Mattel 2009 Annual Report Download - page 79

Note 4—Product Recalls and Withdrawals
During 2007, Mattel recalled products with high-powered magnets that may become dislodged and other
products, some of which were produced using non-approved paint containing lead in excess of applicable
regulatory and Mattel standards. During the second half of 2007, additional products were recalled, withdrawn
from retail stores, or replaced at the request of consumers as a result of safety or quality issues (collectively, the
“2007 Product Recalls”). In the second quarter of 2008, Mattel determined that certain products had been shipped
into foreign markets in which the products did not meet all applicable regulatory standards for those markets.
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”).
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
Following the announcement of the 2007 Product Recalls, a number of lawsuits were filed against Mattel
with respect to the recalled products, which are more fully described in “Note 14 to the Consolidated Financial
Statements—Commitments and Contingencies.” During 2009, Mattel recorded charges of $27.4 million, which
are included in other selling and administrative expenses, to reserve for the settlement of a portion of the above-
described product liability-related litigation. Additionally, during 2009, Mattel recorded a $6.0 million benefit
associated with an insurance recovery for product liability-related litigation.
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 5—Restructuring Charges
During the second quarter of 2008, Mattel initiated its 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 within Mattel’s Global Cost Leadership program include:
• A global reduction in Mattel’s professional workforce of approximately 1,000 employees that was
initiated in November 2008, and an additional reduction in Mattel’s professional workforce initiated in
the third quarter of 2009.
69