Mattel 2007 Annual Report Download - page 27

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prevailing economic uncertainties render estimates of future income and expenditures very difficult to make.
Adverse changes may occur as a result of soft global or regional economic conditions, rising oil prices, wavering
consumer confidence, unemployment, declines in stock markets or other factors affecting economic conditions
generally. These changes may negatively affect the sales of Mattel’s products, increase exposure to losses from
bad debts, increase the cost and decrease the availability of financing, increase the risk of loss on investments, or
increase costs associated with manufacturing and distributing products.
The concentration of Mattel’s business with a small retail customer base that makes no binding long-term
commitments means that economic difficulties or changes in the purchasing policies of its major customers
could have a significant impact on Mattel’s business and operating results.
A small number of customers account for a large share of Mattel’s net sales. In 2007, Mattel’s three largest
customers, Wal-Mart, Toys “R” Us and Target, in the aggregate, accounted for approximately 41% of net sales,
and its ten largest customers, in the aggregate, accounted for approximately 50% of net sales. The concentration
of Mattel’s business with a relatively small number of customers may expose Mattel to a material adverse effect
if one or more of Mattel’s large customers were to significantly reduce purchases for any reason, favor
competitors or new entrants, or increase their direct competition with Mattel by expanding their private-label
business. Customers make no binding long-term commitments to Mattel regarding purchase volumes and make
all purchases by delivering one-time purchase orders. Any customer could reduce its overall purchases of
Mattel’s products, reduce the number and variety of Mattel’s products that it carries and the shelf space allotted
for Mattel’s products, or otherwise seek to materially change the terms of the business relationship at any time.
Any such change could significantly harm Mattel’s business and operating results.
The production and sale of private-label toys by Mattel’s retail customers may result in lower purchases of
Mattel-branded products by those retail customers.
In recent years, consumer goods companies generally, including those in the toy business, have experienced
the phenomenon of retail customers developing their own private-label products that directly compete with the
products of traditional manufacturers. Some retail chains that are customers of Mattel sell private-label toys
designed, manufactured and branded by the retailers themselves. These toys may be sold at prices lower than
comparable toys sold by Mattel, and may result in lower purchases of Mattel-branded products by these retailers.
In some cases, retailers who sell these private-label toys are larger than Mattel and may have substantially more
resources than Mattel.
Liquidity problems or bankruptcy of Mattel’s key customers could increase Mattel’s exposure to losses
from bad debts and could have a material adverse effect on Mattel’s business, financial condition and
results of operations.
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. From 2001 through early 2004, four large customers of Mattel filed for
bankruptcy. In addition, 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, which 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, or significantly reduce the number of
stores operated, it could have a material adverse effect on Mattel’s business, financial condition and results of
operations.
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