Mattel 1998 Annual Report Download - page 40

Mattel, Inc. and Subsidiaries 38
In the 1997 fourth quarter, the Company adopted Statement
of Financial Accounting Standards No. 128, Earnings per Share.
Accordingly, data for 1997 and 1996 have been restated to present
basic and diluted income per common share.
Basic income per common share is computed by dividing
earnings available to common stockholders by the weighted average
number of common shares outstanding during each period. Earnings
available to common stockholders represent reported net income
less preferred stock dividend requirements.
Diluted income per common share is computed by dividing
diluted earnings available to common stockholders by the weighted
average number of common and common equivalent shares out-
standing during each period. The calculation of common equivalent
shares assumes the exercise of dilutive stock options and warrants,
net of assumed treasury share repurchases at average market
prices, and conversion of dilutive preferred stock and convertible
debt, as applicable. Diluted earnings available to common stockholders
represent earnings available to common stockholders plus preferred
stock dividend requirements and interest savings resulting from the
assumed conversions of dilutive securities.
A reconciliation of earnings available to common stockholders
and diluted earnings available to common stockholders and the
related weighted average shares for the years ended December 31
follows (in thousands):
1998 1997 1996
Earnings Shares Earnings Shares Earnings Shares
Income before
extraordinary item $332,264 $289,794 $372,224
Extraordinary item -
loss on early
retirement of debt - (4,610) -
Net income 332,264 285,184 372,224
Less: preferred
stock dividend
requirements (7,960) (10,505) (7,391)
Earnings available
to common
stockholders $324,304 291,481 $274,679 290,450 $364,833 290,393
Dilutive securities:
Dilutive stock
options 3,369 3,975 4,087
Warrants 662 639 927
7% Notes - - 479 589 728 783
Preferred stock
dividend
requirements 7,960 7,731 - - 7,391 6,867
Diluted earnings
available to
common
stockholders $332,264 303,243 $275,158 295,653 $372,952 303,057
Premium price stock options totaling 18.7 million were excluded
from the calculation of diluted earnings per share in 1998 because they
were anti-dilutive in each quarter and for the full year. Preferred stock
was excluded from the calculation of diluted earnings per share in 1997
because it was anti-dilutive. A warrant issued in 1996 to purchase 3.0
million shares of the Company’s common stock was excluded from the
calculation of diluted earnings per share because it was anti-dilutive in
1997 and 1996. The dilutive impact of this warrant was minimal in the
first quarter and full year 1998 calculations and was anti-dilutive in the
remaining quarters of 1998.
Foreign Currency Contracts
The Company enters into foreign currency forward exchange and
option contracts primarily as hedges of inventory purchases, sales and
other intercompany transactions denominated in foreign currencies
to limit the effect of exchange rate fluctuations on its results of
operations and cash flows. The Company does not enter into contracts
for speculative purposes. Gains and losses related to firm commitments,
which qualify for hedge accounting, are deferred and are recognized
in the results of operations, balance sheet, and statement of cash
flows as part of the underlying transaction. Contracts that do not
qualify for hedge accounting are marked to market with gains and
losses recognized in the results of operations currently. If a derivative
previously designated as a hedge of a foreign currency commitment is
terminated prior to the transaction date of the related commitment,
the resultant gain or loss is recognized at the time of maturity of the
original contract as a component of other expense, net.
Note 2 - Income Taxes
Consolidated pre-tax income consists of the following (in thousands):
For the Year
1998 1997 1996
US operations $ 57,965 $ 70,225 $206,668
Foreign operations 407,098 354,857 330,088
$465,063 $425,082 $536,756
The provision for current and deferred income taxes consists
of the following (in thousands):
For the Year
1998 1997 1996
Current
Federal $ 41,274 $ 55,056 $ 89,781
State 5,500 15,745 13,200
Foreign 98,800 80,395 64,165
145,574 151,196 167,146
Deferred
Federal 1,825 (14,283) 549
State (1,400) 3,640 1,000
Foreign (13,200) (7,962) (4,163)
(12,775) (18,605) (2,614)
Provision including extraordinary item 132,799 132,591 164,532
Benefit allocated to extraordinary item - 2,697 -
Total provision for income taxes $132,799 $135,288 $164,532
Deferred income taxes are provided principally for net
operating loss carryforwards, certain reserves, depreciation, employee
compensation-related expenses and certain other expenses that are