Aarons 2014 Annual Report Download - page 85

Download and view the complete annual report

Please find page 85 of the 2014 Aarons annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 102

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102

75
Accelerated Share Repurchase Program
In December 2013, the Company entered into an accelerated share repurchase program with a third-party financial institution to
purchase $125.0 million of the Company’s common stock, as part of its previously announced share repurchase program. The
Company paid $125.0 million at the beginning of the program and received an initial delivery of 3,502,627 shares, estimated to
be approximately 80% of the total number of shares to be repurchased under the agreement, which reduced the Company's
shares outstanding at December 31, 2013. The value of the initial shares received on the date of purchase was $100.0 million,
reflecting a $28.55 price per share, which was recorded as treasury shares. The Company recorded the remaining $25.0 million
as a forward contract indexed to its own common stock in additional paid-in capital for the year ended December 31, 2013.
In February 2014, the accelerated share repurchase program was completed and the Company received 1,000,952 additional
shares determined using a volume weighted average price of the Company's stock (inclusive of a discount) during the trading
period, which resulted in an effective average price per share of $27.76. All amounts initially classified as additional paid-in
capital were reclassified to treasury shares during the first quarter of 2014 upon settlement.
NOTE 11: STOCK OPTIONS AND RESTRICTED STOCK
The Company grants stock options, restricted stock units, restricted stock awards and performance share units to certain
employees and directors of the Company under the 2001 Stock Option and Incentive Award Plan (the “2001 Incentive Award
Plan”). This plan was originally approved by the Company’s shareholders in May 2001 and was amended and restated with
shareholder approval in May 2009. As of December 31, 2014, the aggregate number of shares of common stock that may be
issued or transferred under the 2011 Incentive Award Plan is 13,825,827.
Total stock-based compensation expense was $10.9 million, $2.3 million and $6.5 million in 2014, 2013 and 2012, respectively.
Stock-based compensation expense for the year ended December 31, 2014 included $5.1 million related to the accelerated
vesting of restricted stock and stock options upon the retirement of the Company’s Chief Executive Officer in 2014, as provided
for in his employment agreement. These costs were included in the line item “Retirement and Vacation Charges” in the
consolidated statements of earnings. All other stock-based compensation expense was included as a component of operating
expenses in the consolidated statements of earnings.
The total income tax benefit recognized in the consolidated statements of earnings for stock-based compensation arrangements
was $3.8 million, $889,000 and $2.4 million in 2014, 2013 and 2012, respectively. Benefits of tax deductions in excess of
recognized compensation cost, which are included in financing cash flows, were $1.4 million, $1.4 million and $6.0 million for
the years ended 2014, 2013 and 2012, respectively.
As of December 31, 2014, there was $16.5 million of total unrecognized compensation expense related to non-vested stock-
based compensation which is expected to be recognized over a period of 2.6 years.
Stock Options
Under the Company’s 2001 Incentive Award Plan, options granted to date become exercisable after a period of one 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 recognizes compensation expense for awards with graded vesting on a straight-line basis over the requisite
service period for each separately vesting portion of the award. Shares are issued from the Company’s treasury shares upon
share option exercises.
The Company determines the fair value of stock options on the grant date using a Black-Scholes-Merton option pricing model
that incorporates expected volatility, expected option life, risk-free interest rates and expected dividend yields. The expected
volatility is based on implied volatilities from traded options on the Company’s stock and the historical volatility of the
Company’s common stock over the most recent period generally commensurate with the expected estimated life of each
respective grant. The expected lives of options are based on the Company’s historical option exercise experience. The Company
believes that the historical experience method is the best estimate of future exercise patterns. The risk-free interest rates are
determined using the implied yield available for zero-coupon United States government issues with a remaining term equal to
the expected life of the grant. The expected dividend yields are based on the approved annual dividend rate in effect and 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.