Mattel 2000 Annual Report Download - page 41

thirty nine
Mattel, Inc. and Subsidiaries
The fair value of Learning Company options granted prior
to the 1999 merger and during 1998 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 pat-
terns. The following weighted average assumptions were used in
determining fair value:
1999 1998
Expected life (in years) 4.00 6.00
Risk-free interest rate 6.35% 5.13%
Volatility factor 51.00% 68.00%
Dividend yield - -
The weighted average fair value of Learning Company options
granted prior to the 1999 merger and during 1998 were $9.83 and
$10.14, respectively.
Nonvested Stock
Mattel awarded 685.5 thousand deferrable nonvested stock units to
its chief executive officer pursuant to the terms of his employment
contract. These units vest at a rate of 25% annually in 2000, 2001,
and 2002, with the remaining units vesting in 2008. The aggregate
fair market value of the nonvested stock units is being amortized to
compensation expense over the vesting period. In 2000, $4.5 million
was charged to operating expense related to the vesting of these units.
Prior to the May 1999 merger, Learning Company maintained
the 1990 Long-Term Equity Incentive Plan for certain senior execu-
tives. Under this plan, 0.8 million shares of nonvested stock were
issued during 1998. At the time of the 1999 merger, the nonvested
stock became fully vested as a result of change of control provisions,
and the remaining unamortized amount of $11.8 million was charged
to results of continuing operations in 1999.
Employee Stock Purchase Plan
In December 1997, Learning Company stockholders approved the
1997 Employee Stock Purchase Plan, which provided certain eligible
employees with the opportunity to purchase shares of common stock
at a price of 85% of the price listed on the New York Stock Exchange
at various specified purchase dates. The plan met the criteria estab-
lished in SFAS No. 123 for noncompensatory employee stock purchase
plans and, therefore, no compensation expense was recorded in
connection with this plan. During 1999 and 1998, approximately
37 thousand shares and 56 thousand shares, respectively, were pur-
chased by employees under this plan. As a result of the May 1999
merger, the 1997 Employee Stock Purchase Plan was terminated.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
Mattel routinely enters into noncancelable lease agreements for
premises and equipment used in the normal course of business.
The following table shows the future minimum obligations under
lease commitments in effect at December 31, 2000 (in thousands):
Capitalized Leases Operating Leases
2001 $ 300 $ 42,600
2002 300 32,400
2003 300 25,100
2004 300 22,500
2005 300 15,400
Thereafter 8,900 12,000
$10,400(a) $150,000
(a) Includes $8.1 million of imputed interest.
Rental expense under operating leases amounted to $60.8 mil-
lion, $59.9 million and $58.4 million for 2000, 1999 and 1998, respec-
tively, net of sublease income of $0.7 million, $0.6 million and
$0.5 million in 2000, 1999 and 1998, respectively.
Commitments
In the normal course of business, Mattel enters into contractual
arrangements to obtain and protect Mattel’s right to create and mar-
ket certain products, and for future purchases of goods and services
to ensure availability and timely delivery. Such arrangements include
royalty payments pursuant to licensing agreements and commitments
for future inventory purchases. Certain of these commitments routinely
contain provisions for guaranteed or minimum expenditures during
the terms of the contracts. Current and future commitments for
guaranteed payments reflect Mattel’s focus on expanding its product
lines through alliances with businesses in other industries.
The largest commitment involves Mattel’s agreement with
Disney Enterprises, Inc., which expires in December 2004. This licensing
agreement, which contains annual minimum royalty guarantees, per-
mits Mattel to produce toys based on classic Disney characters such
as Mickey Mouse, Winnie the Pooh and the Disney Princesses, as well
as any new infant and preschool toys based on film and television
properties created by Disney. Additionally, Mattel is in the final year
of its Disney entertainment agreement for products to be marketed in
connection with the motion picture Atlantis scheduled to be released
in summer 2001.