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JayC

Did Mattel Cook Their Financial Books???

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It looks like Mattel might have found themselves in a bit of hot water when it comes to their financial records. Back in August news came to light via a whistleblower complaint that the toy company had been involved in improper accounting practices. Mattel responded at the time stating they would be investigating the matter.

On October 29, 2019, Mattel issued a statement after performing their internal audit that stated:
 

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The investigation determined that income tax expense was understated by $109 million in the third quarter of 2017, and overstated by $109 million in the fourth quarter of 2017, with no impact for the full year. The errors were non-cash, did not affect operating income or EBITDA, and had no impact on Mattel’s full year financial results for 2017 or subsequent periods. The investigation also determined that Mattel has certain material weaknesses in its internal control over financial reporting.



In other words their investigation determined that their was no major wrong doing and that only "remedial" actions were needed to fix the problems, which apparently included getting rid of the current guy in charge of managing their books. That same day Mattel issued a statement stating the following:
 

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Mattel, Inc. (NASDAQ: MAT) today announced that Chief Financial Officer Joseph J. Euteneuer will leave the Company after a transition period of up to six months. Mattel is conducting a search for its next CFO.

Ynon Kreiz, Chairman and Chief Executive Officer of Mattel, said, “Joe has been a valued member of our leadership team since joining Mattel two years ago. He has played a key role in our Structural Simplification program which is nearing completion, and made meaningful contributions to the significant progress we have made in the first phase of our strategy to restore profitability. I thank him for his commitment through the transition of the CFO role.”

Mr. Euteneuer said, “It has been a privilege to work alongside Ynon and the talented team at Mattel. I have great confidence in the Company’s ability to achieve its strategic and financial goals and believe Mattel is well-positioned to capitalize on opportunities for value creation. I am grateful for my time at the Company and look forward to continue working with the leadership and finance teams to ensure a seamless transition.



This was then followed by an article written by the Wall Street Journal yesterday that reported back in the beginning of 2018 Mattel became aware of an accounting error that had reduced their loss for 2017's third quarter and threatened to be an embarrassment or worse for the toy company. According to reports the accounting problems stemmed from Mattel’s ownership of Thomas & Friends, and animated show about talking trains. Senior finance executives and Mattel’s auditor, PricewaterhouseCoopers decided to change the accounting treatment of the Thomas asset in order to cover up the problem. This decision was apparently kept from Mattel’s then-chief executive or its board of directors.

At the time Toys R' Us, one of Mattel's biggest customers had just declared bankruptcy, they were dealing with weak holiday sales and they had just rejected a take over bid from long-time rival Hasbro. Brett Whitaker, who was Mattel's director of tax reporting back in early 2018 said the Company's finance team did discussed fixing the problem and restating earnings, but instead they and PricewaterhouseCoopers decided to bury the problem so they wouldn't have to admit to any shortcomings in their accounting and reporting procedures and add further burdens to the companies already mounting problems of the time.

In the WSJ article Brett who left the company in March of last year is quoted as saying,
 

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“It was known within Mattel that if we took this approach, at worst we might get a slap on the wrist from the Securities and Exchange Commission, but if the company disclosed a material weakness, a senior executive said to me it would be ‘the kiss of death"



He went on further to say A PwC tax partner was "walking down the hall, high-fiving people", after this decision was made to cover things up. PwC of course denies that ever occurred.

As to what happens from here? Probably not much. I've seen several law firms such as Hagens Berman and Kaplan Fox issues press releases indicating they would be conducting their own investigations into Mattel on this matter, likely in hopes that they can drum up clients to maybe try and sue the toy giant in some type of civil lawsuit, but I've seen no indication they will face any major repercussions on a federal level.

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Oh surprise!, Mattel's managing its finances just the same way it manages its toy lines.

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This is why i've been enjoying toys from smaller lines and companies. I guess i just don't feel like i'm just part of the machine. Don't get me wrong, I do still love my big lines but dang. Big companies suck.

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13 hours ago, Nickg253 said:

This is why i've been enjoying toys from smaller lines and companies. I guess i just don't feel like i'm just part of the machine. Don't get me wrong, I do still love my big lines but dang. Big companies suck.

I hate to break it to you but being a smaller company doesn't necessarily make you immune from doing shady stuff.  The biggest difference is, it can sometimes be easier for it to happen in large companies because often the left hand doesn't always know what the right hand is doing due to the size and so many moving parts. For instance if everything in this report did happen as reported, and lets keep in mind much of it is based on only one persons retelling of those events, the CEO and Board of Directors weren't even made aware of the actions being taken by those lower down on the corporate ladder at the time it happened. That's not meant as a justification for it happening, just simply stating why it can seem like it happens more with lager companies than smaller ones.

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18 hours ago, JayC said:

I hate to break it to you but being a smaller company doesn't necessarily make you immune from doing shady stuff.  The biggest difference is, it can sometimes be easier for it to happen in large companies because often the left hand doesn't always know what the right hand is doing due to the size and so many moving parts. For instance if everything in this report did happen as reported, and lets keep in mind much of it is based on only one persons retelling of those events, the CEO and Board of Directors weren't even made aware of the actions being taken by those lower down on the corporate ladder at the time it happened. That's not meant as a justification for it happening, just simply stating why it can seem like it happens more with lager companies than smaller ones.

Agreed 100%. I guess the argument I was going for is that there's less room to be a money grubbing a$$hole in a small toy biz being that CEO, office staff and the packers could all be in house. still i must always admit that it only takes one person to make a good thing bad.

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"Kiss of death" So dramatic! Mattel has been creatively dead for a while now anyway. Aside from a few hits in their Jurassic Park line, their "boy" toys are terrible. I wonder how Barbie sales are doing?

Coincidentally, I just finished re-watching Breaking Bad to prepare for El Camino. I wonder if Ted Beneke works at Mattel now? haha! 

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