Mattel 2010 Annual Report Download - page 76

The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in whole or in
part by foreign tax credits. The extent of this offset would depend on many factors, including the method of
distribution, and specific earnings distributed.
Accounting principles generally accepted in the United States of America require that tax benefits related to
the exercise of nonqualified stock options and vesting of other stock compensation awards be credited to
additional paid-in-capital in the period in which such amounts reduce current taxes payable. The exercise of
nonqualified stock options and vesting of other stock compensation awards resulted in increases/(decreases) to
additional paid-in-capital for related income tax benefits totaling $7.5 million, $36.7 million, and ($2.3) million,
in 2010, 2009, and 2008, respectively.
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 During the second half of 2007, additional products were recalled, withdrawn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:
Impairment of
Inventory on Hand
Product Returns/
Redemptions Other Total
(In thousands)
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
Reserves used ................................. — (15) (1,180) (1,195)
Changes in estimates ............................ — — (528) (528)
Balance at December 31, 2010 ................... $ — $ — $ — $ —
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. During 2010, Mattel reduced its estimate of these settlement costs,
which had the effect of reducing other selling and administrative expenses by $8.7 million, primarily based on
actual experience under the settlement program. Additionally, Mattel recorded a $4.8 million benefit and $6.0
million benefit during 2010 and 2009, respectively, from insurance recoveries of costs incurred in connection
with product liability-related litigation.
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