Mattel 2009 Annual Report Download - page 73

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the expected dividends. Mattel estimates the fair value of options granted using the Black-Scholes valuation
model. The expected life of the options used in this calculation is the period of time the options are expected to
be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is
based on the historical volatility of Mattel’s stock for a period approximating the expected life, the expected
dividend yield is based on Mattel’s most recent actual annual dividend payout, and the risk-free interest rate is
based on the implied yield available on US Treasury zero-coupon issues approximating the expected life.
Judgment is also required in estimating the amount of share-based awards that will be forfeited prior to vesting.
Assumptions used in determining the fair value of options granted, and the resulting fair value, were as
follows:
2009 2008 2007
Expected life (in years) ................................................. 4.9 4.8 4.7
Risk-free interest rate ................................................... 2.5% 3.2% 4.6%
Volatility factor ....................................................... 33.6% 25.6% 22.8%
Dividend yield ........................................................ 4.3% 3.7% 2.8%
Weighted average fair value per granted option .............................. $3.71 $3.67 $4.76
Mattel recognized compensation expense of $13.0 million, $9.5 million, and $7.4 million for stock options
during 2009, 2008, and 2007, respectively, which is included within other selling and administrative expenses.
Compensation expense recognized related to employee service based restricted stock units (“RSUs”) was $37.0
million, $26.2 million, and $14.8 million in 2009, 2008, and 2007, respectively, and is also included within other
selling and administrative expenses. Additionally, the 2009 and 2008 compensation expense includes $5.3
million and $1.5 million, respectively, of compensation expense associated with performance RSUs granted
under Mattel’s January 1, 2008—December 31, 2010 Long-Term Incentive Program, as more fully described in
“Note 7 to the Consolidated Financial Statements—Employee Benefit Plans.” As of December 31, 2009, total
unrecognized compensation expense related to unvested share-based payments totaled $69.8 million and is
expected to be recognized over a weighted-average period of 2.0 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.
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.
New Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets—an
amendment of FASB Statement No. 140. SFAS No. 166 amends SFAS No. 140, Accounting for the Transfers and
Servicing of Financial Assets and the Extinguishments of Liabilities, which seeks to improve the relevance and
comparability of the information that a reporting entity provides in its financial statements about transfers of
financial assets; the effects of the transfer on its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in transferred financial assets. SFAS No. 166 eliminates the concept
of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a
financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a
transferor’s interest in transferred financial assets. SFAS No. 166 is effective for interim and annual reporting
periods beginning after November 15, 2009. Mattel does not expect the adoption of SFAS No. 166 to have a
material impact on its consolidated financial statements.
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