Circuit City 2008 Annual Report Download - page 54

Table of Contents
The fair value of employee share options is recognized in expense over the vesting period of the options, using the graded attribution
method. The fair value of employee share options is determined on the date of grant using the Black-Scholes option pricing model. The
Company has used historical volatility in its estimate of expected volatility. The expected life represents the period of time (in years) for
which the options granted are expected to be outstanding. The Company used the simplified method for determining expected life as
permitted in SEC Staff Accounting Bulletin 107 for options qualifying for treatment (“plain-vanilla” options) due to the limited history the
Company currently has with option exercise activity. The risk-free interest rate is based on the U.S. Treasury yield curve.
Compensation cost related to non-qualified stock options recognized in operating results (selling, general and administrative expense) for
2008, 2007 and 2006 was $3,220,000, $3,435,000, and $1,756,000 respectively. The related future income tax benefits recognized for
2008, 2007 and 2006 were $1,219,000, $1,147,000 and $599,000, respectively.
Stock options
The following table presents the weighted-average assumptions used to estimate the fair value of options granted in 2008, 2007 and 2006:
The following table summarizes information concerning outstanding and exercisable options:
The total intrinsic value of options exercised and share based payments made was $4,088,000, $6,517,000 and $3,501,000, respectively, for
2008, 2007 and 2006.
The following table summarizes information about options vested and exercisable or nonvested that are expected to vest (nonvested
outstanding less expected forfeitures) at December 31, 2008:
The aggregate intrinsic value in the tables above represents the total pretax intrinsic value (the difference between the closing stock price
on the last day of trading in 2008 and the exercise price) that would have been received by the option holders had all options been
exercised on December 31, 2008. This value will change based on the fair market value of the Company’s common stock.
50
2008 2007 2006
Expected annual dividend yield
0
%
0
%
0
%
Risk
-
free interest rate
3.17
%
4.93
%
4.76
%
Expected volatility
63.8
%
71.2
%
78.2
%
Expected life in years
6.3
6.2
6.0
Weighted Average
2008
2007
2006
Shares
Exercise
Price
Shares
Exercise
Price
Shares
Exercise
Price
Outstanding at beginning of year
2,655,937
$
7.95
2,629,076
$
4.69
2,657,419
$
3.93
Granted
110,000
$
12.90
699,050
$
19.45
479,334
$
8.01
Exercised
(503,078
)
$
2.25
(545,815
)
$
5.19
(480,203
)
$
3.33
Cancelled or expired
(60,275
)
$
17.77
(126,374
)
$
15.64
(27,474
)
$
12.84
Outstanding at end of year
2,202,584
$
9.23
2,655,937
$
7.95
2,629,076
$
4.69
Options exercisable at year end
1,560,804
1,645,639
1,891,426
Weighted average fair value per option
granted during the year
$
7.94
$
13.19
$
5.64
Range of Exercise Prices
Number
Exercisable
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value (in
thousands)
$
1.76
to
$ 5.00
527,703
$
2.25
3.43
$
4,547
$
5.01
to
$ 15.00
1,037,331
$
6.75
5.72
4,324
$
15.01
to
$ 20.00
484,764
$
18.77
8.34
—
$
20.01
to
$ 20.15
100,000
$
20.15
7.91
—
$
1.76
to
$ 20.15
2,149,798
$
8.98
5.85
$
8,871