CompUSA 2008 Annual Report Download - page 85

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50
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:
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
The following table summarizes information concerning outstanding and exercisable options:
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
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:
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
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.