Mattel 2011 Annual Report Download - page 21

Purchase and service agreements with terms extending through 2016 contain future minimum payments
aggregating approximately $406 million. Licensing and similar agreements with terms extending through 2016
and beyond contain provisions for future guaranteed minimum payments aggregating approximately
$314 million. Lease commitments with terms extending through 2016 and beyond contain future minimum
obligations aggregating approximately $473 million. See Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Commitments” and Item 8 “Financial Statements and
Supplementary Data—Note 13 to the Consolidated Financial Statements—Commitments and Contingencies.”
Backlog
Mattel ships products in accordance with delivery schedules specified by its customers, which usually
request delivery within three months. In the toy industry, orders are subject to cancellation or change at any time
prior to shipment. In recent years, a trend toward just-in-time inventory practices in the toy industry has resulted
in fewer advance orders and therefore less backlog of orders. Mattel believes that the amount of backlog orders at
any given time may not accurately indicate future sales.
Financial Instruments
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Mattel seeks
to mitigate its exposure to market risk by monitoring its foreign currency transaction exposure for the year and
partially hedging such exposure using foreign currency forward exchange contracts primarily to hedge its
purchase and sale of inventory, and other intercompany transactions denominated in foreign currencies. These
contracts generally have maturity dates of up to 18 months. In addition, Mattel manages its exposure to currency
exchange rate fluctuations through the selection of currencies used for international borrowings. Mattel does not
trade in financial instruments for speculative purposes.
For additional information regarding foreign currency contracts, see “International Segment” above,
Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and Item 8 “Financial Statements and
Supplementary Data—Note 11 to the Consolidated Financial Statements—Derivative Instruments.”
Seasonal Financing
See Item 8 “Financial Statements and Supplementary Data—Note 7 to the Consolidated Financial
Statements—Seasonal Financing and Debt.”
Government Regulations and Environmental Quality
Mattel’s products sold in the US are subject to the provisions of the Consumer Product Safety Act, as
amended by the Consumer Product Safety Improvements Act of 2008, the Federal Hazardous Substances Act,
and the Consumer Product Safety Improvement Act of 2008, and may also be subject to the requirements of the
Flammable Fabrics Act or the Food, Drug, and Cosmetics Act, and the regulations promulgated pursuant to such
statutes. These statutes and the related regulations ban from the market consumer products that fail to comply
with applicable product safety laws, regulations, and standards. The Consumer Product Safety Commission may
require the recall, repurchase, replacement, or repair of any such banned products or products that otherwise
create a substantial risk of injury and may seek penalties for regulatory noncompliance under certain
circumstances. Similar laws exist in some US states.
Mattel’s products sold worldwide are subject to the provision of similar laws and regulations in many
jurisdictions including new product safety laws and regulations in the European Union and Canada.
Mattel maintains a quality control program to help ensure compliance with various US federal, state, and
applicable foreign product safety requirements. Nonetheless, Mattel has experienced, and may in the future
experience, issues in products that result in recalls, withdrawals, or replacements of products. A product recall
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