Aarons 2002 Annual Report Download - page 30

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The Company maintains a 401(k) savings plan for all full-time
employees with at least one year of service with the Company
and who meet certain eligibility requirements. The plan allows
employees to contribute up to 10% of their annual compensation
with 50% matching by the Company on the first 4% of compen-
sation. The Company’s expense related to the plan was $453,000
in 2002, $436,000 in 2001; and $427,000 in 2000.
NOTE H: SHAREHOLDERS’ EQUITY
In February 1999, the Company’s Board of Directors author-
ized the repurchase of up to 2,000,000 shares of the Company’s
Common Stock and/or Class A Common Stock. During 2002,
97,800 shares of the Company’s Class A Common Stock were
purchased at an aggregate cost of $1,667,490 and 9,884 shares of
the Company’s Common Stock were transferred back into treasury
at an aggregate cost of $218,000. The Company was authorized
to purchase an additional 1,186,890 shares and held a total of
3,642,525 common shares in its treasury at December 31, 2002.
The Company’s articles of incorporation provide that no cash
dividends may be paid on our Class A Common Stock unless
equal or higher dividends are paid on the Common Stock.
The Company has 1,000,000 shares of Preferred Stock author-
ized. The shares are issuable in series with terms for each series
fixed by the Board and such issuance is subject to approval by
the Board of Directors. No preferred shares have been issued.
NOTE I: STOCK OPTIONS
The Company has stock option plans under which options to
purchase shares of the Company’s Common Stock are granted to
certain key employees. Under the plans, options granted become
exercisable after a period of two or three years and unexercised
options lapse five or ten years after the date of the grant. Options
are subject to forfeiture upon termination of service. Under the
plans, 1,817,000 of the Company shares were reserved for issuance
at December 31, 2002. The weighted average fair value of options
granted was $9.84 in 2002, $9.68 in 2001, and $8.11 in 2000.
Pro forma information regarding net earnings and earnings per
share is required by FAS 123, and has been determined as if the
Company had accounted for its employee stock options granted
in 2002, 2001, and 2000 under the fair value method. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted
average assumptions for 2002, 2001, and 2000, respectively:
risk-free interest rates of 5.78%, 6.05%, and 6.47%, a dividend
yield of .18%, .24%, and .28%; a volatility factor of the expected
market price of the Company’s Common Stock of .46, .45, and
.45; and a weighted average expected life of the option of five
years in 2002, and eight years for all other years.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assump-
tions including the expected stock price volatility. Because the
Company’s employee stock options have characteristics signi-
ficantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management’s opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures under SFAS No. 123
as amended by SFAS No. 148, the estimated fair value of the
options is amortized to expense over the options’ vesting period.
The following table illustrates the effect on net earnings and
earnings per share as if the fair value based method had been
applied to all outstanding and unvested awards in each period:
Year Ended Year Ended Year Ended
(In Thousands, December 31, December 31, December 31,
Except Per Share) 2002 2001 2000
Net earnings as reported $27,440 $12,336 $27,261
Deduct: total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (1,165) (1,262) (1,351)
Pro forma net earnings $26,275 $11,074 $25,910
Earnings per share:
Basic — as reported $ 1.31 $ .62 $ 1.38
Basic — pro forma $ 1.26 $ .56 $ 1.31
Diluted — as reported $ 1.29 $ .61 $ 1.37
Diluted — pro forma $ 1.24 $ .55 $ 1.30
The table below summarizes option activity for the periods
indicated in the Company’s stock option plans.
Weighted
Average
(In Thousands, Exercise
Except Per Share) Options Price
Outstanding at December 31, 1999 1,302 $12.17
Granted 405 13.73
Exercised (235) 8.22
Forfeited (95) 16.18
Outstanding at December 31, 2000 1,377 13.02
Granted 133 16.30
Exercised (110) 10.77
Forfeited (99) 16.44
Outstanding at December 31, 2001 1,301 13.29
Granted 205 20.86
Exercised (98) 13.77
Forfeited (70) 17.34
Outstanding at December 31, 2002 1,338 14.21
Exercisable at December 31, 2002 714 $12.47