Mattel 2009 Annual Report Download - page 55

and cost estimates for parts and labor if the recalled or withdrawn product is deemed to be repairable, are
considered when establishing a product recall or withdrawal reserve. These factors are updated and reevaluated
each period and the related reserves are adjusted when these factors indicate that the recall or withdrawal reserve
is either not sufficient to cover or exceeds the estimated product recall or withdrawal expenses.
Significant changes in the assumptions used to develop estimates for product recall or withdrawal reserves
could affect key financial measures, including accounts receivable, inventory, net sales, cost of sales, other
selling and administrative expenses, and net income. In addition, estimating product recall or withdrawal reserves
requires a high degree of judgment in areas such as estimating the portion of recalled or withdrawn products sold
to end consumers and the portion held by retailers, return rates, shipping and handling for returns, the way in
which affected products held by consumers may be remediated (e.g., through redeemable vouchers, or a repair kit
being provided), and the costs of meeting regulatory requirements in various countries (e.g., public notification).
The following table summarizes Mattel’s reserves and 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
Reserves used ......................... — (1,297) (311) (1,608)
Changes in estimates ................... — (2,370) 707 (1,663)
Impact of currency exchange rate changes . . — 77 (26) 51
Balance at December 31, 2009 ....... $ — $ 15 $ 1,708 $ 1,723
Mattel believes that its reserves for the 2007 Product Recalls and 2008 Product Withdrawal at December 31,
2009 are adequate and proper.
Benefit Plan Assumptions
Mattel and certain of its subsidiaries have retirement and other postretirement benefit plans covering
substantially all employees of these companies. See Item 8 “Financial Statements and Supplementary Data—
Note 7 to the Consolidated Financial Statements—Employee Benefit Plans.”
Actuarial valuations are used in determining amounts recognized in the financial statements for retirement
and other postretirement benefit plans. These valuations incorporate the following significant assumptions:
• Weighted average discount rate to be used to measure future plan obligations and interest cost
component of plan income or expense;
• Rate of future compensation increases (for defined benefit pension plans);
• Expected long-term rate of return on plan assets (for funded plans); and
• Health care cost trend rates (for other postretirement benefit plans).
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