Mattel 2004 Annual Report Download - page 45

Environmental
Fisher-Price
Fisher-Price has executed a consent order with the State of New York to implement a groundwater
remediation system at one of its former manufacturing facilities. The execution of the consent order was in
response to the New York State Department of Environmental Conservation (“NYSDEC”) Record of Decision
issued in March 2000. The NYSDEC approved a conceptual work plan in March 2001. One component of the
remedial program mandated by the NYSDEC involves discharging the remediation wastewater into the publicly
owned treatment works (“POTW”), which is owned and operated by the Village of Medina, New York. In June
2003, the Village of Medina approved the discharge of wastewater from the groundwater collection system into
the POTW as part of a short-term, pilot scale pumping test to evaluate water quantity and quality necessary to
complete the remedial design. The pilot program was successfully conducted in November 2003, and plans are
underway to implement the actual groundwater remediation program. Mattel is now negotiating with the Village
of Medina regarding the rate to be charged by the Village of Medina to Mattel for groundwater discharge into the
POTW. The ultimate liability associated with this cleanup presently is estimated to be approximately
$2.1 million, approximately $1.8 million of which has been incurred through year end 2004.
Beaverton, Oregon
Mattel previously operated a manufacturing facility on a leased property in Beaverton, Oregon that was
acquired as part of the March 1997 merger with Tyco Toys, Inc. In March 1998, samples of groundwater used by
the facility for process water and drinking water disclosed elevated levels of certain chemicals, including
trichloroethylene. Mattel immediately closed the water supply and self-reported the sample results to the Oregon
Department of Environmental Quality (“ODEQ”) and the Oregon Health Division. Mattel also implemented a
community outreach program to employees, former employees and surrounding landowners.
Prior to 2003, Mattel recorded pre-tax charges totaling $19.0 million related to this property. During 2004
and 2003, Mattel recognized pre-tax income of $0.9 million and $7.9 million, respectively, representing
adjustments to the reserve accrued in 1999 associated with the closure of the Beaverton facility. Costs totaling
approximately $5 million have been incurred through year end 2004 for the Beaverton property, largely related to
environmental remediation, attorney fees, consulting work and an employee medical screening program. In
January 2003, Mattel entered into a settlement with the ODEQ resolving its cleanup liability in return for a
contribution of $0.4 million to the cleanup, which is being performed by the company that caused the
contamination. The remaining liability of approximately $5 million as of year end 2004 represents estimated
amounts to be incurred for employee medical screening, project management, and other costs related to the
Beaverton property.
General
Mattel is also involved in various other litigation and legal matters, including claims related to intellectual
property, product liability and labor, which Mattel is addressing or defending in the ordinary course of business.
Management believes that any liability that may potentially result upon resolution of such matters will not have a
material adverse effect on Mattel’s business, financial condition or results of operations.
Effects of Inflation
Inflation rates in the US and in major foreign countries where Mattel does business have not had a
significant impact on its results of operations or financial position during 2004, 2003 or 2002. The US Consumer
Price Index increased 3.3% in 2004, 1.9% in 2003 and 2.4% in 2002. Mattel receives some protection from the
impact of inflation from high turnover of inventories and its ability under certain circumstances at certain times
to pass on higher prices to its customers.
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