Mattel 1999 Annual Report Download - page 35

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Mattel, Inc. and Subsidiaries
The following table summarizes information about the remaining contractual
life ( in years) and the exercise prices for premium price options outstanding as of
December 31 , 1999 ( options in thousands) :
Options Outstanding
Number Remaining Life Price
66 0 4.25 $ 3 5 .2 4
66 0 4.25 3 7 .5 9
7,3 6 4 2.8 5 4 2 .31
7,2 5 8 2.8 5 4 4 .87
50 0 3.54 5 0 .4 6
50 0 3.54 5 3 .8 3
16 ,9 4 2 $ 4 3.53
Learning Company Stock Option Plans
Prior to the May 1 999 merger, Learning Company and its subsidiaries had various
incentive and nonqualified stock option plans that provided benefits for eligible
employees and non-employee directors. Effective with the 19 99 merger, each out-
standing option under these plans was converted into an option to purchase 1.2
shares of Mattel common stock. The exercise price of such options w as adjusted by
dividing the Learning Company option price by 1 .2 . Other than options granted under
some plans assumed by Learning Company in connection with recent acquisitions, all
Learning Company stock options vested and became fully exercisable as a result of
the 19 99 merger.
The fair value of Learning Company options granted prior to the 19 99 merger,
and during the years ended 1 99 8 and 19 97 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) 4.00 6.0 0 4.0 0
Risk-free interest rate 6.35 % 5.13 % 6.0 0 %
Volatility factor 51 .0 0 % 68 .0 0 % 75 .0 0 %
Dividend yield – – –
The weighted average fair value of Learning Company options granted prior
to the 19 99 merger, and during the years ended 19 98 and 1 99 7 were $9 .83 ,
$1 0.1 4 and $ 8.8 1, respectively.
The following is a summary of stock option information and weighted aver-
age exercise prices for Learning Company’s stock option plans during the year
( options in thousands):
1999 1998 1997
Number Price Number Price Number Price
Outstanding at January 1 1 7 ,6 2 6 $1 4.30 16 ,396 $1 4 .4 3 1 4 ,6 9 4 $1 8.63
Options assumed in acquisitions – – – – 86 0 3.98
Options granted 1,4 1 5 2 1 .1 2 8 ,9 7 9 15 .29 9 ,695 1 1 .1 2
Options exercised ( 5,2 78) 1 0 .99 ( 4 ,660) 8 .77 ( 1 ,489) 7.43
Options canceled ( 3 ,083 ) 15 .94 ( 3 ,089 ) 2 1 .70 ( 7 ,3 6 4) 16 .1 2
Outstanding at December 31 10,68 0 $1 6 .19 1 7 ,626 $ 1 4 .3 0 1 6 ,3 9 6 $ 14.43
Exercisable at December 31 9,4 7 3 $15.41 6,60 2 $1 5 .04 7 ,1 54 $13.05
Available for grant at December 3 1 – 4,70 9 3,27 0
The following table summarizes information about the weighted average
remaining contractual life ( in years) and the weighted average exercise prices for
Learning Company 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
$ 0 .58 to $ 5.6 3 232 6.87 $ 3 .90 2 2 2 $ 3 .9 0
6.5 4 to 1 2 .92 2,0 2 6 7.5 4 1 0 .8 7 2,0 1 6 10.8 8
12 .9 7 to 23.49 7 ,361 7.32 1 5 .89 6 ,479 1 5 .3 4
24 .0 6 to 34.51 1 ,025 7.14 2 9 .38 727 2 9 .5 5
79 .9 2 to 79.92 3 6 0.83 7 9.92 29 7 9 .92
$ 0 .58 to $ 79 .9 2 1 0 ,680 7.31 $ 1 6 .1 9 9,4 7 3 $ 1 5 .41
In March 19 97 , in order to provide a competitive employment environment for
staff retention and hiring, Learning Company instituted an option exchange program under
which certain employees ( other than employee directors) with options exercisable at
$8 .67 per share or higher were given the opportunity to exchange such options for
options with an exercise price of $8.6 7 per share. A total of 4.4 million options were
exchanged and have been included in the canceled and granted totals for the year ended
December 31 , 1997.
Compensation Cost
Mattel, Tyco and Learning Company each adopted the disclosure-only provisions of
SFAS No. 123. Accordingly, no compensation cost has been recognized in the results
of operations for nonqualified stock options granted under these plans during the years
ended December 3 1, 19 99 , 1 99 8 and 19 97 . Had compensation cost for nonqualified
stock options been determined based on their fair value at the date of grant consistent
with the method of accounting prescribed by SFAS No. 12 3, Mattel’s net income ( loss)
and earnings per share would have been adjusted as follows ( amounts in millions
except per share data) :
For the Year Ended
1999 1998 1997
Net income (loss)
As reported $ ( 82 .4) $ 20 6 .1 $ ( 18 2 .7)
Stock option plans ( 3 0 .1) ( 67 .1 ) ( 3 8 .6 )
Premium price stock option plan (2 0 .1) ( 2 1 .1) –
Pro forma income ( loss) $( 13 2 .6 ) $ 11 7 .9 $( 2 2 1 .3 )
Income (loss) per share
Basic
As reported $ ( 0.2 1) $ 0.51 $ ( 0 .52)
Stock option and premium price option plans ( 0.1 2 ) ( 0 .1 7 ) ( 0 .1 1)
Pro forma basic income ( loss) $( 0.3 3 ) $ 0 .34 $ ( 0 .63)
Diluted
As reported $ ( 0.2 1) $ 0.47 $ ( 0 .52)
Stock option and premium price option plans ( 0.1 2 ) ( 0 .1 6 ) ( 0 .1 1)
Pro forma diluted income ( loss) $( 0 .33) $ 0.3 1 $ ( 0.63 )
The pro forma effect on Mattel’s 19 98 and 1 99 7 net income is not indica-
tive of the pro forma effect in future years, because it does not take into considera-
tion the pro forma expense related to grants made prior to 1 99 5.
Stock Subscription Warrants
In December 1999, 7 51 .4 thousand warrants w ere exercised for an equal number of
common shares by the holder in accordance with the terms of the warrant agreement.
In June 1 99 9, 11 4.2 thousand common shares were issued to a warrant holder in
a cashless exercise in accordance with the terms of the warrant agreement. As of
December 31 , 1999, all stock subscription warrants previously outstanding had
been exercised.