Mattel 2011 Annual Report Download - page 73

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in the financial statements for certain retirement and other postretirement benefit plans (see “Note 6 to the
Consolidated Financial Statements—Employee Benefit Plans”).
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.
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.
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 May 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in US GAAP and IFRSs. ASU 2011-04 clarifies some existing
concepts, eliminates wording differences between US GAAP and International Financial Reporting Standards
(“IFRS”), and in some limited cases, changes some principles to achieve convergence between US GAAP and
IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of
and disclosure about fair value between US GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair
value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be
effective for Mattel for fiscal years beginning after December 15, 2011. Mattel does not expect the adoption of
ASU 2011-04 to have a material effect on its operating results or financial position.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an
entity to present the total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income, or in two separate but
consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive
income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, Comprehensive
Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of
Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which
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