American Home Shield 2008 Annual Report Download - page 114

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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 20. Stock-Based Compensation (Continued)
passage of time since the observed stock option activity in the Predecessor periods and due to the lack of any option exercise activity in the Successor periods,
the expected life for options granted in 2008 was calculated using the simplified method as outlined by the SEC in Staff Accounting Bulletins No. 107 and
110. The risk-free interest rates were based on the U.S. Treasury securities with terms similar to the expected lives of the options as of the grant dates.
Assumption
Year Ended
Dec. 31, 2008
Jul. 25 to
Dec. 31, 2007
Expected volatility 25.1%—46.9% 25.1%
Expected dividend yield 0.0% 0.0%
Expected life (in years) 6.3 6.0
Risk-free interest rate 2.56%—3.56% 3.56%
The weighted-average grant-date fair value of the options granted during 2008 and during the Successor period from July 25, 2007 to December 31, 2007
was $4.19 and $3.27 per option, respectively. The Company has applied a forfeiture assumption of 3.79% per annum in the recognition of the expense related
to these options.
A summary of option activity under the Stock Incentive Plan as of December 31, 2008, and changes during the year then ended is presented below:
Stock
Options
Weighted Avg.
Exercise Price
Remaining
Contractual
Term (in years)
Total outstanding, December 31, 2007 9,269,201 $ 10.00
Granted to employees 893,900 $ 10.00
Exercised —
Forfeited (577,600) $ 10.00
Total outstanding, December 31, 2008 9,585,501 $ 10.00 9.0
Total exercisable, December 31, 2008 2,172,902 $ 10.00 9.0
During the year ended December 31, 2008 and the Successor period from July 25, 2007 to December 31, 2007, the Company recognized compensation
cost of approximately $7.0 million ($5.3 million, net of tax) and $0.3 million ($0.2 million, net of tax), respectively. As of December 31, 2008, there was
approximately $23.6 million of total unrecognized compensation cost related to non-vested stock options granted by Holdings under the Stock Incentive Plan.
These remaining costs are expected to be recognized over a weighted-average period of 3.1 years.
Predecessor
The Company maintained a shareholder approved incentive plan that allowed for the issuance of equity-based compensation awards, including stock
options, stock appreciation rights, share grants, restricted stock awards and restricted stock unit awards ("Share Plan"). The Share Plan was terminated upon
the consummation of the Merger.
The Company's stock options and stock appreciation rights are collectively referred to as "options." During the Predecessor period from January 1, 2007
to July 24, 2007 and the year ended December 31, 2006, the Company recognized pre-tax option expense of approximately $1.7 million and $6.7 million,
respectively, and the Company recognized related tax benefits of $0.7 million and $2.7 million, respectively.
110