This morning, Mattel issued a press release announcing the end of the investigation initiated by an anonymous whistleblower’s letter back in August, and the subsequent resignation of their CFO, Joseph Euteneuer. This announcement was picked up and reported on by every major media outlet with no fanfare or speculation and it would appear the business of toys will go on as usual.

The investigation uncovered that in Quarter 3 of 2017, Mattel reported to its investors and the SEC (Securities and Exchange Commission) $109 million less income tax than it had actually paid. Then, in Quarter 4 of the same year, it reported having paid $109 million more income tax than it had, effectively off-setting the report from the previous quarter. It could have been a simple mistake. But taking a closer look reveals some strange details and a lot of questions left unanswered.

First of all, while Joe Euteneuer has been by no means disgraced  by this investigation and his subsequent “choice” to resign, the implication that he has taken the blame for this incident is clear. Mattel is sending him on his way much the way they brought him in, singing his praises and touting his dedication. The problem is that Euteneuer wasn’t brought on board until Quarter 4, 2017. After the initial erroneous income tax payment report. In fact, Mr. Euteneuer was offered a one-time sign-on bonus (amount undisclosed) that would only be payable if he took on Mattel’s CFO role during Quarter 4, 2017.

It is possible that Joe Euteneuer joined the team, saw this mistake in the Quarter 3 report and made the decision to offset it in Quarter 4 on his own. In this case, his resignation totally makes sense. The two misreported figures were never reported to CEO Margo and, while there was no major financial impact resulting from these errors, it still demonstrates a lack of due diligence unacceptable for a publicly traded Fortune 500 company. But when we look at the way Euteneuer is being transitioned out of his position (over a six month period), we have to assume the person actually responsible for the first false report, former CFO Kevin Farr was still involved with the books when Euteneuer began his transition into the role.

Farr was replaced by Euteneuer as a part of a massive executive team overhaul and restructuring that took shape starting in Quarter 1 of 2017 when Margo Georgiadis took over as CEO, moving in from Google. So we can already see there was a lot of major movement taking place at Mattel across 2017. But what remains unclear is why Euteneuer, in what was essentially his first act as CFO, chose not to report and investigate the erroneous income tax payment from Q3 2017 and allowed the false entry to be entered in the Q4 2017 report. 

Euteneuer’s CV is impressive, to say the least, highlights including an MBA from Duke, a CPA and more than 11 years as CFO of Comcast. All of the roles he has filled between his days with Comcast (which ended in 2000) and his days at Mattel were seemingly uneventful in a good way. His reputation appears to be sterling to this point. And, of course, an accident can happen to anyone, but the conclusion of this investigation in conjunction with the terms of Euteneuer’s sign-on bonus makes the whole thing seem…noteworthy.

So what was Mattel working on during the time between the Q3 and Q4 reports? Well, that’s an interesting question. Other than some product releases in their WWE, American Girls and Hot Wheels lines, there wasn’t much happening until Mattel announced a partnership with Chinese company BabyTree to launch “child-focused learning centers” throughout China. Schools? A strange and pricey move for a company with ambitions to launch its own film studio and begin producing actual film projects in just two short years. The partnership with BabyTree echoes a move made back in Q1 2017 when Mattel entered a “strategic partnership” with Chinese manufacturer and distributor Alibaba. It seems that Chinese futures are where Mattel’s interests have been for the past couple of years. An endeavor that will be considerably easier to negotiate if the all of the CEOs they deal with are like the CEO of BabyTree, Sid Mathur: former Mattel executives.

But even with such great connections, it could never hurt to have a little extra cash on hand when strategizing new partnerships.

So, when all is said and done, it’s hard to explain how Joe Euteneuer could have made such a mistake after taking on such a vital role that he was well and truly vetted in. We can only hope that his one-time Q4 start date contingent sign-on bonus was enough to buy him some time to find another position. As of the writing of this piece, Euteneuer’s last day at Mattel is listed on his CV as April 30, 2020.

It will be interesting to see where Mattel’s focus lies in the coming year. How will the Chinese schools be faring? Will we here in America actually get to see a feature length Barney film from Mattel studios? Will there be any further executive “restructuring” before February when the period of Margo Georgiadis cliff vesting will expire and she will no longer be able to collect executive hiring bonuses? Time will tell. And one thing is certain: the story time will tell us about Mattel will be full of twists, turns and mysteries. We here at Toy Wizards will do our best to keep you posted.

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