Mattel 2002 Annual Report Download - page 50

Rationalization of Mass Market Retail Channel and Bankruptcy of Key Customers
Many of Mattel’s key customers are mass market retailers. The mass market retail channel in the US has
experienced significant shifts in market share among competitors in recent years, causing some large retailers to
experience liquidity problems. In 2001 and 2002, two large customers of Mattel filed for bankruptcy and a third
filed for bankruptcy in 2003. Mattel’s sales to customers are typically made on credit without collateral. There is
a risk that customers will not pay, or that payment may be delayed, because of bankruptcy or other factors
beyond the control of Mattel. This could increase Mattel’s exposure to losses from bad debts. In addition, if these
or other customers were to cease doing business as a result of bankruptcy, it could have a material adverse affect
on Mattel’s business, financial condition and results of operations.
Adequate Supplies and Cost Increases
Mattel’s ability to meet customer demands 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 raw materials and components. Although Mattel works closely with
suppliers to avoid these types of shortages, there can be no assurances that Mattel will not encounter these
problems in the future. A reduction or interruption in supplies or a significant increase in the price of one or more
supplies could have a material adverse effect on Mattel’s businesses. Cost increases as a result of shortages of
materials or rising service expenses could increase the cost of Mattel’s products and lower sales.
Litigation and Disputes
Mattel is involved in a number of litigation matters. An unfavorable resolution of pending litigation could
have a material adverse effect on Mattel’s financial condition. Litigation may result in substantial costs and
expenses and significantly divert the attention of Mattel’s management regardless of the outcome. There can be
no assurance that Mattel will be able to achieve a favorable settlement of pending litigation or obtain a favorable
resolution of litigation if it is not settled. In addition, current and future litigation, governmental proceedings,
labor disputes or environmental matters could lead to increased costs or interruptions of normal business
operations of Mattel.
Protection of Intellectual Property Rights
The value of Mattel’s business depends to a large degree on its ability to protect its intellectual property,
including its trademarks, trade names, copyrights, patents and trade secrets in the US and around the world. Any
failure by Mattel to protect its proprietary intellectual property and information, including any successful
challenge to Mattel’s ownership of its intellectual property or material infringements of such property, could
have a material adverse effect on Mattel’s business, financial condition and results of operations.
Political Developments, including Trade Relations, and the Threat or Occurrence of War or Terrorist Activities
Mattel’s business is worldwide in scope, including operations in 36 countries. The deterioration of the
political situation in a country in which Mattel has significant sales or operations, or the breakdown of trade
relations between the US and a foreign country in which Mattel has significant manufacturing facilities or other
operations, could adversely affect Mattel’s business, financial condition and results of operations. For example, a
change in trade status for China could result in a substantial increase in the import duty of toys manufactured in
China and imported into the US. In addition, the occurrence or threat of terrorist activities, and the responses to
and results of such activities, or the war between the US and Iraq, or otherwise, could materially impact Mattel,
its personnel and facilities, its customers and suppliers, retail and financial markets and general economic
conditions.
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