Mattel 2000 Annual Report Download - page 39

thirty seven
Mattel, Inc. and Subsidiaries
Stock Warrants
In 2000, Mattel issued Warner Bros. Consumer Products a stock war-
rant, valued at $5.8 million, to purchase 3.0 million shares of Mattel’s
common stock at an exercise price of $10.875 per share. This warrant
became fully vested and exercisable upon signing of the related
licensing agreement and expires on December 31, 2003. The warrant’s
fair value was determined using the Black-Scholes pricing model,
assuming an expected life of three years, a dividend yield of 0.0369%,
a risk-free interest rate of 6.59%, and a volatility factor of 35%.
In 1996, Mattel issued Disney Enterprises, Inc. a warrant to pur-
chase 3.0 million shares of Mattel’s common stock at an exercise price
of $27.375 per share. This warrant expires no later than April 2, 2003.
The fair value of these warrants is being amortized as a compo-
nent of royalty expense when the related properties are introduced
over the period the related revenues are recognized. During 2000,
1999 and 1998, $10.4 million, $5.6 million and $3.2 million, respectively,
was recognized in the results of operations related to these warrants.
In 1999, holders exercised all remaining outstanding stock sub-
scription warrants assumed in connection with previous mergers,
resulting in the issuance of 865.6 thousand common shares.
Common Stock Repurchase Plan
Mattel’s common stock repurchase plan, initiated in May 1990, pro-
vides for the repurchase of common shares to fund Mattel’s stock
option plans. The number of shares to be repurchased is authorized
on an annual basis by the board of directors based upon anticipated
reissuance needs. No shares were repurchased in 2000 under this
plan. During 1999 and 1998, Mattel repurchased 4.0 million and
9.7 million shares, respectively.
Dividends
As part of its financial realignment plan, Mattel announced during the
third quarter of 2000 a change in its dividend policy consisting of a
reduction in the annual cash dividend from $0.36 per share to $0.05
per share. No quarterly dividend for the fourth quarter of 2000 was
declared. The $0.05 per share annual dividend rate under the new
dividend policy is expected to become effective in December 2001,
when and as declared by the board of directors. Learning Company
did not pay dividends on its common stock during 1998.
NOTE 6 - STOCK COMPENSATION PLANS
Mattel Stock Option Plans
Under various plans, Mattel has the ability to grant incentive stock
options, nonqualified stock options, stock appreciation rights, nonvested
stock awards, and shares of common stock to officers, key employees,
and other persons providing services to Mattel. In addition, nonqualified
stock options are granted to members of Mattel’s board of directors
who are not employees of Mattel. Generally, options are exercisable
contingent upon the grantees’ continued employment with Mattel.
Nonqualified stock options are granted at not less than 100% of
the fair market value of Mattel’s common stock on the date of grant.
Options granted at market price usually expire within ten years
from the date of grant and vest on a schedule determined by the
Compensation/Options Committee of the board of directors, generally
over four years. Options granted at above market price expire five or
ten years from the date of grant and vest based on whether the exer-
cise price is achieved by a specified date. Mattel’s current stock
option plans, the 1997, 1996 and 1999 plans, expire on December 31,
2002, 2005 and 2009, respectively. All outstanding awards under
plans that previously expired continue to be exercisable under the
terms of their respective grant agreements. The aggregate number of
shares of common stock available for grant under the 1997, 1996 and
1999 plans cannot exceed 24.0 million, 50.0 million and 12.8 million
shares, respectively.
The following is a summary of stock option information and
weighted average exercise prices for Mattel’s stock option plans dur-
ing the year (options in thousands):
2000 1999 1998
Number Price Number Price Number Price
Outstanding at January 1 49,152 $30.51 34,736 $36.16 34,968 $32.77
Options granted 17,900 11.01 21,628 21.91 4,680 43.90
Options exercised (1,064) 10.79 (201) 20.93 (4,284) 17.80
Options canceled (11,675) 24.40 (7,011) 37.76 (628) 29.79
Outstanding at December 31 54,313 $25.70 49,152 $30.51 34,736 $36.16
Exercisable at December 31 35,017 $29.41 10,813 $23.89 5,645 $20.48
Available for grant at December 31 16,277 16,292 4,697
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,
2000 (options in thousands):
Options Outstanding Options Exercisable
Remaining
Exercise Price Ranges Number Life Price Number Price
$ 4.69 - $ 4.69 7 0.49 $ 4.69 7 $ 4.69
7.03 - 10.38 8,110 9.03 10.36 1,864 10.33
10.50 - 11.88 6,432 9.11 11.46 2,717 11.59
12.00 - 15.76 7,205 7.75 13.96 4,519 14.12
15.88 - 24.69 5,658 6.89 21.08 3,171 20.38
24.70 - 25.75 6,408 5.82 25.44 5,933 25.42
25.94 - 42.00 5,925 6.25 35.76 3,238 33.49
42.31 - 42.31 6,833 2.03 42.31 6,833 42.31
44.87 - 44.87 6,735 2.04 44.87 6,735 44.87
50.46 - 53.83 1,000 2.54 52.14 - -
$ 4.69 - $53.83 54,313 6.10 $25.70 35,017 $29.41