preferred stock. Our Certificate of Incorporation authorizes the issuance of 20,000,000 shares of Preferred Stock, par value $.10 per share. There are no shares of Preferred Stock outstanding. The Preferred Stock may be issued by resolution of our Board of Directors at any time without any action of the stockholders. The Board of Directors may issue the Preferred Stock in one or more series and fix the designation and relative powers. These include voting powers, preferences, rights, qualifications, limitations, and restrictions of each series. The issuance of any such series may have an adverse effect on the rights of holders of Common Stock and may impede the completion of a merger, tender offer, or other takeover attempt.
common stock. Our Certificate of Incorporation authorizes 480,000,000 shares of Common Stock, par value $.10 per share. Subject to the rights of Preferred Stock which may from time to time be outstanding, holders of Common Stock are entitled to receive dividends out of funds legally available, when and if declared by the Board of Directors, and to receive their share of the net assets of the company legally available for distribution upon liquidation or dissolution.
For each share of Common Stock held, stockholders are entitled to one vote on each matter to be voted on by the stockholders, including the election of directors. Holders of Common Stock are not entitled to cumulative voting; the holders of more than 50% of the outstanding Common Stock can elect all of any class of directors if they choose to do so. The stockholders do not have preemptive rights. All outstanding shares of Common Stock are fully paid and nonassessable.
stock award plans. Effective January 1, 2006, we adopted SFAS 123R, Share-Based Payment. Under SFAS 123R, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. We had previously adopted the fair value recognition provisions of SFAS 123 in January 2004, using the retroactive restatement method. Total compensation expense recognized in our statements of operations for stock based compensation awards was $38.0 million in 2007, $47.3 million in 2006, and $34.7 million in 2005.
Our 1997 Omnibus Stock Plan allows us to grant certain stock awards, including stock options at fair market value and restricted shares and units, to our key employees and outside directors. A maximum of 28,000,000 shares can be granted under this plan; 11,310,000 shares were available for stock awards as of December 31, 2007, which cover stock options and restricted stock awards. Awards that expire or are cancelled without delivery of shares generally become available for issuance under the plans.
The contractual lives of all options as originally granted are 10 years. Options vest over a five-year period from the date of grant, with none vesting the first year and one quarter vesting each year after that. Recipients are able to exercise options using a stock swap which results in a new, fully-vested restoration option with a grant price established based on the date of the swap, and a remaining contractual life equal to the remaining life of the original option. Options issued to non-employee directors vest immediately. The fair value per option is established using the Black-Scholes option pricing model, with the resulting expense being recorded over the vesting period of the award. Other than restoration options, we have not issued any new stock options since 2003. As of De-cember 31, 2007, approximately $172,000 of unrecognized compensation related to stock options remains to be expensed.
The following schedule summarizes stock option activity in the plan.
Shares |
Weighted Average Exercise Price |
Weighted Aggregate Intrinsic Value (in thousands) |
Average Remaining Life (years) |
|||||||||
| December 31, 2006 | 5,360,758 | $ | 13.62 | |||||||||
| Grants | 97,330 | 54.13 | ||||||||||
| Exercised | (1,160,223 | ) | 12.35 | |||||||||
| Terminated | (9,253 | ) | 13.29 | |||||||||
| outstanding at december 31, 2007 |
4,288,612 | $ | 14.80 | $ | 153,953 | 3.6 | ||||||
| vested and expected to vest at december 31, 2007 |
4,288,612 | $ | 14.80 | $ | 153,953 | 3.6 | ||||||
| exercisable at december 31, 2007 |
3,954,369 | $ | 14.79 | $ | 141,997 | 3.5 | ||||||
The intrinsic value of options exercised during 2007, 2006, and 2005 was $45.5 million, $49.0 million, and $21.1 million.
The fair value per option was estimated using the Black-Scholes option pricing model with the following assumptions:
| 2007 grants | 2006 Grants | 2005 Grants | ||||
| Risk-free interest rate | 4.5-4.7 | % | 4.6-5.0 | % | 2.5-4.3 | % |
| Dividend per share (quarterly amounts) | $.18-.22 | $.13-.18 | $.08-.13 | |||
| Expected volatility factor | 26.7-31.2 | % | 20.0-25.8 | % | 19.9-23.3 | % |
| Expected option term | .5-6 years | 1-6 years | 2-8 years | |||
| Weighted average fair value per option |
$ 12.02 | $ 10.28 | $ 10.89 |
restricted stock grants. We have awarded restricted shares and restricted units to certain key employees and non-employee directors. These restricted shares and restricted units are subject to certain vesting requirements over a five year period based on the operating performance of the company. The awards also contain restrictions on the awardees’ ability to sell or transfer vested shares or units for a specified period of time. The fair value of these shares is established based on the market price on the date of grant discounted for post-vesting holding restrictions. The discount has ranged from 12% to 16% based on the different post-vesting holding restrictions. This discount was estimated using the Black-Scholes model. These grants are being expensed based on the terms of the awards.
The following table summarizes our nonvested performance-based restricted stock grants as of December 31, 2007:
| Number of Restricte Shares and Units |
Weighted Average Grant Date Fair Value |
|||||
| Nonvested at December 31,2006 | 1,633,137 | $ | 34.53 | |||
| Granted | 360,475 | 39.70 | ||||
| Vested | (781,333 | ) | 34.96 | |||
| Cancelled | (31,371 | ) | 34.52 | |||
| Nonvested at December 31,2007 | 1,180,908 | $ | 35.79 | |||
The fair value of restricted stock vested during 2007, 2006, and 2005 was $27.3 million, $33.0 million, and $19.7 million.
We have also awarded restricted shares and units to certain key employees that vest primarily based on their continued employment. The value of these awards is established by the market price on the date of the grant and is being expensed over the vesting period of the award.
As of December 31, 2007, $47.8 million of unrecognized compensation related to restricted stock grants remains to be expensed.
We have also issued to certain key employees restricted units which are fully vested upon issuance and contain restrictions on the awardees’ ability to sell or transfer vested units for a specified period of time. The fair value of these shares is established using the same method discussed above. These grants have been expensed during the year they were earned by employees.
employee stock purchase plan. Our 1997 Employee Stock Purchase Plan allows our employees to contribute up to $10,000 of their annual cash compensation to purchase company stock. Purchase price is determined using the closing price on the last day of the quarter discounted by 15%. Shares are vested immediately. Employees purchased approximately 220,000, 206,000, and 238,000 shares of our Common Stock under this plan at an aggregate cost of $9.5 million, $8.3 million, $6.1 million in 2007, 2006, and 2005.
share repurchase programs. During 1999, the Board of Directors authorized a stock repurchase program that allows management to repurchase 8,000,000 shares for reissuance upon the exercise of employee stock options and other stock plans. We purchased 3,221,300 and 1,926,500 of our common stock for the treasury at an aggregate cost of $163.9 million and $85.3 million in 2007 and 2006 under this stock repurchase plan. There are no shares remaining for repurchase under this authorization.
During 2007, the Board of Directors authorized management to repurchase an additional 10,000,000 shares under the program for reissuance upon the exercise of employee stock options and other stock plans. We purchased 62,700 shares of our common stock for the treasury at an aggregate cost of $3.4 million under this stock repurchase program in 2007. There are 9,937,300 shares remaining for repurchase under this program.
