Mattel 2010 Annual Report Download - page 22

Mattel has significant customer concentration, so that economic difficulties or changes in the purchasing
policies or patterns of its key 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 2010, 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 51% 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.
Liquidity problems or bankruptcy of Mattel’s key customers could have a significant adverse effect on
Mattel’s business, financial condition and results of operations.
Mattel’s sales to customers are typically made on credit without collateral. There is a risk that key customers
will not pay, or that payment may be delayed, because of bankruptcy, contraction of credit availability to such
customers, weak retail sales or other factors beyond the control of Mattel, which could increase Mattel’s
exposure to losses from bad debts. In addition, if key customers were to cease doing business as a result of
bankruptcy or significantly reduce the number of stores operated, it could have a significant adverse effect on
Mattel’s business, financial condition, and results of operations.
Significant increases in the price of commodities, transportation or labor, if not offset by declines in other
input costs, or a reduction or interruption in the delivery of raw materials, components and finished
products from Mattel’s vendors could negatively impact Mattel’s financial results.
Cost increases, whether resulting from rising costs of materials, compliance with existing or future
regulatory requirements, transportation, services and labor could impact the profit margins realized by Mattel on
the sale of its products. Because of market conditions, timing of pricing decisions, and other factors, there can be
no assurance that Mattel will be able to offset any of these increased costs by adjusting the prices of its products.
Increases in prices of Mattel’s products may not be sustainable, and could result in lower sales. Mattel’s ability to
meet customer demand depends, in part, on its ability to obtain timely and adequate delivery of materials, parts
and components from its suppliers and internal manufacturing capacity. Mattel has experienced shortages in the
past, including shortages of raw materials and components. Although Mattel works closely with suppliers to
avoid these types of shortages, there can be no assurance that Mattel will not encounter these problems in the
future. A reduction or interruption in supplies or in the delivery of finished products, whether resulting from
more stringent regulatory requirements, suppliers, disruptions in transportation, port delays, labor strikes,
lockouts, or otherwise, or a significant increase in the price of one or more supplies, such as fuel or resin (which
is an oil-based product), could negatively impact Mattel’s financial results.
Significant changes in currency exchange rates or the ability to transfer capital across borders could have
a significant 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. Countries with highly inflationary economies can result in
foreign currency devaluation, which negatively impacts profitability. Mattel seeks to mitigate the exposure of its
results of operations to fluctuations in currency exchange rates by aligning its prices with the local currency cost
of acquiring inventory, distributing earnings in US Dollars, and partially hedging this exposure using foreign
currency forward exchange 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
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