Radio Shack 2008 Annual Report Download - page 73

become immediately and fully exercisable. Repricing or exchanging options for lower priced options is not
permitted under the ISPs without shareholder approval.
A brief description of each of our incentive stock plans with unexercised options still outstanding is described
below:
1993 Incentive Stock Plan (“1993 ISP”): The 1993 ISP permitted the grant of up to 12.0 million
shares in the form of incentive stock options (“ISOs”), non-qualified stock options (options which are
not ISOs) (“NQs”) and restricted stock. The 1993 ISP expired March 28, 2003, and no further grants
are allowed under this plan.
1997 Incentive Stock Plan (“1997 ISP”): The 1997 ISP permitted the grant of up to 11.0 million
shares in the form of ISOs, NQs and restricted stock. The 1997 ISP expired on February 27, 2007,
and no further grants are allowed under this plan.
1999 Incentive Stock Plan (“1999 ISP”): The 1999 ISP permits the grant of up to 9.5 million shares
in the form of NQs. Grants of restricted stock, performance awards and options intended to qualify as
ISO’s under the Internal Revenue Code are not authorized under this plan. The 1999 ISP also permits
directors to elect to receive shares in lieu of cash payments for their annual retainer fees and board
and committee meeting fees. This plan expired on February 23, 2009. There were 3.4 million shares
available on December 31, 2008, for grants under the 1999 ISP.
2001 Incentive Stock Plan (“2001 ISP”): The 2001 ISP permits the grant of up to 9.2 million shares
in the form of ISOs and NQs. The 2001 ISP also permits directors to elect to receive shares in lieu of
cash payments for their annual retainer fees and board and committee meeting fees. This plan
expires on May 31, 2011. There were 4.9 million shares available on December 31, 2008, for grants
under the 2001 ISP.
During the third quarter of 2006, we granted 1.7 million options under the 1997, 1999 and 2001 ISPs to our
chief executive officer and chief financial officer which vest over four years from the date of grant with a term
of seven years. We also granted 2.5 million non-plan options to our chief executive officer as part of an
inducement grant related to the terms of his employment. These options vest over four years from the
date of grant with a term of seven years. An additional market condition is attached to 2.0 million of these
non-plan options that restricts exercise until certain stock price hurdles are achieved. The market
condition was met in 2007, and all stock price hurdles were achieved.
The fair value of the stock options granted during the years ended December 31, 2008, 2007 and 2006,
was estimated using the Black-Scholes-Merton option-pricing model, except for the fair market value of
the two million performance options granted to our chief executive officer during the third quarter of 2006,
which were valued utilizing a lattice model with Monte Carlo simulations. The Black-Scholes-Merton and
lattice models require the use of highly subjective assumptions. The following table lists the assumptions
used in calculating the fair value of stock options granted during each year:
(1) Forfeitures are estimated using historical experience and projected employee turnover.
(2) Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of our
stock options.
(3) We consider both the historical volatility of our stock price as well as implied volatilities from exchange-traded
options on our stock.
(4) We estimate the expected life of stock options based upon historical experience.
The weighted-average fair values of options granted during fiscal years 2008, 2007 and 2006, were $6.33,
$6.99 and $4.92, respectively.
Valuation Assumptions
(1)
2008
2007 2006
Risk free interest rate(2) 2.8% 4.2% 5.0%
Expected dividend yield 1.0% 1.0% 1.2%
Expected stock price volatility(3) 40.49% 32.7% 33.1%
Expected life of stock options (in years)(4) 4.6 4.6 4.9
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