Mattel 1998 Annual Report Download - page 46

Mattel, Inc. and Subsidiaries 44
Prior to the merger,Tyco had various incentive and non-
qualified stock option plans that provided benefits for eligible
participants. Effective with the March 1997 merger, all stock
options previously granted and outstanding under these plans were
exchanged for approximately 363 thousand Mattel common shares
(which approximated the fair value of the options as of the merger
consummation date).
In December 1993, restricted stock awards totaling 927.7
thousand shares were granted to key Mattel executives. During
1996, 244.1 thousand shares were forfeited and returned to the
Company. On January 1, 1997, restrictions on the remaining 683.6
thousand shares lapsed. Compensation expense of $2.8 million was
charged to income in 1996. In addition, as a result of the forfeiture,
$6.6 million of compensation expense that was recognized in
previous periods was reversed in 1996.
- 1997 Premium Price Stock Option Plan
In November 1997, the Compensation/Options Committee of the
board of directors approved the Mattel, Inc. 1997 Premium Price
Stock Option Plan, which was subsequently approved by the Company’s
stockholders at the May 1998 meeting. Under this plan, premium
price options may be granted to officers and other key employees
of the Company. Grants made to individual participants cannot
exceed 4.5 million shares in any three consecutive calendar years.
Participants in this plan are not eligible to receive grants under the
1996 Stock Option Plan until the year 2001.
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 the Company’s
common stock price reaches the premium exercise 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% premium 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, 1999, the Company’s board of directors approved
an amendment to the 1997 Premium Price Stock Option Plan
authorizing an additional 3.0 million shares for grant in connection
with new employees of businesses acquired by the Company, bringing
the aggregate number of shares of common stock available for grant
under this plan to 24.0 million shares. This plan expires on
December 31, 2002.
Options to purchase 1.0 million shares and 17.7 million shares
of common stock were granted during 1998 and 1997, respectively.
No options were canceled, forfeited or exercisable during these
periods. Shares available for grant under this plan were 2.3 million
and 3.3 million as of December 31, 1998 and 1997, respectively.
The fair value of premium price options granted during 1998
and 1997 has been estimated using the Black-Scholes pricing model.
The following assumptions were used in determining fair value:
1998 1997
Expected life (in years) 5.00 5.00
Risk-free interest rate 5.80% 6.33%
Volatility factor 25.50% 24.10%
Dividend yield 0.83% 0.86%
The fair value of options granted during 1998 and 1997 was
$5.10 and $4.79 for 25% premium price options and $4.92 and
$4.86 for 33-1/3% premium price options, respectively.
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, 1998 (options in thousands):
Options Outstanding
Number Remaining Life Price
8,894 3.85 $42.31
8,767 3.85 44.87
500 4.54 50.46
500 4.54 53.83
18,661 $44.04
- Compensation Cost
Both Mattel and Tyco 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 31, 1998, 1997
and 1996. Had compensation cost for nonqualified stock options
been determined based on their fair value at the date of grant con-
sistent with the method of accounting prescribed by SFAS No. 123,
the Company’s net income and earnings per share would have been
reduced as follows (amounts in millions except per share data):
For the Year Ended
1998 1997 1996
Net income
Stock option plans $15.7 $14.3 $ 7.0
Premium price stock option plan 21.1 - -
Income per share
Basic $0.13 $0.05 $0.02
Diluted 0.12 0.05 0.02
The pro forma effect on the Company’s 1998, 1997 and 1996
net income is not indicative of the pro forma effect in future years,
because it does not take into consideration the pro forma expense
related to grants made prior to 1995.
Stock Subscription Warrants
The Company currently has outstanding warrants exercisable into
751.4 thousand shares of the Company’s common stock at an exer-
cise price of approximately $4.77 per share. These warrants expire
on June 30, 2000.