Mercury Insurance 2009 Annual Report Download - page 112

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash received from option exercises was $393,000, $1,286,000, and $2,173,000 during 2009, 2008, and
2007, respectively. The excess tax benefit realized for the tax deduction from option exercises of the share-based
payment awards totaled $5,000, $121,000, and $273,000 during 2009, 2008, and 2007, respectively.
The fair value of stock option awards is estimated on the date of grant using a closed-form option valuation
model (Black-Scholes) based on the following table, which provides the weighted-average values of assumptions
used in the calculation of grant-date fair values during the years ended December 31:
2009 2008 2007
Weighted-average grant-date fair value .............. $3.45 $4.84 $7.45
Expected volatility .............................. 23.53%-25.58% 17.87%-19.38% 17.87%-18.50%
Weighted-average expected volatility ................ 24.79% 18.65% 18.14%
Risk-free interest rate ............................ 1.98%-2.97% 2.93%-3.29% 4.02%-4.91%
Expected dividend yield .......................... 6.67%-6.94% 4.54%-4.85% 3.77%-4.13%
Expected term in months .......................... 72 72 72
Expected volatilities are based on historical volatility of the Company’s stock over the term of the options.
The Company estimated the expected term of options, which represents the period of time that options granted
are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior. The
risk free interest rate is determined based on U.S. Treasury yields with equivalent remaining terms in effect at the
time of the grant.
A summary of the stock option activity under the Company’s plans as of December 31, 2009, and changes
during the year then ended is presented below:
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic Value
(in 000’s)
Outstanding at January 1, 2009 ................... 531,445 $47.49
Granted ..................................... 195,000 33.88
Exercised .................................... (13,245) 29.64
Cancelled or expired ........................... (23,000) 39.29
Outstanding at December 31, 2009 ................ 690,200 $44.26 6.5 $1,292
Exercisable at December 31, 2009 ................ 336,200 $47.07 4.3 $ 235
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference
between the Company’s closing stock price and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all options been exercised on December 31,
2009. The aggregate intrinsic value of stock options exercised was $508,000, $442,000, and $1,134,000 during
2009, 2008, and 2007, respectively. The total fair value of options vested was $763,000, $652,000, and $487,000
during 2009, 2008, and 2007, respectively.
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