Mattel 2012 Annual Report Download - page 75

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Employee Benefit Plans
Mattel and certain of its subsidiaries have retirement and other postretirement benefit plans covering
substantially all employees of these companies. Actuarial valuations are used in determining amounts recognized
in the financial statements for certain retirement and other postretirement benefit plans (see “Note 4 to the
Consolidated Financial Statements—Employee Benefit Plans”).
Share-Based Payments
Mattel recognizes the cost of employee share-based payment awards on a straight-line attribution basis over
the requisite employee service period, net of estimated forfeitures. In determining when additional tax benefits
associated with share-based payment exercises are recognized, Mattel follows the ordering of deductions under
the tax law, which allows deductions for share-based payment exercises to be utilized before previously existing
net operating loss carryforwards.
Determining the fair value of share-based awards at the measurement date requires judgment, including
estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility, and
the expected dividends. Mattel estimates the fair value of options granted using the Black-Scholes valuation
model. The expected life of the options used in this calculation is the period of time the options are expected to
be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is
based on the historical volatility of Mattel’s stock for a period approximating the expected life, the expected
dividend yield is based on Mattel’s most recent actual annual dividend payout, and the risk-free interest rate is
based on the implied yield available on US Treasury zero-coupon issues approximating the expected life.
Judgment is also required in estimating the amount of share-based awards that will be forfeited prior to vesting.
Income Taxes
Certain income and expense items are accounted for differently for financial reporting and income tax
purposes. Deferred income tax assets and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, applying enacted statutory income tax rates in effect for the year
in which the differences are expected to reverse.
In the normal course of business, Mattel is regularly audited by federal, state, local, and foreign tax
authorities. The ultimate settlement of any particular issue with the applicable taxing authority could have a
material impact on Mattel’s consolidated financial statements.
New Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2011-11, Balance Sheet (Topic 210): Disclosure about Offsetting Assets and Liabilities, which
requires an entity to include additional disclosures about financial instruments and transactions eligible for offset
in the statement of financial position, as well as financial instruments subject to a master netting arrangement or
similar agreement. In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about
Offsetting Assets and Liabilities, to limit the scope of ASU 2011-11 to derivatives, repurchase agreements and
reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset
or subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11, as clarified by ASU
2013-01, will be applied retrospectively and will be effective for all periods beginning on or after January 1,
2013. Mattel does not expect the adoption of ASU 2011-11, as clarified by ASU 2013-01, to have a material
effect on its operating results or financial position.
In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing
Indefinite-Lived Intangible Assets for Impairment, which permits an entity to first assess qualitative factors to
determine whether it is more-likely-than-not that the fair values of its indefinite-lived intangible assets are less
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