Radio Shack 2009 Annual Report Download - page 72

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65
2009 Incentive Stock Plan (“2009 ISP”): The 2009 ISP permits the grant of up to 11.0 million
shares in the form of ISOs, NQs, restricted stock, restricted stock units, stock appreciation rights, or
other stock-based awards. The 2009 ISP also permits directors to elect to receive shares in lieu of
cash payments for their annual retainer fees and board and committee meeting fees. Full-value
awards granted under the 2009 ISP, such as restricted stock and restricted stock units, will reduce
the number of shares available for grant by 1.68 shares for each share or unit granted. Stock options
and stock appreciation rights will reduce the number of shares available for grant by one share for
each stock option or stock appreciation right granted. This plan expires on February 18, 2019. As of
December 31, 2009, there were 10.5 million shares available for grants under the 2009 ISP.
During the third quarter of 2006, we granted 1.7 million options under the 1997, 1999 and 2001 ISPs to our
Chief Executive Officer and Chief Financial Officer. These options vest over four years from the date of
grant and have a term of seven years. We also granted 2.5 million non-plan options to our Chief Executive
Officer as part of an inducement grant related to the terms of his employment. These options vest over
four years from the date of grant and have a term of seven years. An additional market condition is
attached to 2.0 million of these non-plan options that restricts exercise until certain stock price hurdles are
achieved. The market condition was met in 2007, and all stock price hurdles were achieved.
The fair value of the stock options granted during the years ended December 31, 2009, 2008 and 2007,
was estimated using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton model
requires the use of certain subjective assumptions. The following table lists the assumptions used in
calculating the fair value of stock options granted during each year:
(1) Forfeitures are estimated using historical experience and projected employee turnover.
(2) Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of our
stock options.
(3) We consider both the historical volatility of our stock price, as well as implied volatilities from exchange-traded
options on our stock.
(4) We estimate the expected life of stock options based upon historical experience.
The weighted-average fair values of options granted during fiscal years 2009, 2008 and 2007, were
$4.32, $6.33 and $6.99, respectively.
Information with respect to stock option activity under the above plans is as follows:
Shares
(In thousands)
Weighted
Average
Exercise
Price
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic
Value
(in millions)
Outstanding at January 1, 2009 12,619 $ 27.43
Grants 1,538 7.16
Exercised (38) 18.57
Expired (1,559) 37.99
Forfeited (2,546) 36.95
Outstanding at December 31, 2009 10,014 $ 20.28 3.3 $ 41.7
Exercisable at December 31, 2009
7,059
$ 23.89
2.6
$ 18.3
Valuation Assumptions(1) 2009
2008 2007
Risk free interest rate(2) 2.0% 2.8% 4.2%
Expected dividend yield 1.8% 1.0% 1.0%
Expected stock price volatility(3) 50.38% 40.49% 32.7%
Expected life of stock options (in years)(4) 5.4 4.6 4.6