Mattel 2009 Annual Report Download - page 27

In addition, changes in laws or regulations may lead to increased costs, changes in Mattel’s effective tax
rate, or the interruption of normal business operations that would negatively impact its financial condition and
results of operations.
Product recalls, product liability claims, absence or cost of insurance, and associated costs could increase
governmental scrutiny, divert resources, reduce sales and increase costs and could have a significant
adverse effect on Mattel’s financial condition.
Mattel has experienced, and may in the future experience, issues in products that result in recalls,
withdrawals, or replacements of products. Testing implemented by Mattel, as well as scrutiny by retailers,
consumers, and other parties, may reveal issues in Mattel products that may lead to recalls, withdrawals,
replacement of products, or regulatory actions by governmental authorities. In addition, 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 increased
governmental scrutiny, diversion of development and management resources, and reduced sales and increased
costs, any of which could significantly and adversely affect Mattel’s financial condition.
Product recalls may harm Mattel’s reputation and acceptance of Mattel’s products by consumers,
licensors and Mattel’s retailer customers, which may significantly 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
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, or have imposed or may impose
additional requirements or product changes that would adversely affect Mattel’s business operations, decrease
sales, and increase costs. 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 products. To the extent
that competitive manufacturers choose not to implement enhanced safety and testing protocols comparable to
those that Mattel has adopted, those competitors could enjoy a cost advantage that will enable them to offer
products at lower prices than those charged by Mattel.
Mattel’s current and future safety procedures may increase costs, significantly 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 testing requirements and standards, have
imposed 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
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