Circuit City 1998 Annual Report Download - page 30

STOCK OPTION PLANS - The Company has two fixed option plans which reserve shares of common stock for issuance to key employees,
directors, consultants and advisors to the company. The following is a description of these plans:
THE 1995 LONG-TERM STOCK INCENTIVE PLAN - This plan allows the Company to issue qualified, non-qualified and deferred
compensation stock options, stock appreciation rights, restricted stock and restricted unit grants, performance unit grants and other stock based
awards authorized by the Compensation Committee of the Board of Directors. Options issued under this plan expire ten years after the options
are granted and generally become exercisable ratably on the third, fourth, and fifth anniversary of the grant date. A maximum total number of
2.0 million shares may be granted under this plan of which a maximum of 800,000 shares may be of restricted stock and restricted stock units.
No award shall be granted under this plan after December 31, 2005. A total of 1,628,848 options were outstanding under this plan as of
December 31, 1998.
THE 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS - This plan provides for automatic awards of non-
qualified options
to directors of the company who are not employees of the Company or its affiliates. All options granted under this plan will have a ten year
term from grant date and are immediately exercisable. A maximum of 100,000 shares may be granted for awards under this plan. This plan will
terminate the day following the tenth annual stockholders meeting. A total of 14,000 options were outstanding under this plan as of December
31, 1998.
The Company accounts for these plans in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees", under which no compensation costs have been recognized for stock options. Had compensation costs of the plans been determined
under a fair value alternative method as stated in Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensations", the Company would have prepared a fair value model for such options and recorded such amount in the accompanying
consolidated financial statements as compensation expense. On a pro forma basis, net income for 1998, 1997 and 1996 would have been $39.8
million, $37.7 million and $42.3 million respectively and diluted earnings per common share for 1998, 1997 and 1996 would have been $1.07,
$0.99 and $1.11 respectively. The Company arrived at the fair value of stock grant at the date of the grant by using the Black-Scholes pricing
option model with the following assumptions used for grants: risk-free interest rate of 5.9% (1998), 6.2% (1997) and 6.1% (1996); expected
dividend rate of 0% for 1998, 1997 and 1996; expected level of 3.78 years (1998), 3.75 years (1997) and 4 years (1996); and expected volatility
of 38% (1998), 35% (1997) and 35% (1996). The stock options outstanding at December 31, 1998 and 1997 have a weighted average
contractual level of 7.7 years and 8 years, respectively. The following table reflects the plan activity for the years ended December 31, 1996,
1997 and 1998:
The following table summarizes information for the three years ended December 31, 1998 concerning currently outstanding and exercisable
options:
OPTIONS
FOR SHARES OPTION PRICES
Outstanding, January 1, 1996 865,500 $17.50 to $26.88
Granted 365,150 $27.19 to $49.13
Cancelled (24,150) $17.50 TO $49.13
------- ----------------
Outstanding, December 31, 1996 1,206,500 $17.50 to $49.13
Granted 604,146 $17.50 to $18.41
Cancelled (505,698) $24.38 TO $49.13
-------- ----------------
Outstanding, December 31, 1997 1,304,948 $17.50 to $39.06
Granted 469,450 $12.38 to $17.50
Cancelled (131,550) $17.50 TO $18.41
--------- ----------------
Outstanding, December 31, 1998 1,642,848 $12.38 to $39.06
===========
1998 1997 1996
-------------------------- --------------------------- ------------------------
WEIGHTED-AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ --------------- ------ ---------------- ------ ----------------
Fixed Options
Outstanding at beginning of year...... 1,304,948 $19.28 1,206,500 $25.45 865,500 $ 20.49
Granted .............................. 469,450 $14.49 604,146 $19.19 365,150 $ 36.80
Cancelled ............................ (131,550) $17.64 (505,698) $33.90 (24,150) $ 19.39
---------- ----------- -------
Outstanding at end of year............ 1,642,848 $18.04 1,304,948 $19.28 1,206,500 $ 25.45
========== ========== =========
Options exercisable at year end....... 335,550 189,000 139,000
Weighted average fair value per
option granted during the year..... $5.77 $13.05 $13.57
As of December 31, 1998:
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Exercisable Price
-------------------- -------------- ------------------ ---------------- ------------ -----------------
$12.38 to $17.50 1,360,348 7.85 $16.46 196,550 $17.38