Mattel 2014 Annual Report Download - page 25

In addition, changes in laws or policies or regulations may lead to increased costs, changes in Mattel’s
effective tax rate, or the interruption of normal business operations, any of which could 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 and results of operations.
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
manufacture Mattel’s products. Because of the seasonal nature of Mattel’s business and the demands of its
customers for deliveries with short lead times, Mattel depends upon the cooperation of its vendors to meet market
demand for its products in a timely manner. There can be no assurance that existing and future events will not
require Mattel to adopt additional requirements and incur additional costs, and impose those requirements and
costs on its vendors, which may adversely affect its relationship with those vendors and Mattel’s ability to meet
market demand in a timely manner.
Political developments, including trade relations, and the threat or occurrence of war or terrorist activities
could adversely impact Mattel, its personnel and facilities, its customers and suppliers, retail and financial
markets, and general economic conditions.
Mattel’s business is worldwide in scope, including operations in 40 countries and territories. The
deterioration of the political situation in a country in which Mattel has significant sales or operations, or the
breakdown of trade relations between the US and a foreign country in which Mattel has significant
manufacturing facilities or other operations, could adversely affect Mattel’s business, financial condition, and
results of operations. For example, a change in trade status for China could result in a substantial increase in the
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