Mattel 2005 Annual Report Download - page 25

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.
Mattel is subject to regulation by the Consumer Product Safety Commission and similar state and
international regulatory authorities, and its products could be subject to involuntary recalls and other actions by
these authorities. Concerns about product 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. These 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 these 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.
Failure by Mattel to protect its proprietary intellectual property and information could have a material
adverse effect on Mattel’s business, financial condition and results of operations.
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 its intellectual 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
could materially 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 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 these activities, could materially impact Mattel, its
personnel and facilities, its customers and suppliers, retail and financial markets, and general economic
conditions.
Disruptions in Mattel’s manufacturing operations due to political instability, civil unrest, SARS, avian flu
or other diseases could negatively impact Mattel’s business, financial position and results of operations.
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, avian flu 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.
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