Mattel 2010 Annual Report Download - page 53

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care cost trend rates for its other postretirement benefit plan obligation to range from 8% in 2010 reducing to 5%
in 2017, with rates assumed to stabilize in 2017 and thereafter. Assuming all other postretirement benefit plan
assumptions remain constant, a one percentage point increase in the assumed health care cost trend rates would
increase benefit plan expense during 2011 by $0.2 million.
A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year
would impact the postretirement benefit obligation as of December 31, 2010 by approximately $3 million and
$(3) million, respectively, while a one percentage point increase/(decrease) would impact the service and interest
cost recognized for 2010 by $0.2 million and $(0.2) million, respectively.
Share-Based Payments
Mattel recognizes the cost of employee share-based payment awards on a straight-line attribution basis over
the requisite employee service period, net of estimated forfeitures. In determining when additional tax benefits
associated with share-based payment exercises are recognized, Mattel follows the ordering of deductions under
the tax law, which allows deductions for share-based payment exercises to be utilized before previously existing
net operating loss carryforwards. In computing dilutive shares under the treasury stock method, Mattel does not
reduce the tax benefit amount within the calculation for the amount of deferred tax assets that would have been
recognized had Mattel previously expensed all share-based payment awards.
Determining the fair value of share-based awards at the measurement date requires judgment, including
estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility, and
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.
Management believes that these assumptions are “critical accounting estimates” because significant changes in
the assumptions used to develop the estimates could materially affect key financial measures, including net
income.
The weighted average grant date fair value of options granted during 2010, 2009, and 2008 was $4.84,
$3.71, and $3.67, respectively. The following weighted average assumptions were used in determining the fair
value of options granted:
2010 2009 2008
Options granted at market price
Expected life (in years) ................................................... 5.0 4.9 4.8
Risk-free interest rate ..................................................... 1.7% 2.5% 3.2%
Volatility factor ......................................................... 34.3% 33.6% 25.6%
Dividend yield .......................................................... 3.5% 4.3% 3.7%
45