Mattel 2012 Annual Report Download - page 30

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Mattel is subject to various laws and government regulations in numerous jurisdictions, violation of which
could subject it to sanctions. In addition, changes in such laws or regulations may lead to increased costs,
changes in Mattel’s effective tax rate, or the interruption of normal business operations that would
negatively impact Mattel’s financial condition and results of operations.
Mattel operates in a highly regulated environment in the US and international markets. US federal, state,
and local governmental entities, and foreign governments regulate many aspects of Mattel’s business, including
its products and the importation and exportation of its products. These regulations may include accounting
standards, taxation requirements (including changes in applicable income tax rates, new tax laws and revised tax
law interpretations), product safety and other safety standards, trade restrictions, duties and tariffs, and
regulations regarding currency and financial matters, anticorruption standards (such as the US Foreign Corrupt
Practices Act), environmental matters, advertising directed toward children, product content, and privacy and
data protection, as well as other administrative and regulatory restrictions. While Mattel takes all the steps it
believes are necessary to comply with these laws and regulations, there can be no assurance that Mattel will be in
compliance in the future. Failure to comply could result in monetary liabilities and other sanctions which could
have a negative impact on Mattel’s business, financial condition and results of operations.
In addition, changes in laws or regulations may lead to increased costs, changes in Mattel’s effective tax
rate, or the interruption of normal business operations that would negatively impact its financial condition and
results of operations.
Issues with products may lead to product liability, personal injury or property damage claims, recalls,
withdrawals, replacements of products, or regulatory actions by governmental authorities that could
divert resources, affect business operations, decrease sales, increase costs, and put Mattel at a competitive
disadvantage, any of which could have a significant adverse effect on Mattel’s financial condition.
Mattel has experienced, and may in the future experience, issues with products that may lead to product
liability, personal injury or property damage claims, recalls, withdrawals, replacements of products, or regulatory
actions by governmental authorities. Any of these activities could result in increased governmental scrutiny,
harm to Mattel’s reputation, reduced demand by consumers for its products, decreased willingness by retailer
customers to purchase or provide marketing support for those products, adverse impacts on Mattel’s ability to
enter into licensing agreements for products on competitive terms, absence or increased cost of insurance, or
additional safety and testing requirements. Such results could divert development and management resources,
adversely affect Mattel’s business operations, decrease sales, increase legal fees and other costs, and put Mattel
at a competitive disadvantage compared to other manufacturers not affected by similar issues with products, any
of which could have a significant adverse effect on Mattel’s financial condition.
Mattel’s current and future operating procedures and product requirements may increase costs,
significantly and adversely affect its relationship with vendors, and make it more difficult for Mattel to
produce, purchase, and deliver products on a timely basis to meet market demands. Future conditions may
require Mattel to adopt further changes that may increase its costs and further affect its relationship with
vendors.
Mattel’s current operating procedures and product requirements, including testing requirements and
standards, have imposed costs on both Mattel and the vendors from which it purchases products. Changes in
business conditions, including those resulting from new legislative and regulatory requirements, have caused and
in the future could cause further revisions in Mattel’s operating procedures and product requirements. Changes in
Mattel’s operating procedures and product requirements may delay delivery of products and increase costs.
Mattel’s relationship with its existing vendors may be adversely affected as a result of these changes, making
Mattel more dependent on a smaller number of vendors. Some vendors may choose not to continue to do
business with Mattel or not to accommodate Mattel’s needs to the extent that they have done in the past. In
addition, rising production costs, contraction of credit availability, and labor shortages have caused a substantial
contraction in the number of toy manufacturers in China, decreasing the number of potential vendors to
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