Mattel 2006 Annual Report Download - page 14

Mattel’s International segment revenue represented 44% of worldwide consolidated gross sales in 2006.
Within the International segment, Mattel operates in four regions that generated the following gross sales during
2006 (in millions):
Amount
Percentage of
International
Gross Sales
Europe ................................................................ $1,544.5 56%
Latin America .......................................................... 739.9 27
Asia Pacific ............................................................ 239.6 9
Other ................................................................. 215.0 8
$2,739.0 100%
No individual country within the International segment exceeded 6% of worldwide consolidated gross sales
during 2006.
The strength of the US dollar relative to other currencies can significantly affect the revenues and
profitability of Mattel’s international operations. Mattel enters into foreign currency forward exchange and
option contracts, primarily to hedge its purchase and sale of inventory and other intercompany transactions
denominated in foreign currencies, to limit the effect of exchange rate fluctuations on its results of operations and
cash flows. See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and Item 8 “Financial
Statements and Supplementary Data—Note 8 to the Consolidated Financial Statements.” For financial
information by geographic area, see Item 8 “Financial Statements and Supplementary Data—Note 10 to the
Consolidated Financial Statements.”
Manufacturing and Materials
Mattel manufactures toy products for all segments in both company-owned facilities and through third-party
manufacturers. Products are also purchased from unrelated entities that design, develop and manufacture those
products. To provide greater flexibility in the manufacture and delivery of its products, and as part of a
continuing effort to reduce manufacturing costs, Mattel has concentrated production of most of its core products
in company-owned facilities and generally uses third-party manufacturers for the production of non-core
products.
Mattel’s principal manufacturing facilities are located in China, Indonesia, Thailand, Malaysia and Mexico.
Mattel also utilizes third-party manufacturers to manufacture its products in the US, Mexico, Brazil, Asia, India,
New Zealand, and Australia. To help avoid disruption of its product supply due to political instability, civil
unrest, economic instability, changes in government policies and other risks, Mattel produces many of its key
products in more than one facility. Mattel believes that the existing production capacity at its own and its third-
party manufacturers’ manufacturing facilities is sufficient to handle expected volume in the foreseeable future.
See Item 1A “Risk Factors—Factors That May Affect Future Results.”
Mattel bases its production schedules for toy products on customer orders and forecasts, taking into account
historical trends, results of market research and current market information. Actual shipments of products
ordered and order cancellation rates are affected by consumer acceptance of product lines, strength of competing
products, marketing strategies of retailers, changes in buying patterns of both retailers and consumers, and
overall economic conditions. Unexpected changes in these factors could result in a lack of product availability or
excess inventory in a particular product line.
The foreign countries in which most of Mattel’s products are manufactured (principally China, Indonesia,
Thailand, Malaysia and Mexico) all enjoy permanent “normal trade relations” (“NTR”) status under US tariff
laws, which provides a favorable category of US import duties. China’s NTR status became permanent in 2002,
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