Mattel 2006 Annual Report Download - page 28

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Disruptions in Mattel’s manufacturing operations due to political instability, civil unrest, SARS, avian flu
or other diseases could negatively impact Mattel’s business, financial position and results of operations.
Mattel owns and operates manufacturing facilities and utilizes third-party manufacturers throughout Asia,
primarily in China, Indonesia, Malaysia and Thailand. The risk of political instability and civil unrest exists in
certain of these countries, which could temporarily or permanently damage Mattel’s manufacturing operations
located there. In the past, outbreaks of SARS have been significantly concentrated in Asia, particularly in Hong
Kong, and in the Guangdong province of China, where many of Mattel’s manufacturing facilities and third-party
manufacturers are located. The design, development and manufacture of Mattel’s products could suffer if a
significant number of Mattel’s employees or the employees of its third-party manufacturers or their suppliers
contract SARS, avian flu or other communicable diseases, or otherwise are unable to fulfill their responsibilities.
Mattel has developed contingency plans designed to help mitigate the impact of disruptions in its manufacturing
operations. Mattel’s business, financial position and results of operations could be negatively impacted by a
significant disruption to its manufacturing operations or suppliers.
Earthquakes or other catastrophic events out of our control may damage Mattel’s facilities or those of its
contractors and harm Mattel’s results of operations.
Mattel has significant operations, including its corporate headquarters, near major earthquake faults in
Southern California. Southern California has experienced earthquakes, wildfires and other natural disasters in
recent years. A catastrophic event where Mattel has important operations, such as an earthquake, tsunami, flood,
typhoon, fire or other natural or manmade disaster, could disrupt Mattel’s operations or those of its contractors
and impair production or distribution of its products, damage inventory, interrupt critical functions or otherwise
affect business negatively, harming Mattel’s results of operations.
Significant changes in currency exchange rates could have a material adverse effect on Mattel’s business
and results of operations.
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 this exposure using foreign currency
forward exchange and option 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, could have a material adverse effect on Mattel’s business and results
of operations.
Increases in interest rates, reduction of Mattel’s credit ratings or the inability of Mattel to meet the debt
covenant coverage requirements in its credit facilities could negatively impact Mattel’s ability to conduct
its operations.
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.
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