In June 1998, the company effected a three-for-one split of the company's common stock, by means of a special stock dividend. Stockholders' equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from retained earnings to common stock the par value of additional shares issued pursuant to the split. In connection with the common stock split, the company amended its corporate charter to increase the company's authorized common stock from 1.2 billion shares to 3.6 billion shares. The Board of Directors also approved an increase in the company's share repurchase authorization to 133.3 million shares of common stock pre-split or 400 million post-split. All share and per share data included herein have been restated to reflect the split.
In 1996, the company established the TWDC Stock Compensation Fund pursuant to the repurchase program to acquire shares of the company for the purpose of funding certain stock-based compensation. Any shares acquired by the fund that are not utilized must be disposed of by December 31, 1999.
The company has a stockholder rights plan, expiring June 30, 1999, which becomes operative upon certain events involving the acquisition of 25% or more of the company's common stock by any person or group in a transaction not approved by the company's Board of Directors. Upon the occurrence of such an event, each right, unless redeemed by the Board, entitles its holder to purchase for $350 an amount of common stock of the company, or in certain circumstances the acquirer, having a $700 market value. In connection with the rights plan, 7 million shares of preferred stock were reserved.
Under various plans, the company may grant stock options and other awards to key executive, management and creative personnel at exercise prices equal to or exceeding the market price at the date of grant. In general, options become exercisable over a five-year period from the grant date and expire 10 years after the date of grant. In certain cases for senior executives, options become exercisable over periods up to 10 years and expire up to 15 years after date of grant. Shares available for future option grants at September 30, 1998, totaled 119 million.
The following table summarizes information about stock option transactions (shares in millions):
The following table summarizes information about stock options outstanding at September 30, 1998 (shares in millions):
During 1997, the company adopted SFAS 123 and pursuant to its provision elected to continue using the intrinsic-value method of accounting for stock-based awards granted to employees in accordance with APB 25. Accordingly, the company has not recognized compensation expense for its stock-based awards to employees. The following table reflects pro forma net income and earnings per share had the company elected to adopt the fair value approach of SFAS 123:
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years.
The weighted average fair values of options at their grant date during 1998, 1997 and 1996, where the exercise price equaled the market price on the grant date, were $10.82 and $9.09, and $7.67, respectively. The weighted average fair values of options at their grant date during 1998 and 1996, where the exercise price exceeded the market price on the grant date, were $8.55 and $6.20, respectively. No such options were granted during 1997. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows:
During the second quarter of 1996, the company implemented SFAS 121. This accounting standard changed the method that companies use to evaluate the carrying value of such assets by, among other things, requiring companies to evaluate assets at the lowest level at which identifiable cash flows can be determined. The implementation of SFAS 121 resulted in the company recognizing a $300 million non-cash charge related principally to certain assets included in the Theme Parks and Resorts segment.
