Mattel 2002 Annual Report Download - page 64

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The following anti-dilutive securities were excluded from the calculation of diluted earnings per share for
the years ended December 31 (shares in thousands):
2002 2001 2000
Nonqualified stock options granted at:
Market price ...................................................... 19,547 13,778 25,594
Above market price ................................................ — 15,227 16,337
Warrants ............................................................. — 3,000 3,000
19,547 32,005 44,931
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 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 the 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 the 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 operation currently.
Mattel uses fair value derivatives to hedge intercompany loans and management fees denominated in
foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting
for these contracts. Changes in fair value of these derivatives were not significant to the results of operations
during any year.
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 in 2001 related to unrealized holding losses on the
CyberPatrol securities that had been previously deferred in accumulated other comprehensive income (loss).
Mattel also recorded a one-time transition adjustment of $2.1 million in accumulated other comprehensive
income (loss) related to unrealized gains on derivative instruments during 2001.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair
value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. All provisions of this statement will be effective at the beginning of fiscal 2003. Mattel does not
expect that the adoption of SFAS No. 143 will have a material effect on its consolidated financial position or
results of operations.
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