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Mattel sees $30 million charge from recall

Mattel Inc. said on Thursday that it expected to take a charge of $30 million for the recall of more than 1 million Chinese-made toys, including those with popular preschool characters like Elmo, Big Bird and Dora the Explorer.
/ Source: news services

Mattel Inc. said on Thursday that it expected to take a charge of $30 million for the recall of more than 1 million Chinese-made toys, including those with popular preschool characters like Elmo, Big Bird and Dora the Explorer.

The estimate comes the day after Mattel recalled 1.5 million toys made by a contract manufacturer in China for the company’s Fisher-Price unit.

The manufacturer used nonapproved paint that may contain too much lead, which has been linked to many children’s health problems, including brain damage.

Representatives from Mattel, the No. 1 toy company, were not immediately available for further comment.

Of the 1 million products recalled from the U.S. market, Mattel said about 30 percent had reached store shelves.

Independent toy industry consultant Christopher Byrne said the impact to Mattel financially as well as in the court of public opinion should be negligible.

“Mattel’s systems are so strong that they were able to contain two-thirds of the product from ever getting into the marketplace,” Byrne said. “That’s good news and should make people very confident about Mattel.”

China said it would work with the United States to improve product safety ahead of toy-maker Fisher-Price’s announcing the recall, the latest in a string of Chinese product safety scandals.

China “attaches great importance to product quality and food safety and is highly responsible,” said Wei Chuanzhong, an official with the General Administration for Quality Supervision, Inspection and Quarantine, one of China’s product safety watchdogs.

“We want to cooperate with other countries including the U.S. to strengthen cooperation and communication,” Wei was quoted as saying Wednesday on the administration’s Web site.

However, Wei added that while China would “not avoid our problems, we also do not agree to playing up the situation regardless of the facts.

Mattel said in a Thursday filing with the U.S Securities and Exchange Commission that it would adjust its second-quarter results to reflect the $30 million charge. Revenue for the period was $1.02 billion, with $410.4 million coming from Fisher-Price.

Mattel said it was reviewing procedures involving all of its Chinese-made products and that additional issues could surface in the future.

The recalled toys were manufactured between April 19 and July 6 and sold at stores across the United States between May and August 1, the company said.

Mattel is also expanding its testing programs to ensure that painted toys from third-party manufacturers are safe before they are sent to customers.

The company is asking U.S. stores and consumers to return 967,000 plastic toys and is recalling another 533,000 from other countries — including Britain, Canada and Mexico.

Parents worried their children may have been exposed to excessive levels of lead from the toys should visit the pediatrician for a blood test. Dr. John Rosen, a lead poisoning specialist at the Children’s Hospital at Montefiore in New York City, said the blood test can effectively measure recent lead exposure.

Parents shouldn’t panic, but “it’s better to be safe than sorry,” Rosen said.

Lead paint can release chalky dust that can get on children’s hands and be easily ingested.

The recall is Mattel’s largest since one of about 10 million Power Wheels vehicles in 1998 that stemmed from reports that the ride-on cars and trucks could overheat and cause fires while being ridden.

In June, RC2 Corp. recalled wooden Thomas & Friends toy trains, which were made in China and sold in the United States, because some of them contained lead paint.

“You’ve now had two companies say they’ve had problems with lead, and Mattel is so scrupulous about this — if it can happen to Mattel, it can happen to anybody,” Wedbush Morgan Securities analyst Sean McGowan said.

There has been heightened concern worldwide about the safety of goods imported from China, and the United States has stepped up its inspection of Chinese goods after a chemical additive in pet food caused the death of some animals.

But unless Mattel finds a larger problem with its testing methods, McGowan said he didn’t see any long-term impact on the company.

“Nobody has died and nobody has gotten injured,” he said. ”The reason we worry about lead and paint is because kids might chew it. Some of these products aren’t even meant to be played with that way.”