Mattel 2008 Annual Report Download - page 77

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None of these deficiencies related to lead or magnets. Mattel withdrew these products from retail stores in these
markets and, although not required to do so, also withdrew the products from the US and other markets because
they did not meet Mattel’s internal standards (the “2008 Product Withdrawal”).
During 2008, incremental reserve charges related to the 2007 Product Recalls and 2008 Product Withdrawal
were recorded based on estimates associated with the expected levels of affected product at retail, consumer
return rates, and affected products on hand. These charges reduced operating income by $11.8 million.
The following table summarizes Mattel’s reserve activity for the 2007 Product Recalls and the 2008 Product
Withdrawal (in thousands):
Impairment of
Inventory on
Hand
Product
Returns/
Redemptions Other Total
2007 Product Recall charges ........................... $ 3,849 $ 60,887 $ 3,712 $ 68,448
Reserves used ....................................... (3,849) (48,275) (1,352) (53,476)
Balance at December 31, 2007 .......................... — 12,612 2,360 14,972
2008 Product Withdrawal charges ....................... 3,571 5,230 329 9,130
Reserves used ....................................... (3,571) (15,961) (2,013) (21,545)
Changes in estimates ................................. — 1,962 728 2,690
Impact of currency exchange rate changes ................. — (238) (66) (304)
Balance at December 31, 2008 .......................... $ — $ 3,605 $ 1,338 $ 4,943
Although management is not aware of any additional quality or safety issues that are likely to result in
material recalls or withdrawals, there can be no assurance that additional issues will not be identified in the
future.
Note 6—Restructuring Charges
During the second quarter of 2008, Mattel initiated the Global Cost Leadership program, which is designed
to improve operating efficiencies and leverage Mattel’s global scale to improve profitability and operating cash
flows. The major initiatives included in Mattel’s Global Cost Leadership program include:
• A global reduction in Mattel’s professional workforce of approximately 1,000 people that was
implemented in November 2008.
• A coordinated efficiency strategic plan that includes structural changes designed to lower costs and
improve efficiencies; for example, offshoring and outsourcing certain back office functions, and more
clustering of management for international markets.
• Additional procurement initiatives designed to fully leverage Mattel’s global scale in areas such as
creative agency partnerships, legal services, and distribution, including ocean carriers and over-the-road
freight vendors.
In connection with the workforce reduction, Mattel recorded severance and other termination-related
charges in 2008 of approximately $34 million, which is included in other selling and administrative expenses.
The following table summarizes the 2008 charges related to the reduction in workforce (in thousands):
2008 Charges Payments
Remaining
Liability at
December 31,
2008
Severance ................................................... $32,771 $(15,656) $17,115
Other termination costs ........................................ 1,656 (775) 881
$34,427 $(16,431) $17,996
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