Mattel 2011 Annual Report Download - page 27

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, transportation, services, labor or compliance
with existing or future regulatory requirements 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, disruptions in transportation, port delays, labor strikes, lockouts, an
outbreak of a severe public health pandemic, the occurrence or threat of wars or other conflicts, 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 used
in plastics), 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 operates facilities and sells products in numerous countries outside the United States. During 2011,
Mattel’s net sales to international customers comprised 48% of Mattel’s total consolidated net sales.
Management expects that sales to international customers will continue to account for a significant portion of
Mattel’s sales. Furthermore, 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. Highly inflationary economies of
certain foreign countries can result in foreign currency devaluation, which negatively impacts Mattel’s
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 countries where Mattel conducts
business or has invested capital. Significant changes in currency exchange rates, reductions in Mattel’s ability to
transfer its capital across borders, and changes in government-fixed currency exchange rates, including the
Chinese yuan and Venezuelan bolivar fuerte, could have a significant adverse effect on Mattel’s business and
results of operations.
If global economic conditions deteriorate, Mattel’s business and financial results could be adversely
affected.
Mattel designs, manufactures, and markets a wide variety of toy products worldwide through sales to
customers and directly to consumers. Mattel’s performance is impacted by the level of discretionary consumer
spending, which remains relatively weak in the United States and in many countries around the world in which
Mattel does business. Consumers’ discretionary purchases of toy products may be impacted by job losses,
foreclosures, bankruptcies, reduced access to credit, significantly falling home prices, lower consumer
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