Sally Beauty Supply 2007 Annual Report Download - page 101

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The following table summarizes information about stock options under the Company's option plans at September 30, 2007 (shares in thousands):
Options Outstanding
Options Exercisable
Range of Exercise Prices
Number
Outstanding at
September 30,
2007
Weighted
Average
Remaining
Contractual
Term (In
Years)
Weighted
Average
Exercise Price
Number
Exercisable at
September 30,
2007
Weighted
Average
Exercise
Price
$2.00 1,970 7.3 $ 2.00 1,970 $ 2.00
$7.70 – 9.66 4,888 9.4 9.51 596 9.66
Total 6,858 8.8 $ 7.37 2,566 $ 3.78
The Company uses the Black-Scholes option-pricing method to value the Company's stock options for each stock option award. Using this option-pricing model,
the fair value of each stock option award is estimated on the date of grant. The fair value of the Company's stock option awards, which generally vest ratably over
a four year period, is expensed on a straight-line basis over the vesting period of the stock options or to the date a participant becomes eligible for retirement, if
earlier.
The weighted average assumptions relating to the valuation of the Company's stock options are as follows:
Year Ended September 30,
2007 (a)
2006 (b)
2005 (b)
Expected lives (years) 5.0 3.5 – 4.5 3.5 – 5.0
Expected volatility 41.2% - 41.9% 20.0% 20.0%
Risk-free interest rate 4.4% - 4.6% 4.2% - 5.0% 3.4%
Dividend yield 0.0% 1.0% 0.9%
(a)
Assumptions are based on the Company's future expectations.
(b)
Assumptions were calculated based on the Company being a wholly-owned subsidiary of Alberto-Culver and using historical
assumptions of Alberto-Culver, such as expected volatility and dividend yield of Alberto-Culver's common stock at the time.
The expected life of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience of
employees of the Company that have been granted stock options under stock option plans of Alberto-Culver. Expected volatility is derived by using the average
volatility of similar companies since it is not practicable to estimate the Company's expected volatility due to a lack of trading history. The risk-free interest rate
is based on the zero-coupon U.S. Treasury issue as of the date of the grant. Since the Company does not expect to pay dividends, the dividend yield is 0%.
The weighted average fair value of the Company's stock options issued to Company employees at the date of grant in fiscal years 2007, 2006 and 2005 was
$4.11, $9.48 and $9.41 per option, respectively.
The total intrinsic value of options exercised during fiscal years 2007, 2006 and 2005 was $5.9 million, $7.5 million and $11.8 million, respectively, and the tax
benefit realized for the tax deductions from these option exercises was $2.3 million, $2.5 million and $4.3 million, respectively. The total cash received from
these option exercises was $1.7 million during fiscal year 2007. Prior to the Separation Transactions the
F-19
Source: Sally Beauty Holding, 10-K, November 29, 2007