Pottery Barn 2008 Annual Report Download - page 75
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•Risk-free interest rate – The risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant and with a maturity that approximates our expected term.
•Dividend yield – The dividend yield is based on our quarterly cash dividend and the anticipated dividend
payout over our expected term of the option award.
The weighted average assumptions used for fiscal 2008 and fiscal 2007 are as follows:
Fiscal Year Ended
Feb. 1, 2009
(52 Weeks)
Feb. 3, 2008
(53 Weeks)
Expected term (years) 5.2 5.0
Expected volatility 49.4% 33.6%
Risk-free interest rate 2.5% 4.4%
Dividend yield 2.7% 1.0%
Restricted Stock Units
The following table summarizes our restricted stock unit activity during fiscal 2008 and fiscal 2007:
Weighted Average
Shares
Grant Date
Fair Value
Intrinsic
Value1
Balance at January 28, 2007 850,000
Granted 51,800 $32.71
Released — — —
Canceled (70,000)
Balance at February 3, 2008 831,800
Granted 506,964 $24.17
Released (15,900) $26.61 $ 423,000
Canceled (76,531)
Balance at February 1, 2009 1,246,333 $20.50 $9,871,000
Expected to Vest at February 1, 2009 1,176,562 $20.50 $9,318,000
1Intrinsic value for restricted stock units is defined as the market value on the last business day of the fiscal year (or $7.92).
Tax Effect
We present tax benefits resulting from the exercise of stock-based awards as operating cash flows, and tax
deductions in excess of the cumulative compensation cost recognized for stock-based compensation awards
exercised as financing cash flows in the Consolidated Statements of Cash Flows. During fiscal 2008, fiscal 2007
and fiscal 2006, net proceeds from the exercise of stock options was $461,000, $28,362,000 and $13,935,000,
respectively, and the tax benefit (shortfall) associated with such exercises totaled ($1,660,000), $10,821,000 and
$7,696,000, respectively.
Equity Award Exchange Program
In response to the significant decline in our stock price, on June 11, 2008, our shareholders approved an offer for
our eligible employees to exchange certain outstanding option awards and stock-settled stock appreciation rights
for restricted stock units. This offer commenced on March 16, 2009 and is expected to close on April 10, 2009.
As of March 16, 2009, approximately 3,156,600 of our outstanding option awards and stock-settled stock
appreciation rights were eligible to be exchanged in the program. The exchange program is designed such that
participants may exchange their eligible option awards and stock-settled stock appreciation rights for restricted
stock units of an approximate equal fair value. Therefore, we do not expect the exchange program to have a
material impact on our results of operations.
63
Form 10-K