Mattel 2003 Annual Report Download - page 67

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Mattel has adopted the disclosure only provisions of SFAS No. 148, Accounting for Stock-Based
Compensation—Transition and Disclosure,which amended SFAS No. 123, Accounting for Stock-Based
Compensation.Had compensation cost for nonqualified stock options granted been determined based on their fair
value at the date of grant, consistent with the method of accounting prescribed by SFAS No. 123, Mattel’s net
income and earnings per share would have been adjusted as follows (amounts in millions, except per share
amounts):
For the Year Ended
2003 2002 2001
Net income
As reported ............................................... $537.6 $230.1 $298.9
Stock option plans ......................................... (22.0) (19.3) (14.9)
Pro forma income .......................................... $515.6 $210.8 $284.0
Income per share
Basic
As reported ............................................... $ 1.23 $ 0.52 $ 0.69
Stock option plans ......................................... (0.05) (0.04) (0.03)
Pro forma basic income ..................................... $ 1.18 $ 0.48 $ 0.66
Diluted
As reported ............................................... $ 1.22 $ 0.52 $ 0.68
Stock option plans ......................................... (0.05) (0.04) (0.03)
Pro forma diluted income .................................... $ 1.17 $ 0.48 $ 0.65
The pro forma amounts shown above are not indicative of the pro forma effect in future years since the
estimated fair value of options is amortized to expense over the vesting period, and the number of options
granted varies from year to year.
The fair value of Mattel options granted has been estimated using the Black-Scholes pricing model. The
expected life of these options used in this calculation has been determined using historical exercise patterns. The
following weighted average assumptions were used in determining fair value:
2003 2002 2001
Options granted at market price
Expected life (in years) .................................... 6.13 6.16 5.50
Risk-free interest rate ...................................... 3.71% 2.94% 4.42%
Volatility factor .......................................... 34.32% 30.09% 16.76%
Dividend yield ........................................... 0.67% 1.07% 0.86%
The weighted average fair value of Mattel options granted at market price during 2003, 2002 and 2001 were
$7.25, $6.17 and $3.52, respectively.
Income Taxes
Mattel accounts for certain income and expense items differently for financial reporting and income tax
purposes. Deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse.
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