Mattel 2004 Annual Report Download - page 70

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Stock-Based Compensation
Mattel applies the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its stock compensation plans. Accordingly, no
compensation cost has been recognized in the results of operations for nonqualified stock options granted under
Mattel’s plans, as such options are granted at not less than the quoted market price of Mattel’s common stock on
the date of grant.
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 net income per common share would have been adjusted as follows (amounts in millions, except per
share amounts):
For the Year
2004 2003 2002
Net income
As reported ............................................. $ 572.7 $ 537.6 $ 230.1
Pro forma compensation cost, net of tax ...................... (32.9) (22.0) (19.3)
Pro forma net income ..................................... $ 539.8 $ 515.6 $ 210.8
Net income per common share
Basic
As reported ............................................. $ 1.37 $ 1.23 $ 0.52
Pro forma compensation cost, net of tax ...................... (0.08) (0.05) (0.04)
Pro forma net income per common share—basic ............... $ 1.29 $ 1.18 $ 0.48
Diluted
As reported ............................................. $ 1.35 $ 1.22 $ 0.52
Pro forma compensation cost, net of tax ...................... (0.08) (0.05) (0.04)
Pro forma net income per common share—diluted .............. $ 1.27 $ 1.17 $ 0.48
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:
2004 2003 2002
Options granted at market price
Expected life (in years) ........................................... 6.25 6.13 6.16
Risk-free interest rate ............................................ 4.00% 3.71% 2.94%
Volatility factor ................................................. 38.49% 34.32% 30.09%
Dividend yield .................................................. 1.15% 0.67% 1.07%
The weighted average fair value of Mattel options granted at market price during 2004, 2003 and 2002 were
$6.67, $7.25 and $6.17, respectively.
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