Matel Case Study

2. 
One of the most
Identifiable Toy
Ever!!! was
the creation of the
Handler- a founder of
Mattel named after
her daughter Barbara.

3. 
In 1945, Elliot and Ruth Handler, along with a friend, Harold Matson,
founded a small toy company. Within a few months, Matson decided to
pursue other interests and left Mattel, Inc., to the Handlers. For the next
decade, the husband-and wife team struggled to make their small company a
success. Elliot Handler, an artist, designed the toys the company produced,
while Ruth Handler managed
the company’s business affairs, concentrating much of her time on finding
sales outlets for their products. Her plan was to advertise Mattel’s toys on the
popular children’s
television program, The Mickey Mouse Club. The cost of the advertising
campaign was several hundred thousand dollars and if unsuccessful could
have bankrupted the small company; however, Ruth Handler’s gamble paid
off handsomely. Within a few months, Mattel’s sales orders increased
dramatically, Barbie was an instant success, with more than 350,000 sold the
first year it was on the market.

4. 

5. 

6. 

7. 

8. 
The SEC determined that Mattel’s management intentionally
understated the company’s reserve for inventory obsolescence by
several million dollars over the two-year period 1971—1972.
Inventory obsolescence is historically a major problem for the large
toy manufacturers, given the inherent difficulty of predicting
children’s taste in toys. For example, in fiscal 1971, Mattel executives
faced a huge and unexpected inventory buildup of the Hot Wheels
toy, which had traditionally been one of the company’s best-selling
products. The following year, Mattel was forced to dispose of
approximately 5.6 million of the Hot Wheels toys by selling
them to a large oil company at a loss of more than $11 million.

9. 
In arriving at its year-end reserve for obsolete inventory, Mattel
prepared weekly sales forecasts for the next several months for each
toy that was considered an “excess inventory” item. A reserve for
obsolescence was then recorded for those toys whose expected sales in
the following months were less than the yearend inventory In 1971
and 1972, the SEC found that Mattel inflated the projected sales.
However, Mattel adjusted the account balance by only $1.4 million.
According to the SEC. Arthur Andersen’s workpapers did not reveal
how that figure was determined, nor did the workpapers provide any
evidence suggs~sting that the $1.4 million adjustment was sufficient to
correct the noted problem.

10. 
Mattel’s auditors also discovered during the 1972 audit that more
than $1.2 million of tooling costs had been deferred twice.
This discovery was made by a senior member of the Arthur
Andersen engagement team, who then wrote a review comment
instructing a subordinate to make sure that the proper adjusting
entry was recorded. In responding to the review comment, the
subordinate subsequently noted, “Tooling write-off adjusted for
this fact.” Despite this assertion, the SEC determined that the
adjustment was never made.

11. 
Under the leadership of new management, Mattel slowly recovered from its
nearly disastrous experiences of the early 1970s. In 1994, Mattel overtook Hasbro
as the nation’s largest toy maker. Two years later, Mattel’s annual revenues
surpassed $4.5 billion, nearly 40 percent of which was attributable to the Barbie
product line. That product line included more than 100 different Barbie dolls by
late 1997. Among these dolls were Hula Hair Barbie, Workin’ Out Barbie, Country
Rose Barbie, and Harley-Davidson Barbie. Ruth Handler also staged a dramatic
comeback following her traumatic experiences of the early 1970s. After her forced
retirement from Mattel, she founded a company, Ruthton Corporation, that
manufactures prosthetic devices for women who, like herself, have undergone
mastectomies. Although a small company with a relatively small market, Ruthton
Corporation quickly established itself and within a few years was reporting
annual sales of several million dollars. In 1989, Ruth and Elliott Handler were
recognized for their contributIons to the toy industry by being inducted into the
industry’s hall of fame.