Aarons 2003 Annual Report Download - page 33

Note H: Shareholders’
Equity
During 2002 the Company purchased approximately
147,000 shares of the Company’s Class A Common Stock at
an aggregate cost of $1,667,490. The Company also trans-
ferred 14,826 shares of the Company’s Common Stock at an
aggregate cost of approximately $218,000 back into treasury,
reflected net against reissued shares in the consolidated state-
ment of shareholders’ equity. The Company was authorized
to purchase an additional 1,780,335 shares and held a total
of 5,260,832 common shares in its treasury at December 31,
2003. The Company’s articles of incorporation provide that
no cash dividends may be paid on the Class A Common
Stock unless equal or higher dividends are paid on the
Common Stock.
The Company has 1,000,000 shares of preferred stock
authorized. The shares are issuable in series with terms for
each series fixed by the Board and such issuance is subject
to approval by the Board of Directors. No preferred shares
have been issued.
Note I: Stock Options
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 three years,
and unexercised options lapse 10 years after the date of
the grant. Options are subject to forfeiture upon termination
of service. Under the plans, approximately 132,000 of the
Company’s shares are reserved for future grants at December
31, 2003. The weighted average fair value of options granted
was $8.22 in 2003, $6.56 in 2002 and $6.45 in 2001.
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 2003, 2002 and 2001
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 following weighted average
assumptions for 2003, 2002, and 2001, respectively: risk-free
interest rates of 3.41%, 5.78%, and 6.05%; a dividend yield
of .23%, .18%, and .24%; a volatility factor of the expected
market price of the Company’s Common Stock of .52, .46,
and .45; and weighted average expected lives of the option
of six, five, and eight years.
The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options that
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 under SFAS No. 123
as amended by Statement of Financial Accounting Standards
No. 148, the estimated fair value of the options is amortized
to expense over the options’ vesting period. The following
table illustrates the effect on net earnings and earnings per
share if the fair-value-based method had been applied to all
outstanding and unvested awards in each period:
Year Ended Year Ended Year Ended
(In Thousands, December 31, December31, December 31,
Except Per Share) 2003 2002 2001
Net Earnings As Reported $36,426 $27,440 $12,336
Deduct: Total Stock-based
Employee Compensation
Expense Determined Under
Fair-Value-Based Method
For All Awards, Net of
Related Tax Effects (1,345) (1,165) (1,262)
Pro Forma Net Earnings $35,081 $26,275 $11,074
Earnings Per Share:
Basic — As Reported $ 1.12 $ .87 $ .41
Basic — Pro Forma $ 1.07 $ .84 $ .37
Diluted — As Reported $ 1.10 $ .86 $ .41
Diluted — Pro Forma $ 1.07 $ .83 $ .37
The following table summarizes information about stock
options outstanding at December 31, 2003:
31
Options Outstanding Options Exercisable
Weighted Average
Number Outstanding Remaining Weighted Average Number Exercisable Weighted Average
Range of Exercise Prices December 31,2003 Contractual Life (in years) Exercise Price December 31,2003 Exercise Price
$ 6.58 – 10.00 1,048,000 4.20 $ 7.63 1,048,000 $ 7.63
10.01 – 15.00 750,150 7.08 12.31 303,900 11.25
20.01 – 23.02 392,000 9.76 21.57
$ 6.58 – 23.02 2,190,150 6.18 $11.73 1,351,900 $ 8.45