Mattel 2014 Annual Report Download - page 22

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. Additionally, as Mattel cannot guarantee the stability
of its major suppliers, major suppliers may stop manufacturing components at any time with little or no notice. If
Mattel is required to use alternative sources, it may be required to redesign some aspects of the affected products,
which may involve delays and additional expense. 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, severe weather, the occurrence or threat of wars or other conflicts, 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), or otherwise, could negatively impact Mattel’s financial results.
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 2014,
Mattel’s net sales to international customers comprised 47% of Mattel’s total consolidated net 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 retailer
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.
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