Mattel 2004 Annual Report Download - page 57

safety may lead Mattel to voluntarily recall selected products. Mattel has experienced, and in the future may
experience, defects or errors in products after their production and sale to customers. Such defects or errors could
result in the rejection of Mattel’s products by customers, damage to its reputation, lost sales, diverted
development resources and increased customer service and support costs, any of which could harm Mattel’s
business. Individuals could sustain injuries from Mattel’s products, and Mattel may be subject to claims or
lawsuits resulting from such injuries. There is a risk that these claims or liabilities may exceed, or fall outside the
scope of, Mattel’s insurance coverage. Moreover, Mattel may be unable to obtain adequate liability insurance in
the future. Recalls, post-manufacture repairs of Mattel products, absence or cost of insurance, and administrative
costs associated with recalls could harm Mattel’s reputation, increase costs or reduce sales.
Protection of Intellectual Property Rights
The value of Mattel’s business depends to a large degree on its ability to protect its intellectual property,
including its trademarks, trade names, copyrights, patents and trade secrets in the US and around the world. Any
failure by Mattel to protect its proprietary intellectual property and information, including any successful
challenge to Mattel’s ownership of its intellectual property or material infringements of such property, could
have a material adverse effect on Mattel’s business, financial condition and results of operations.
Political Developments, including Trade Relations, and the Threat or Occurrence of War or Terrorist Activities
Mattel’s business is worldwide in scope, including operations in 42 countries. 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 import duty of toys manufactured in
China and imported into the US. In addition, the occurrence of war or hostilities between countries or threat of
terrorist activities, and the responses to and results of such activities, could materially impact Mattel, its
personnel and facilities, its customers and suppliers, retail and financial markets, and general economic
conditions.
Manufacturing Risk; Severe Acute Respiratory Syndrome (“SARS”) or Other Diseases
Mattel owns and operates manufacturing facilities and utilizes third-party manufacturers throughout Asia,
primarily in China, Indonesia, Malaysia and Thailand. The risk of political instability and civil unrest exists in
certain of these countries, which could temporarily or permanently damage Mattel’s manufacturing operations
located there. In the past, outbreaks of SARS have been significantly concentrated in Asia, particularly in Hong
Kong, and in the Guangdong province of China, where many of Mattel’s manufacturing facilities and third-party
manufacturers are located. The design, development and manufacture of Mattel’s products could suffer if a
significant number of Mattel’s employees or the employees of its third-party manufacturers or their suppliers
contract SARS or other communicable diseases, or otherwise are unable to fulfill their responsibilities. Mattel
has developed contingency plans designed to help mitigate the impact of disruptions in its manufacturing
operations. Mattel’s business, financial position and results of operations could be negatively impacted by a
significant disruption to its manufacturing operations or suppliers.
Earthquakes or Other Catastrophic Events
Mattel has significant operations, including its corporate headquarters, near major earthquake faults in
Southern California. Southern California has experienced earthquakes, wildfires and other natural disasters in
recent years. A catastrophic event, such as an earthquake, tsunami, flood, typhoon, fire or other natural or
manmade disaster, could disrupt Mattel’s operations or those of its contractors and impair production or
distribution of its products, damage inventory, interrupt critical functions or otherwise affect business negatively,
harming Mattel’s results of operations.
46