Mattel 2011 Annual Report Download - page 26

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. Any events that disrupt Mattel’s business during its peak
demand times could significantly, adversely and disproportionately affect Mattel’s business.
Mattel’s business is subject to risks associated with the underproduction of popular toys and the
overproduction of toys that are less popular with consumers. 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. These factors may decrease sales or increase the risks that Mattel may not be able to
meet demand for certain products at peak demand times or that Mattel’s own inventory levels may be adversely
impacted by the need to pre-build products before orders are placed.
In addition, as a result of the seasonal nature of Mattel’s business, Mattel may be significantly and adversely
affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the
year, by unforeseen events, such as terrorist attacks, economic shocks, earthquakes or other catastrophic events,
that harm the retail environment or consumer buying patterns during its key selling season, or by events, such as
strikes, disruptions in transportation or port delays, that interfere with the manufacture or shipment of goods
during the critical months leading up to the holiday purchasing season.
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 2011, Mattel’s three largest
customers, Wal-Mart, Toys “R” Us, and Target, in the aggregate, accounted for approximately 38% of net sales,
and its ten largest customers, in the aggregate, accounted for approximately 48% of net sales. While the
concentration of Mattel’s business with a relatively small number of customers may provide certain benefits to
Mattel, such as potentially more efficient product distribution and decreased costs of sales and distribution, this
concentration 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
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