Mattel 1999 Annual Report Download - page 34

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Mattel, Inc. and Subsidiaries
the fair market value of Mattel’s common stock on the date of grant, and expire within
ten years from the date of grant. Options granted under the 1999 Stock Option Plan
vest on a schedule determined by the Compensation/ Options Committee. Grants
made in 199 9 vest over three years at six month intervals, at a rate of 1 0% for each
six-month period during the first year and at a rate of 2 0% per six-month period
thereafter. Grants made to individual participants cannot exceed 1.0 million shares in
any single calendar year. The aggregate number of shares of common stock available
for grant under the 19 99 Stock Option Plan may not exceed 1 2.8 million shares.
This plan expires on December 31 , 2 00 9.
The fair value of Mattel options granted has been estimated using the Black-
Scholes pricing model. The expected life of these options used in this calculation has
been determined using historical exercise patterns. The following weighted average
assumptions were used in determining fair value:
19 9 9 1 9 9 8 1 9 97
Expected life ( in years) 3.9 0 3.6 0 3.4 0
Risk-free interest rate 6.34 % 4.61 % 5.6 9 %
Volatility factor 18 .4 6 % 15 .8 0 % 17 .4 0 %
Dividend yield 0.8 4 % 0.8 3 % 0 .8 6 %
The weighted average fair value of Mattel options granted during 19 99 , 1 99 8
and 1 99 7 w ere $ 4.8 5, $7 .3 2 and $4 .86 , respectively.
The following is a summary of stock option information and weighted aver-
age exercise prices for Mattel’s stock option plans during the year ( options in thou-
sands) :
1999 1998 1997
Number Price Number Price Number Price
Outstanding at January 1 1 6 ,0 7 5 $2 7.02 17 ,307 $2 1 .7 3 1 3 ,3 1 0 $1 8.05
Options granted 18 ,2 0 8 2 0 .4 5 3 ,6 8 0 41 .66 7,44 3 25 .7 9
Options exercised (2 0 1 ) 2 0 .9 3 ( 4 ,2 8 4) 17 .8 0 ( 2,8 07) 14 .8 9
Options canceled ( 1 ,872 ) 28 .14 (62 8 ) 2 9 .79 ( 63 9 ) 22.44
Outstanding at December 31 32,21 0 $2 3 .28 1 6 ,075 $ 2 7 .0 2 1 7 ,3 0 7 $ 21.73
Exercisable at December 31 1 0 ,8 13 $23.8 9 5,6 4 5 $ 2 0 .48 5,99 9 $ 1 6 .2 9
Available for grant at December 3 1 9 ,234 2,3 5 8 1,0 7 2
The following table summarizes information about the weighted average
remaining contractual life ( in years) and the weighted average exercise prices for Mattel
stock options outstanding as of December 31 , 1 99 9 ( options in thousands):
Options Outstanding Options Exercisable
Exercise Remaining
Price Ranges Number Life Price Number Price
$ 4.69 to $ 1 3 .56 3 8 9 5.2 0 $ 1 1 .59 259 $1 0 .7 7
13 .6 9 to 13 .6 9 7,0 1 0 9.8 4 13 .6 9 – –
14 .0 0 to 22 .4 0 3,0 9 0 4.6 5 16 .1 7 2,99 0 16.05
22 .5 0 to 22 .5 0 3,8 1 6 9.0 4 22 .5 0 1 2 2.50
22 .5 6 to 25 .6 3 3,1 2 5 6.7 6 24 .4 7 1,81 1 24.57
25 .7 5 to 25 .7 5 5,0 6 3 7.1 1 25 .7 5 3,16 2 25.75
25 .9 4 to 26 .2 5 59 2 6.9 3 26.1 5 5 0 7 2 6.14
26 .3 8 to 26 .3 8 5,4 4 0 9.4 2 26 .3 8 9 4 7 26.38
26 .5 0 to 41 .3 8 82 6 7.6 4 33.3 7 4 1 0 3 1.40
42 .0 0 to 42 .0 0 2,8 5 9 8.1 0 42 .0 0 7 2 6 42.00
$ 4 .69 to $4 2 .0 0 32 ,2 10 8.13 $2 3 .2 8 1 0 ,813 $ 2 3 .8 9
Prior to the March 19 97 merger, Tyco had various incentive and nonqualified
stock option plans that provided benefits for eligible participants. Effective with the
19 97 merger, all stock options previously granted and outstanding under these plans
were exchanged for approximately 36 3 thousand Mattel common shares, which
approximated the fair value of the options as of the merger consummation date.
Mattel 1 99 7 Premium Price Stock Option Plan
In November 1997, the Compensation/ Options Committee of the board of directors
approved the Mattel, Inc. 19 97 Premium Price Stock Option Plan, which was subse-
quently approved by Mattel’s stockholders at the May 1 99 8 meeting. Under this
plan, premium price options may be granted to officers and other key employees of
Mattel. Grants made to individual participants cannot exceed 4 .5 million shares in
any three consecutive calendar years. Grants under the 19 97 Premium Price Stock
Option Plan in 19 97 were intended to replace annual grants under the 1 99 6 Stock
Option Plan until the end of 2 00 0.
The exercise price of premium price options is calculated at 25 % and
33 -1/ 3% above Mattel’s six-month average stock price prior to the date of grant.
Options are forfeited unless Mattel’s common stock price reaches the premium exer-
cise price within two years from the date of grant for options with a 25 % premium
price and within three years from the date of grant for options with a 33 -1/ 3% pre-
mium price. Options granted under the plan may not be exercised for three years
and expire five years from the date of grant. Each option includes a Tandem Limited
Stock Appreciation Right which gives the holder the right to receive cash, shares of
common stock or any combination of cash and common stock upon the occurrence
of a change of control as defined in the plan. On February 4, 19 99 , Mattel’s board
of directors approved an amendment to the 19 97 Premium Price Stock Option
Plan authorizing an additional 3.0 million shares for grant in connection with new
employees of businesses acquired by Mattel, bringing the aggregate number of shares
of common stock available for grant under this plan to 24 .0 million. This plan
expires on December 31 , 2 00 2.
The following is a summary of stock option information and weighted average
exercise prices for premium price options during the year ( options in thousands) :
1999 1998 1997
Number Price Number Price Number Price
Outstanding at January 1 1 8 ,6 6 1 $4 4.04 17 ,66 1 $4 3 .5 8 –
Options granted 3,4 2 0 3 5 .0 0 1 ,0 0 0 52 .15 1 7 ,661 $4 3 .5 8
Options exercised – – –
Options canceled ( 5 ,139 ) 39 .71 – –
Outstanding at December 31 1 6 ,94 2 $4 3 .5 3 1 8 ,6 6 1 $44.0 4 17,66 1 $ 4 3 .58
Exercisable at December 31 – – –
Available for grant at December 3 1 7 ,058 2,3 3 9 3,3 3 9
The fair value of premium price options granted has been estimated using the
Black-Scholes pricing model. The following assumptions were used in determining fair
value:
19 9 9 1 9 9 8 1 9 97
Expected life ( in years) 5.0 0 5.0 0 5.0 0
Risk-free interest rate 5.16 % 5.80 % 6.3 3 %
Volatility factor 39 .9 0 % 25 .5 0 % 24 .1 0 %
Dividend yield 0.8 9 % 0.8 3 % 0 .8 6 %
The fair value of options granted during 1 99 9, 1998 and 19 97 was $5 .3 7,
$5 .10 and $4 .79 for 2 5% premium price options and $5 .48 , $ 4.9 2 and $ 4.8 6 for
33 -1/ 3% premium price options, respectively.