Mattel 2008 Annual Report Download - page 20

Unfavorable resolution of pending and future litigation matters, and disputes, including those arising from
recalls, withdrawals, or replacements of Mattel products, could have a material adverse effect on Mattel’s
financial condition.
Mattel is involved in a number of litigation and regulatory matters, including those arising from recalls,
withdrawals, or replacements of Mattel products. An unfavorable resolution of these pending matters 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 matters. In
addition to the pending matters, future litigation, government proceedings, labor disputes, or environmental
matters could lead to increased costs or interruption of Mattel’s normal business operations.
Product recalls, product liability claims, absence or cost of insurance, and associated costs could 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 US 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 replacements of products. Enhanced testing implemented by Mattel, as well as increased
scrutiny by retailers, consumers, 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, and reduced sales and increased costs, any of which could harm Mattel’s business.
Product recalls 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,
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
and/or impose monetary penalties; and the resolution of claims associated with recalls, withdrawals or
replacement of Mattel products.
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 its business
operations, decrease sales and increase costs. 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
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