GNC 2008 Annual Report Download - page 107

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 123(R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements.
Stock-based compensation expense for the period from March 16, 2007 to December 31, 2007 was $1.9 million. For the period from January 1,
2007 to March 15, 2007, the Company recognized total compensation expense of $4.1 million, of which $3.8 million related to the acceleration
of the vesting of these options. The Company recorded $47.0 million as a reduction in equity on March 15, 2007 related to the cancellation of
these options. For the year ended December 31, 2006 stock-based compensation expense of $2.5 million included $2.3 million of stock option
expense recorded as a result of the adoption of SFAS No. 123(R).
As of December 31, 2007 and 2006, the weighted average remaining contractual life of outstanding options was 9.2 years and 4.8 years,
respectively. At December 31, 2006, the weighted average remaining contractual life of exercisable options was 4.5 years. The weighted
average fair value of options granted during 2007, 2006, and 2005 was $1.61, $3.74, and $4.48, respectively. The amount of cash received
from the exercise of stock options for the year ended December 31, 2006 was $0.6 million and the related tax benefit was $0.2 million.
As stated above, SFAS 123(R) established a fair-value-based method of accounting for generally all share-based payment transactions. The
Company utilizes the Black-Scholes valuation method to establish fair value of all awards. The Black-Scholes model utilizes the following
assumptions in determining a fair value: price of underlying stock, option exercise price, expected option term, risk-free interest rate, expected
dividend yield, and expected stock price volatility over the option's expected term. As the Company has had minimal exercises of stock options
through December 31, 2007 and 2006 option term has been estimated by considering both the vesting period, which is typically for the
successor and predecessor plans, five and four years, respectively, and the contractual term of ten and seven years, respectively. As the
Company's underlying stock is not publicly traded on an open market, the Company utilized a historical industry average to estimate the
expected volatility. The assumptions used in the Company's Black-Scholes valuation related to stock option grants made as of December 31,
2007 and 2006 were as follows:
2007 2006 2005
Dividend yield 0.00% 0.00% 0.00%
Expected option life 7.5 years 5 years 5 years
Volatility factor percentage of market price 23.00% - 25.00% 22.00% 24.00%
Discount rate 4.16% - 4.96% 4.47% - 5.10% 3.84% - 4.35%
As the Black-Scholes option valuation model utilizes certain estimates and assumptions, the existing models do not necessarily represent
the definitive fair value of options for future periods. 103