Mattel 2008 Annual Report Download - page 22

Mattel’s current and future safety procedures may increase costs, materially and adversely affect its
relationship with vendors and make it more difficult for Mattel to produce, 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 current operating procedures and requirements, including enhanced testing requirements and
standards, have imposed additional costs on both Mattel and the vendors from which it purchases products.
Changes in business conditions, including those resulting from new legislative and regulatory requirements, will
cause further revisions in Mattel’s operating procedures and requirements. Changes in Mattel’s operating
procedures and requirements may delay delivery of products and increase costs. 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. In addition, rising production costs,
contraction of credit availability and labor shortages have caused a substantial contraction in the number of toy
manufacturers in China, decreasing the number of potential vendors to manufacture Mattel’s products. 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 adopt additional requirements
and incur additional costs, and impose those requirements and costs on its vendors, which may adversely affect
its relationship with those vendors and Mattel’s ability to meet market demand in a timely manner.
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 43 countries and territories. 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, or disease could
negatively impact Mattel’s business, financial position and results of operations.
Mattel owns, operates and manages 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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