Mattel 2000 Annual Report Download - page 40

thirty eight
Mattel, Inc. and Subsidiaries
Learning Company Stock Option Plans
Prior to the May 1999 merger, Learning Company and its subsidiaries
had various incentive and nonqualified stock option plans that provid-
ed benefits for eligible employees and non-employee directors.
Effective with the 1999 merger, each outstanding option under these
plans was converted into an option to purchase 1.2 shares of Mattel
common stock. The exercise price of such options was 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 acquisitions, all Learning Company stock options
vested and became fully exercisable as a result of the 1999 merger.
Employees terminated as a result of the sale of Learning Company in
fourth quarter 2000 had 90 days from their date of termination to
exercise their vested stock options.
The following is a summary of stock option information and
weighted average exercise prices for Learning Company’s stock option
plans during the year (options in thousands):
2000 1999 1998
Number Price Number Price Number Price
Outstanding at January 1 10,680 $16.19 17,626 $14.30 16,396 $14.43
Options granted - - 1,415 21.12 8,979 15.29
Options exercised (1,372) 9.99 (5,278) 10.99 (4,660) 8.77
Options canceled (6,634) 17.13 (3,083) 15.94 (3,089) 21.70
Outstanding at December 31 2,674 $ 17.07 10,680 $ 16.19 17,626 $ 14.30
Exercisable at December 31 2,674 $ 17.07 9,473 $ 15.41 6,602 $ 15.04
Available for grant at December 31 - - 4,709
The following table summarizes information about the weight-
ed average exercise prices for Learning Company stock options out-
standing as of December 31, 2000 (options in thousands):
Options Outstanding
and Exercisable
Exercise Price Ranges Number Price
$ 0.58 - $12.92 469 $ 8.39
12.97 - 14.43 610 14.41
14.48 - 14.74 678 14.73
14.79 - 29.56 755 23.88
29.75 - 33.59 162 30.28
$ 0.58 - $33.59 2,674 $17.07
Compensation Cost
Mattel 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. 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. 123, 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
2000 1999 1998
Net income (loss)
As reported $(431.0) $ (82.4) $206.1
Stock option plans (34.6) (50.2) (88.2)
Pro forma income (loss) $(465.6) $(132.6) $ 117.9
Income (loss) per share
Basic
As reported $ (1.01) $ (0.21) $ 0.51
Stock option plans (0.08) (0.12) (0.17)
Pro forma basic income (loss) $ (1.09) $ (0.33) $ 0.34
Diluted
As reported $ (1.01) $ (0.20) $ 0.47
Stock option plans (0.08) (0.12) (0.16)
Pro forma diluted income (loss) $ (1.09) $ (0.32) $ 0.31
The pro forma amounts shown above are not indicative of
the pro forma effect in future years since the estimated fair value of
options is amortized to expense over the vesting period, and the num-
ber of options granted varies from year to year.
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:
2000 1999 1998
Options granted at market price
Expected life (in years) 5.67 3.90 3.60
Risk-free interest rate 5.03% 6.34% 4.61%
Volatility factor 19.55% 18.46% 15.80%
Dividend yield 0.83% 0.84% 0.83%
Options granted at above market price
Expected life (in years) 10.00 5.00 5.00
Risk-free interest rate 6.01% 5.16% 5.80%
Volatility factor 45.63% 39.90% 25.50%
Dividend yield 3.40% 0.89% 0.83%
The weighted average fair value of Mattel options granted
at market price during 2000, 1999 and 1998 were $2.96, $4.85 and
$7.32, respectively. The weighted average fair value of Mattel options
granted at above market price during 2000, 1999 and 1998 were
$3.18, $5.43 and $5.01, respectively.