Mattel 2003 Annual Report Download - page 55

currency forward exchange and option contracts. Such 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 or reductions in Mattel’s ability to transfer its capital across borders could have a
material adverse effect on Mattel’s business and results of operations.
Financing Matters
Increases in interest rates, both domestically and internationally, could negatively affect Mattel’s cost of
financing both its operations and investments. Any reduction in Mattel’s credit ratings could increase the cost of
obtaining financing. Additionally, Mattel’s ability to issue long-term debt and obtain seasonal financing could be
adversely affected by factors such as an inability to meet its debt covenant requirements, which include
maintaining consolidated debt-to-capital and interest coverage ratios. Mattel’s ability to conduct its operations
could be negatively impacted should these or other adverse conditions affect its primary sources of liquidity.
Advertising and Promotion
Mattel’s products are marketed worldwide through a diverse spectrum of advertising and promotional
programs. Mattel’s ability to sell products is dependent in part upon the success of such programs. If Mattel does
not successfully market its products or if media or other advertising or promotional costs increase, these factors
could have a material adverse affect on Mattel’s business, financial condition and results of operations.
Success of New Initiatives
Mattel has announced initiatives to improve the execution of its core business, globalize and extend Mattel’s
brands, catch new industry trends and develop people, including a supply chain initiative, a long-term
information technology strategy and new initiatives designed to drive growth in sales. Such initiatives involve
complex decision making as well as extensive and intensive execution, and the success of such initiatives is not
assured. Failure to successfully implement any of these initiatives could have a material adverse effect on
Mattel’s business, financial condition and results of operations.
Changes in Laws and Regulations
Mattel operates in a highly regulated environment in the US and international markets. US federal, state and
local governmental entities and foreign governments regulate many aspects of Mattel’s business including its
products and the importation and exportation of its products. Such regulations may include accounting standards,
taxation requirements (including changes in applicable tax rates, new tax laws and revised tax law
interpretations), trade restrictions, regulations regarding financial matters, environmental regulations, advertising
directed toward children, safety and other administrative and regulatory restrictions. Changes in laws or
regulations may lead to increased costs, changes in Mattel’s consolidated effective tax rate, or the interruption of
normal business operations that would negatively impact its results of operations and financial condition.
Acquisition, Dispositions and Takeover Defenses
Mattel may engage in acquisitions, mergers or dispositions, which may affect the profit, revenues, profit
margins, debt-to-capital ratios, capital expenditures, or other aspects of Mattel’s business. There can be no
assurance that Mattel will be able to identify suitable acquisition targets or that, if identified, it will be able to
acquire such targets on acceptable terms. Additionally, there can be no assurance that Mattel will be successful in
integrating any acquired company into its overall operations, or that any such acquired company will operate
profitably or will not otherwise adversely impact Mattel’s results of operations. In addition, Mattel has certain
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