Mattel 2007 Annual Report Download - page 29

they may increase as a result of numerous factors, many of which are beyond Mattel’s control, including the
amount of products that may be returned by consumers and retailers, the number and type of legal, regulatory, or
legislative proceedings relating to product recalls, withdrawals, or replacements or product safety in the United
States and elsewhere that may involve Mattel; and regulatory or judicial orders or decrees in the United States
and elsewhere that may require Mattel to take certain actions in connection with product recalls.
Recalls of Mattel products could result in adverse governmental actions, including new legislation and
regulations, that may materially and adversely affect Mattel.
As a result of product recalls, withdrawals, or replacements Mattel has been the subject of governmental
actions, inquiries, and proceedings in several countries. Mattel has incurred expenses to respond and has had
adverse effects on its business, including temporary suspension of its ability to import products into various
countries and to export certain products from China. Product recalls, withdrawals, or replacements have resulted
in increased governmental scrutiny of Mattel products. There can be no assurance that Mattel will not be
subjected to future governmental actions and scrutiny that may lead to increased costs or to interruptions or
disruptions of its normal business operations. In addition, regulatory agencies and legislatures in various
countries, including the United States, have undertaken reviews of product safety, and various proposals for
additional, more stringent laws and regulations are under consideration. Current or future laws or regulations
may become effective in various jurisdictions in which Mattel currently operates and may increase Mattel’s costs
and disrupt its business operations.
Mattel’s revised safety procedures may materially and adversely affect its relationship with vendors and
make it more difficult for Mattel to 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 revised operating procedures and requirements for vendors, including enhanced testing
requirements and standards, impose additional costs on both Mattel and the vendors from which it purchases
products. These changes also delay delivery of products. 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. 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 impose additional requirements on its vendors that may adversely affect its relationship with
those vendors and Mattel’s ability to meet market demand in a timely manner.
Product recalls may harm Mattel’s reputation and acceptance of Mattel’s products by consumers,
licensors and Mattel’s retailer customers, which may materially and adversely affect sales and profits.
Recalls may also increase competitive pressures from other toy manufacturers.
Product recalls, withdrawals, or replacements have resulted in coverage critical of Mattel in the press and
media. While Mattel believes that it has acted responsibly and in the interests of safety, product recalls,
withdrawals, or replacements may harm Mattel’s reputation and the acceptance of its products by consumers,
licensors and retailers. Mattel’s ability to enter into licensing agreements for products on competitive terms may
be adversely affected, if licensors believe that products sold by Mattel will be less favorably received in the
market. Mattel’s retailer customers may be less willing to purchase Mattel products or to provide marketing
support for those products, such as shelf space, promotions, and advertising. Reduced acceptance of Mattel’s
products would adversely affect its sales and profits. Product recalls, withdrawals, or replacements may also
increase the amount of competition that Mattel confronts from other manufacturers. Some competitors may
attempt to differentiate themselves from Mattel by claiming that their products are produced in a manner or
geographic area that is insulated from the issues that preceded recalls, withdrawals, or replacements of Mattel
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