Mattel 2005 Annual Report Download - page 69

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Mattel has adopted the disclosure-only provisions of Statement of Financial Accounting Standards
(“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 fair value
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
2005 2004 2003
Net income
As reported ........................................... $ 417.0 $ 572.7 $ 537.6
Pro forma compensation cost, net of tax .................... (49.0) (32.9) (22.0)
Pro forma net income ................................... $ 368.0 $ 539.8 $ 515.6
Net income per common share
Basic
As reported ........................................... $ 1.02 $ 1.37 $ 1.23
Pro forma compensation cost, net of tax .................... (0.12) (0.08) (0.05)
Pro forma net income per common share—basic ............. $ 0.90 $ 1.29 $ 1.18
Diluted
As reported ........................................... $ 1.01 $ 1.35 $ 1.22
Pro forma compensation cost, net of tax .................... (0.11) (0.08) (0.05)
Pro forma net income per common share—diluted ............ $ 0.90 $ 1.27 $ 1.17
The pro forma amounts shown above are not indicative of the impact on the statement of operations in
future years because the amount, timing and type of share-based payments may vary in future years.
Additionally, the 2005 pro forma amounts reflect the expense associated with stock options for which vesting
was accelerated, which otherwise would have been recognized over the remaining future period of required
employee service.
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:
2005 2004 2003
Options granted at market price
Expected life (in years) ............................................... 4.92 6.25 6.13
Risk-free interest rate ................................................ 4.11% 4.00% 3.71%
Volatility factor ..................................................... 27.6% 38.49% 34.32%
Dividend yield ...................................................... 2.38% 1.15% 0.67%
The weighted average fair value of Mattel options granted at market price during 2005, 2004 and 2003 were
$4.56, $6.67 and $7.25, respectively. The fair value of options granted in 2005 was lower than prior years due
primarily to a lower expected life determined through a detailed study of historical exercise patterns, which also
impacted the period that was considered in estimating volatility.
On December 28, 2005, the Compensation Committee of the Board of Directors of Mattel approved the
acceleration of vesting of all outstanding unvested stock options with an exercise price of $16.09 or greater
granted to employees other than Robert A. Eckert, Mattel’s Chairman and Chief Executive Officer, under the
Amended and Restated Mattel 1996 Stock Option Plan, the Amended and Restated Mattel 1999 Stock Option
Plan and the Mattel, Inc. 2005 Equity Compensation Plan (collectively, the “Stock Option Plans”). Options held
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