Mattel 2007 Annual Report Download - page 103

from the date of grant. In the event of the involuntary termination of an employee aged 55 years or greater with
5 or more years of service, or the death or disability of an employee, that occurs at least 6 months after the grant
date, RSUs receive accelerated vesting as to some or all of the RSUs. The 2005 Plan also contains provisions
regarding grants of equity compensation to the non-employee members of the Board of Directors. Pursuant to
these provisions, the Compensation Committee has approved grants to non-employee members of the Board of
Directors that consist of a mix of nonqualified stock options and RSUs; such stock options and RSUs vest over a
period of three years from the date of grant (except for initial grants of stock options to directors, which are
immediately vested in full), and such stock options have exercise prices equal to the fair market value of Mattel’s
common stock on the date of grant and expire no later than ten years from the date of grant. In the event of a
retirement of a member of the Board of Directors aged 55 years or greater with 5 or more years of service, or the
death or disability of a director, that occurs at least 6 months after the grant date, RSUs receive accelerated
vesting as to some or all of the RSUs. The 2005 Plan expires on May 18, 2015, except as to any grants then
outstanding.
The number of shares of common stock available for grant under the 2005 Plan is subject to an aggregate
limit of 50 million shares and is further subject to share-counting rules as provided in the 2005 Plan. As a result
of such share-counting rules, full-value grants such as grants of restricted stock or RSUs count against shares
remaining available for grant at a higher rate than grants of stock options and stock appreciation rights. Each
stock option or stock appreciation right grant is treated as using one available share for each share actually
subject to such grant, whereas each full-value grant is treated as using three available shares for each share
actually subject to such full-value grant. The 2005 Plan contains detailed provisions with regard to share-
counting. At December 31, 2007, there were 29.2 million shares of common stock available for grant remaining
under the 2005 Plan.
Effective January 1, 2006, Mattel adopted the fair value recognition provisions of SFAS No. 123(R) using
the modified-prospective transition method. Prior to January 1, 2006, Mattel applied the recognition and
measurement principles of APB Opinion No. 25, and related interpretations in accounting for its employee stock
compensation plans. The amount of additional compensation expense that would have resulted if Mattel had
applied the fair value recognition provisions of SFAS No. 123 was included as a pro forma disclosure in the
financial statement footnotes.
Prior to January 1, 2006, Mattel presented all benefits of tax deductions resulting from the exercise of share-
based compensation as operating cash flows in the statements of cash flows. SFAS No. 123(R) requires the
benefits of tax deductions in excess of the compensation cost recognized for those options (“excess tax benefits”)
be classified as financing cash flows and benefits of tax deductions less than the compensation cost recognized
for those options (“shortfalls”) be classified as operating cash flows. Excess tax benefits reflected as a financing
cash inflow totaled $5.7 million and $12.0 million during 2007 and 2006, respectively. Excess tax benefits
(shortfalls) reflected as operating cash inflows (outflows) totaled $0, $(3.5) million, and $4.3 million during
2007, 2006, and 2005, respectively. At December 31, 2007, Mattel did not recognize excess tax benefits totaling
$31.0 million that are not currently realizable based on the ordering of deductions under the tax law.
On December 28, 2005, the Compensation Committee of the Board of Directors of Mattel approved the
acceleration of vesting of options for approximately 12.4 million shares with an exercise price of $16.09 or
greater granted to employees other than Mattel’s Chairman and Chief Executive Officer. Options held by
non-employee members of the Board of Directors were also excluded from the acceleration. The primary purpose
of the accelerated vesting was to avoid recognizing future compensation expense associated with the accelerated
stock options upon adoption of SFAS No. 123(R) in 2006. Additionally, for financial reporting purposes, there
were other potential tax benefits derived from accelerating the vesting of outstanding stock options prior to the
adoption of SFAS No. 123(R).
As of December 31, 2007, total unrecognized compensation cost related to unvested share-based payments
totaled $54.4 million and is expected to be recognized over a weighted-average period of 2.2 years.
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