Mattel 2006 Annual Report Download - page 77

Download and view the complete annual report

Please find page 77 of the 2006 Mattel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 133

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133

selling and administrative expenses. Prior to January 1, 2006, no compensation expense was recognized in the
consolidated statements of operations for stock options.
Compensation expense recognized related to grants of restricted stock and restricted stock units (“RSUs”) to
certain employees and non-employee Board members was $3.6 million for the year ended December 31, 2006.
As of December 31, 2006, total unrecognized compensation cost related to unvested share-based payments
totaled $29.3 million and is expected to be recognized over a weighted-average period of 2.5 years.
Income Taxes
Certain income and expense items are accounted for differently for financial reporting and income tax
purposes. Deferred income tax assets and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, applying enacted statutory income tax rates in effect for the year
in which the differences are expected to reverse.
Net Income Per Common Share
Basic net income per common share is computed by dividing reported net income by the weighted average
number of common shares, outstanding during each period.
Diluted net income per common share is computed by dividing reported net income by the weighted average
number of common shares and other common equivalent shares outstanding during each period. The calculation
of common equivalent shares assumes the exercise of dilutive stock options and warrants, net of assumed
treasury share repurchases at average market prices, as applicable. Nonqualified stock options totaling
22.0 million, 27.6 million and 25.3 million were excluded from the calculation of diluted net income per
common share for 2006, 2005, and 2004, respectively, because they were anti-dilutive.
A reconciliation of weighted average shares for the years ended December 31 is as follows (in thousands):
2006 2005 2004
Common shares .................................................... 382,921 407,402 419,235
Effect of dilutive securities:
Stock options and restricted stock .................................. 3,501 3,637 3,858
Common and common equivalent shares ................................ 386,422 411,039 423,093
New Accounting Pronouncements
SFAS No. 156
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, which
requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value,
if practicable. The standard permits an entity to choose either the amortization method or the fair value
measurement method for each class of separately recognized servicing assets and servicing liabilities. Under the
amortization method, an entity amortizes servicing assets or servicing liabilities in proportion to and over the
period of estimated net servicing income or net servicing loss and assess servicing assets or servicing liabilities
for impairment or increased obligation based on fair value at each reporting date. Under the fair value
measurement method, an entity measures servicing assets or servicing liabilities at fair value at each reporting
date and reports changes in fair value in earnings in the period in which the changes occur. SFAS No. 156 is
effective as of the beginning of the first fiscal year beginning after September 15, 2006. Mattel does not expect
the adoption of SFAS No. 156 to have a material impact on its results of operations and financial position.
68