Mattel 2004 Annual Report Download - page 88

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Mattel common stock. The exercise price of such options was adjusted by dividing the Learning Company option
price by 1.2. Other than options granted under some plans assumed by Learning Company in connection with
acquisitions, all Learning Company stock options vested and became fully exercisable as a result of the 1999
merger. No options were available for grant under any Learning Company stock option plan during 2004, 2003
or 2002.
The following is a summary of stock option information and weighted average exercise prices for Learning
Company’s stock option plans during the year (options in thousands):
2004 2003 2002
Number Price Number Price Number Price
Outstanding at January 1 ........................... 81 $4.63 88 $4.68 125 $ 7.56
Options exercised ............................. (4) 4.88 (7) 5.29 (34) 14.41
Options canceled ............................. — — — — (3) 14.74
Outstanding and exercisable at December 31 ........... 77 $4.62 81 $4.63 88 $ 4.68
The exercise price of Learning Company stock options outstanding as of year end 2004 ranges from
$4.54 per share to $16.15 per share, with a weighted average price of $4.62 per share.
Nonvested Stock
Mattel awarded 685.5 thousand deferrable nonvested stock units to its chief executive officer pursuant to the
terms of his employment contract. These units are 75% vested, with the remaining units vesting in 2008. The
aggregate fair market value of the nonvested stock units is being amortized to compensation expense over the
vesting period. The amount charged to expense related to the vesting of these units was $0.2 million in both 2004
and 2003, and $0.3 million in 2002.
Note 8—Financial Instruments
Marketable Securities
Marketable securities totaling $43.6 million and $78.6 million as of year end 2004 and 2003, respectively,
are stated at fair market value based on quoted market prices. These equity securities are classified as securities
available-for-sale and are included in other noncurrent assets in the consolidated balance sheets. As of year end
2004 and 2003, Mattel had no marketable securities for which cost exceeded the fair market value of the
securities. Unrealized pre-tax gains of $26.1 million ($16.4 million net of tax) and $52.1 million ($32.8 million
net of tax) as of year end 2004 and 2003, respectively, have been deferred in accumulated other comprehensive
loss related to these securities.
During 2004 and 2003, Mattel sold marketable securities for proceeds totaling $28.2 million and
$23.6 million, respectively. Gains on sales of these securities totaling $18.3 million and $15.5 million, net of
transaction costs, were recorded in other non-operating (income) expense, net in the consolidated statements of
income for 2004 and 2003, respectively.
Derivative Financial Instruments
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Inventory
purchase transactions denominated in the Euro, British pound sterling, Mexican peso, Hong Kong dollar and
Indonesian rupiah are the primary transactions that cause currency transaction exposure for Mattel. Mattel seeks
to mitigate its exposure to market risk by monitoring its currency transaction exposure for the year and partially
hedging such exposure using foreign currency forward exchange and option contracts. Such contracts are
primarily used to hedge Mattel’s purchase and sale of inventory, and other intercompany transactions
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