Mattel 2008 Annual Report Download - page 17

consequences of the current global economic crisis are not yet known; any one or all of them could potentially
have a material adverse effect on Mattel’s liquidity and capital resources, including increasing our cost of capital
or our ability to raise additional capital if needed, or otherwise negatively impact Mattel’s business and financial
results.
If Mattel does not successfully identify or satisfy consumer preferences, its results of operations may be
adversely affected.
Mattel’s business and operating results depend largely upon the appeal of its toy products. Consumer
preferences, particularly among end users of Mattel’s products–children–are continuously changing. Significant,
sudden shifts in demand are caused by “hit” toys and trends, which are often unpredictable. Mattel offers a
diverse range of products for children of all ages and families that includes, among others, toys for infants and
preschoolers, girls’ toys, boys’ toys, youth electronics, hand-held and other games, puzzles, educational toys,
media-driven products, and fashion-related toys. Mattel competes domestically and internationally with a wide
range of large and small manufacturers, marketers and sellers of toys, video games, consumer electronics and
other play products, as well as retailers, which means that Mattel’s market position is always at risk. Mattel’s
ability to maintain its current product sales, and increase its product sales or establish product sales with new,
innovative toys, will depend on Mattel’s ability to satisfy play preferences, enhance existing products, develop
and introduce new products, and achieve market acceptance of these products. Competition for access to
entertainment properties could lessen our ability to secure, maintain, and renew popular licenses to entertainment
products or require us to pay licensors higher royalties and higher minimum guaranteed payments in order to
obtain or retain these licenses. Competition is intensifying due to recent trends towards shorter life cycles for
individual toy products, the phenomenon of children outgrowing toys at younger ages, and an increasing use of
more sophisticated technology in toys. If Mattel does not successfully meet the challenges outlined above in a
timely and cost-effective manner, demand for its products could decrease, and Mattel’s revenues, profitability
and results of operations may be adversely affected.
Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology
can negatively affect Mattel’s sales.
Successful movies and characters in children’s literature affect play preferences, and many toys depend on
media-based intellectual property licenses. Media-based licenses can cause a line of toys to gain immediate
success among children, parents, or families. Trends in media, movies, and children’s characters change swiftly
and contribute to the transience and uncertainty of play preferences. In addition, certain developments in the
entertainment industry, including labor strikes, could cause delay or interruption in the release of new movies and
television programs and could adversely affect the sales of Mattel’s toys based on such movies and television
programs. Mattel responds to such trends and developments by modifying, refreshing, extending, and expanding
its product offerings on an annual basis. If Mattel does not accurately anticipate trends in popular culture,
movies, media, fashion, or technology, its products may not be accepted by children, parents, or families and
Mattel’s revenues, profitability, and results of operations may be adversely affected.
Mattel’s business is highly seasonal and its operating results depend, in large part, on sales during the
relatively brief traditional holiday season.
Mattel’s business is subject to risks associated with the underproduction of popular toys and the
overproduction of toys that do not match consumer demand. Sales of toy products at retail are highly seasonal,
with a majority of retail sales occurring during the period from September through December. As a result,
Mattel’s operating results depend, in large part, on sales during the relatively brief traditional holiday season.
Retailers attempt to manage their inventories tightly, which requires Mattel to ship products closer to the time the
retailers expect to sell the products to consumers. This in turn results in shorter lead times for production.
Management believes that the increase in “last minute” shopping during the holiday season and the popularity of
gift cards (which often shift purchases to after the holiday season) may negatively impact customer re-orders
during the holiday season. Shipping disruptions limiting the availability of ships or containers in Asia during
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