Mattel 2008 Annual Report Download - page 83

The Mattel 2003 Long-Term Incentive Plan (“LTIP”) was approved by Mattel’s stockholders in May 2003.
The LTIP is intended to motivate and retain key executives of Mattel who regularly and directly make or
influence decisions that affect the medium- and long-term success of Mattel. The LTIP, which became effective
as of January 1, 2003, replaced a prior long-term incentive plan that was approved in June 1999. When Mattel
put the LTIP in place in 2003, the intention at that time was to use four-year performance cycles, with two
overlapping cycles outstanding at any given time. For the 2005 through 2007 performance cycle, Mattel used
successive three-year cycles with no overlap. Thus, the last four-year cycle was the 2003 through 2006
performance cycle. Under both LTIP cycles, cumulative financial performance was measured against annually
escalating operating result targets that used a net operating profit after taxes less capital charge calculation.
Because the performance targets escalate each year, reaching the cumulative targets became increasingly difficult
when the performance targets were not met in the earlier periods. Awards were based upon the financial
performance of Mattel during a specified performance period and were settled in cash when the required
financial performance was met.
Mattel has had three LTIP performance cycles in place for some portion of the time period between 2006
and 2008: (i) a January 1, 2003—December 31, 2006 performance cycle, which was established by the
Compensation Committee of Mattel’s Board of Directors in March 2003, (ii) a January 1, 2005—December 31,
2007 performance cycle, which was established by the Compensation Committee of Mattel’s Board of Directors
in March 2005, and (iii) a January 1, 2008—December 31, 2010 performance cycle, which was established by
the Compensation Committee of Mattel’s Board of Directors in March 2008.
For the January 1, 2003—December 31, 2006 LTIP performance cycle, no amounts were charged to
expense during 2006 because Mattel determined that, based on its financial performance in the early periods of
the cycle, the likelihood that payments would be made under this performance cycle was not probable.
Ultimately, actual performance under this cycle through the end of 2006 did not meet the threshold level, and
accordingly no payments were made.
For the January 1, 2005—December 31, 2007 LTIP performance cycle, during 2006, considering Mattel’s
actual cumulative performance during 2005 and 2006 and expectations for 2007, Mattel determined that the
likelihood of payments being made was probable, and $14.8 million was charged to expense. During 2007, an
additional $10.1 million was charged to expense for a cumulative total of $24.9 million relating to the January 1,
2005—December 31, 2007 LTIP performance cycle, which was subsequently paid in cash during 2008.
For the January 1, 2008—December 31, 2010 LTIP performance cycle, during 2008, Mattel granted
performance RSUs under the Mattel, Inc. 2005 Equity Compensation Plan to officers and certain employees
providing services to Mattel. Performance RSUs are units that may become payable in shares of Mattel’s
common stock at the end of the three year performance period, beginning January 1, 2008 and ending
December 31, 2010 (“the performance period”). Performance RSUs are earned based on an initial target number
with the final number of performance RSUs payable being determined based on the product of the initial target
number of performance RSUs multiplied by a performance factor based on measurements of Mattel’s
performance with respect to: (i) annual operating result targets for each year in the performance period using a
net operating profit after taxes less capital charge calculation (“the performance-related component”), and
(ii) Mattel’s total stockholder return (“TSR”) for the three-year performance period relative to the TSR realized
by companies comprising the S&P 500 as of January 1, 2008 (“the market-related component”). For the
performance-related component, the range of possible outcomes is that between zero and 0.7 million shares are
earned for each of the three years during the three-year performance period. For the market-related component,
possible outcomes range from an upward adjustment of 0.7 million shares to a downward adjustment of
0.7 million shares to the results of the performance-related component over the three-year performance period.
For the January 1, 2008—December 31, 2010 LTIP performance cycle, the weighted average grant date fair
value of the performance-related and market-related components of the performance RSUs were $18.14 and
$3.99 per share, respectively. The fair value of the performance-related component is based on the closing stock
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