Mattel 2004 Annual Report Download - page 58

Changes in Currency Exchange Rates
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. Mattel seeks to mitigate the exposure of its results of
operations to fluctuations in currency exchange rates by partially hedging such exposure using foreign 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,
reductions in Mattel’s ability to transfer its capital across borders, and changes in government-fixed currency
exchange rates, including the Chinese yuan, 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 effect 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 trends, create new brands and enter new categories, develop people, and improve productivity,
simplify processes and maintain customer service levels, as well as new initiatives designed to drive sales
growth. 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 income 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 effective tax rate, or the interruption of normal
business operations that would negatively impact its financial condition and results of operations.
Acquisition, Dispositions and Takeover Defenses
Mattel may engage in acquisitions, mergers or dispositions, which may affect the profit, revenues, profit
margins, debt-to-capital ratio, capital expenditures, or other aspects of Mattel’s business. There can be no
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