Mattel 2007 Annual Report Download - page 28

A reduction or interruption in the delivery of raw materials, parts and components from its suppliers or a
significant increase in the price of supplies could negatively impact the gross profit margins realized by
Mattel on the sale of its products or 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 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 a significant increase in the price of one or more
supplies, such as fuel and resin (which is an oil-based product) expenses, could have a material adverse effect on
Mattel’s business. Cost increases, whether resulting from shortages of materials or otherwise, including but not
limited to rising costs of materials, transportation, services and labor (including but not limited to wages,
expenses related to employee health plans and insurance), 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 could result in lower sales.
Unfavorable resolution of pending and future litigation matters, and disputes, including those arising from
recalls, withdrawal, or replacement of Mattel products, could have a material adverse effect on Mattel’s
financial condition.
Mattel is involved in a number of litigation matters, including those arising from recalls, withdrawals, or
replacements of Mattel products. An unfavorable resolution of pending litigation could have a material adverse
effect on Mattel’s financial condition and its operations. Regardless of its outcome, litigation may result in
substantial costs and expenses and significantly divert the attention of management. There can be no assurance
that Mattel will be able to prevail in, or achieve a favorable settlement of, pending litigation. In addition to the
pending litigation, future litigation, government proceedings, labor disputes, or environmental matters could lead
to increased costs or interruption of Mattel’s normal business operations.
Product recalls, post-manufacture repairs of Mattel products, product liability claims, absence or cost of
insurance, and associated costs could harm Mattel’s reputation, divert resources, reduce sales and increase
costs and could have a material adverse effect on Mattel’s financial condition.
Mattel is subject to regulation by the U.S. Consumer Product Safety Commission and regulatory authorities
in the states of the United States and in other countries. Its products could be subject to recalls and other actions
by these authorities. Mattel has experienced, and may in the future experience, issues in products that result in
recalls, withdrawals, or post-manufacture repairs or replacements of products. Enhanced testing implemented by
Mattel, as well as increased scrutiny by retailers and other parties, may reveal issues in Mattel products that may
lead to regulatory actions by these authorities. Individuals have asserted claims, and may in the future assert
claims, that they have sustained injuries from Mattel’s products, and Mattel is and may be subject to lawsuits
relating to these claims. There is a risk that these claims or liabilities may exceed, or fall outside of the scope of,
Mattel’s insurance coverage. Moreover, Mattel may be unable to obtain adequate liability insurance in the future.
Any of the issues mentioned above could result in damage to Mattel’s reputation, diversion of development and
management resources, reduced sales and increased costs, any of which could harm Mattel’s business.
Recalls of Mattel products could materially and adversely affect Mattel by increasing costs in excess of
current estimates.
Mattel has recorded, and in the future may record, charges and incremental costs relating to recalls,
withdrawals, or replacements of Mattel products, based on its most recent estimates of retailer inventory returns,
consumer product replacement costs, associated legal and professional fees, and costs associated with advertising
and administration of product recalls. Because these current and expected future charges are based on estimates,
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