Mattel 2001 Annual Report Download - page 54

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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):
2001 2000 1999
Earnings Shares Earnings Shares Earnings Shares
Income from continuing operations ....... $310,920 $170,177 $108,387
Less: preferred stock dividend
requirements ...................... — — (3,980)
Earnings available to common
stockholders ...................... $310,920 430,983 $170,177 426,166 $104,407 414,186
Dilutive securities:
Dilutive stock options ............. 4,765 960 3,920
Warrants ....................... 418 — 665
Preferred stock .................. — — 6,510
Diluted earnings available to
common stockholders ............... $310,920 436,166 $170,177 427,126 $104,407 425,281
Premium price stock options totaling 15.2 million and other nonqualified stock options totaling 13.8
million were excluded from the calculation of diluted earnings per share in 2001 because they were anti-
dilutive. Premium price stock options totaling 16.3 million and other nonqualified stock options totaling 25.6
million were excluded from the calculation of diluted earnings per share in 2000 because they were anti-
dilutive. Premium price stock options totaling 16.9 million, other nonqualified stock options totaling 23.2
million, convertible debt, and Series C preferred stock were excluded from the calculation of diluted earnings
per share in 1999 because they were anti-dilutive. Warrants of 3.0 million shares were excluded from the
calculation of diluted earnings per share in 2001, 2000 and 1999 because they were anti-dilutive.
Derivative Instruments
Mattel uses foreign currency forward exchange and option contracts as cash flow hedges to hedge its
forecasted purchases and sales of inventory denominated in foreign currencies. Mattel uses fair value hedges to
hedge intercompany loans and management fees and marketable securities denominated in foreign currencies.
Mattel also entered into a cross currency interest rate swap to convert the interest and principal amounts from
Euros to US dollars on its 200 million Euro Notes due 2002.
At the inception of the contracts, Mattel designates its derivatives as either cash flow or fair value hedges
and documents the relationship of the hedge to the underlying forecasted transaction, for cash flow hedges, or
the recognized asset or liability, for fair value hedges. Hedge effectiveness is assessed at inception and
throughout the life of the hedge to ensure the hedge qualifies for hedge accounting treatment. Changes in fair
value associated with hedge ineffectiveness, if any, are recorded in Mattel’s results of operations currently.
Changes in fair value of Mattel’s cash flow derivatives are deferred and recorded as part of accumulated
other comprehensive income (loss) in stockholders’ equity until the underlying transaction is settled. Upon
settlement, any gain or loss resulting from the derivative is recorded in Mattel’s results of operations. In the
event that an anticipated transaction is no longer likely to occur, Mattel recognizes the change in fair value of
the derivative in its results of operations currently. Due to the short-term nature of the contracts involved,
Mattel does not use hedge accounting for its fair value hedges for intercompany loans and management fees.
Changes in the fair value of these derivatives are recorded in Mattel’s results of operations currently.
As a result of adopting SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
Mattel recorded a one-time transition adjustment of $12.0 million, net of tax, (or $0.03 per share) as the
cumulative effect of change in accounting principles related to unrealized losses on the CyberPatrol securities
that had been previously deferred in accumulated other comprehensive income (loss). Mattel also recorded a
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