Mattel 2008 Annual Report Download - page 69

unrecognized compensation cost related to unvested share-based payments totaled $69.2 million and is expected
to be recognized over a weighted-average period of 2.0 years. The 2008 compensation cost includes $1.5 million
of RSU expense associated with performance RSUs granted under Mattel’s January 1, 2008—December 31,
2010 Long Term Incentive Plan performance cycle as described in “Note 7 to the Consolidated Financial
Statements— Employee Benefit Plans.”
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.
In 2007, Mattel adopted FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes,
an interpretation of SFAS No. 109. FIN 48 clarifies the accounting for income taxes by prescribing the minimum
recognition threshold an uncertain tax position is required to meet before tax benefits associated with such
uncertain tax positions are recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 excludes income taxes from the scope of SFAS No. 5, Accounting for Contingencies. FIN 48
also requires that amounts recognized in the balance sheet related to uncertain tax positions be classified as a
current or noncurrent liability, based upon the expected timing of the payment to a taxing authority.
In the normal course of business, Mattel is regularly audited by federal, state, local, and foreign tax
authorities. The ultimate settlement of any particular issue with the applicable taxing authority could have a
material impact on Mattel’s consolidated financial statements.
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 and potential common shares outstanding during each period. The calculation of potential
common shares assumes the exercise of dilutive stock options, net of assumed treasury share repurchases at
average market prices, as applicable. Nonqualified stock options totaling 19.3 million, 3.2 million, and
22.0 million were excluded from the calculation of diluted net income per common share for 2008, 2007, and
2006, respectively, because they were anti-dilutive.
A reconciliation of weighted average shares is as follows:
December 31,
2008 2007 2006
(In thousands)
Common shares .................................................... 360,757 384,450 382,921
Effect of dilutive securities:
Stock options and restricted stock .................................. 2,432 6,162 3,501
Common and potential common shares .................................. 363,189 390,612 386,422
Change in Accounting Principle
Effective January 1, 2008, Mattel adopted SFAS No. 157, Fair Value Measurements, for all financial assets
and liabilities and for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis. FSP No. FAS 157-2 delayed the adoption date until January 1, 2009 for
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