Aarons 2009 Annual Report Download - page 36

historical forfeiture experience. The Company believes that the his-
torical experience method is the best estimate of future exercise
and forfeiture patterns currently available. The risk-free interest
rates are determined using the implied yield currently available for
zero-coupon U.S. government issues with a remaining term equal
to the expected life of the options. The expected dividend yields
are based on the approved annual dividend rate in effect and cur-
rent market price of the underlying Common Stock at the time of
grant. No assumption for a future dividend rate increase has been
included unless there is an approved plan to increase the dividend
in the near term. Shares are issued from the Company’s treasury
shares upon share option exercises.
The results of operations for the year ended December 31,
2009, 2008 and 2007 include $2.4 million, $1.4 million and
$1.9 million, respectively, in compensation expense related to
unvested grants. At December 31, 2009, there was $4.6 million
of total unrecognized compensation expense related to non-
vested stock options which is expected to be recognized over a
period of 3.8 years. Excess tax benefits of $3.9 million and $1.8
million are included in cash provided by financing activities for
the year ended December 31, 2009 and 2008, respectively. The
Company recognizes compensation cost for awards with graded
vesting on a straight-line basis over the requisite service period
for each separately vesting portion of the award.
Under the Company’s stock option plans, options granted to
date become exercisable after a period of two to five years and
unexercised options lapse ten years after the date of the grant.
Options are subject to forfeiture upon termination of service.
The Company did not grant any stock options in 2009. The
Company granted 1,016,000 and 337,500 stock options during
2008 and 2007, respectively. The weighted average fair value
of options granted was $8.62 in 2008 and $10.79 in 2007. 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 2008 and 2007, respectively:
risk-free interest rate 3.47% and 5.11%; a dividend yield of .25%
and .24%; a volatility factor of the expected market price of
the Company’s Common Stock of .38 and .39; weighted average
assumptions of forfeiture rate 11.77% and 6.82%; and weighted
average expected life of the option of five and eight years. The
aggregate intrinsic value of options exercised was $13.1 million,
$6.4 million and $2.9 million in 2009, 2008 and 2007, respec-
tively. The total fair value of options vested was $1.0 million and
$6.6 million in 2008 and 2007, respectively.
Income tax benefits resulting from stock option exercises
credited to additional paid-in capital totaled $4.8 million, $3.2
million, and $1.5 million, in 2009, 2008 and 2007, respectively.
The following table summarizes information about stock
options outstanding at December 31, 2009:
Options Outstanding Options Exercisable
Weighted Average
Range of Number Remaining Weighted Number Weighted
Exercise Outstanding Contractual Average Exercisable Average
Prices December 31, 2009 Life (in years) Exercise price December 31, 2008 Exercise Price
$ 5.72–10.00 111,500 2.65 $ 8.58 111,500 $ 8.58
10.01–15.00 241,000 3.82 14.53 241,000 14.53
15.01–20.00 171,750 4.18 17.74 171,750 17.74
20.01–24.94 1,640,196 7.64 21.34 407,196 21.91
$ 5.72–24.94 2,164,446 6.69 $19.64 931,446 $17.64
The table below summarizes option activity for the periods indicated in the Company’s stock option plans:
Weighted Average Aggregate Weighted
Options Weighted Remaining Intrinsic Value Average
(In Thousands) Average Contractual Term (In Thousands) Fair Value
Outstanding at January 1, 2009 2,921 $17.39 $26,954 $7.69
Granted — — — —
Exercised (680) 12.02 (13,076) 4.49
Forfeited (77) 21.04 (499) 8.99
Outstanding at December 31, 2009 2,164 19.64 6.69 years 17,509 8.65
Exercisable at December 31, 2009 931 $17.64 4.18 years $ 9,402 $8.03
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