. In
addition, any material failure, inadequacy, or interruption resulting from such vendors or outsourcings
could harm Mattel’s ability to effectively operate its business.
As a part of its efforts to cut costs, achieve better efficiencies and increase productivity and service quality,
Mattel relies significantly on vendor and outsourcing relationships with third parties for services and systems
including manufacturing, transportation, logistics and information technology. Any shortcoming of a Mattel
vendor or outsourcer, particularly an issue affecting the quality of these services or systems, may be attributed by
customers to Mattel, thus damaging Mattel’s reputation, brand value, and potentially affecting its results of
operations. In addition, problems with transitioning these services and systems to or operating failures with these
vendors and outsourcers could cause delays in product sales, reduce efficiency of Mattel’s operations, and
significant capital investments could be required to remediate the problem.
Increases in interest rates, reduction of Mattel’s credit ratings, contraction of credit availability, or the
inability of Mattel to meet the debt covenant requirements in its credit facilities could negatively impact
Mattel’s ability to conduct its operations.
Mattel relies on external financing, including commercial paper and borrowings under its domestic
unsecured committed revolving credit facility, to help fund its seasonal working capital needs. Increases in
interest rates, both domestically and internationally, could negatively affect Mattel’s cost of financing its
operations. Any reduction in Mattel’s credit ratings could increase the cost of obtaining financing. Mattel may be
hindered from obtaining, or incur additional costs to obtain, additional credit in tight credit markets.
Additionally, Mattel’s ability to issue long-term debt and obtain seasonal financing could be adversely affected
by factors such as market conditions and an inability to meet its debt covenant requirements, which include
maintaining certain financial ratios. Mattel’s ability to conduct its operations could be negatively impacted
should these or other adverse conditions affect its ability to access these sources of liquidity.
If Mattel is not able to adequately protect its proprietary intellectual property and information, its results
of operations could be adversely affected.
The value of Mattel’s business depends on its ability to protect its intellectual property and information,
including its trademarks, trade names, copyrights, patents and trade secrets, in the US and around the world, as
well as its customer, employee, and consumer data. Mattel may need to resort to litigation to protect its
intellectual property rights, which could result in substantial costs and diversion of resources. If Mattel fails to
protect its proprietary intellectual property and information, including any successful challenge to Mattel’s
ownership of its intellectual property or material infringements of its intellectual property, this failure could have
a significant adverse effect on Mattel’s business, financial condition, and results of operations.
Mattel has acquired certain intellectual properties from third parties. Declines in the profitability of these
acquired brands may impact Mattel’s ability to recover the carrying value of the related assets and could result in
an impairment charge. Reduction in net earnings caused by impairment charges could harm Mattel’s financial
results.
Unfavorable resolution of or adverse developments in legal proceedings, other investigations, or regulatory
matters could have a significant adverse effect on Mattel’s financial condition.
Mattel is, from time to time, involved in litigation or other disputes, investigations, and regulatory matters.
An unfavorable resolution of these matters could have a significant adverse effect on Mattel’s financial condition
and its operations. Regardless of their outcome, these matters may result in substantial costs and expenses,
significantly divert the attention of management, or interrupt Mattel’s normal business operations. There can be
no assurance that Mattel will be able to prevail in, or achieve a favorable settlement of, any of these matters.
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