Aarons 2001 Annual Report Download - page 27

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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 termina-
tion of service. Under the plans, 1,915,000 of the Company shares are reserved for issuance
at December 31, 2001. The weighted average fair value of options granted was $9.68 in
2001, $8.11 in 2000, and $9.55 in 1999.
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 2001, 2000, and 1999 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 follow-
ing weighted average assumptions for 2001, 2000, and 1999, respectively: risk-free interest
rates of 6.05%, 6.47%, and 6.36%, a dividend yield of .24%, .28%, and .23%; a volatility
factor of the expected market price of the Company’s Common Stock of .45, .45, and .42;
and a weighted average expected life of the option of 8 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 assumptions including
the expected stock price volatility. Because the Company’s employee stock options have
characteristics significantly 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, the estimated fair value of the options is amortized
to expense over the options’ vesting period. The Company’s pro forma information follows:
Years Ended December 31,
(In Thousands Except Per Share) 2001 2000 1999
Pro Forma Net Earnings $11,074 $25,910 $24,424
Pro Forma Earnings Per Share .56 1.31 1.22
Pro Forma Earnings Per Share
Assuming Dilution .55 1.30 1.20
The table below summarizes option activity for the periods indicated in the Company’s
stock option plans.
Weighted
Average
Exercise
(In Thousands Except Per Share) Options Price
Outstanding at December 31, 1998 1,382 $10.92
Granted 230 16.74
Exercised (233) 7.91
Forfeited (77) 16.33
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
Exercisable at December 31, 2001 639 $11.68
NOTE H:
STOCK OPTIONS