The Company is authorized to grant options for up to 703,100 shares of common stock under the 1993 Plan, of which 1 option is currently outstanding at an exercise price of $3.60. This option vests over a 3-year period. The Company is also authorized to grant options for up to 1,400,000 shares of common stock under the 1997 Plan, of which 382,047 options are currently outstanding at exercise prices between
$1.50 and $27.40. These options vest over a 3-year period. The Company is also authorized to grant up to 250,000 shares of common stock under the 1997 Non-employee Director Plan of which 80,000 options are currently outstanding at exercise prices between $1.61 and $21.56. Each non-employee director is granted 3,000 options upon election to the Board of Directors and then annually upon attending the annual meeting of shareholders (formula options). Formula options granted to directors are generally granted upon the same terms and conditions as options granted to officers and employees. These options vest over a 3-year period. The Company is also authorized to grant options for up to 1,750,000 shares of common stock under the 2004 Plan, of which 877,986 options are currently outstanding at exercise prices between $19.34 to $31.45, and 57,259 restricted stock units are outstanding at a stock price of $19.49.
These options and restricted stock units vest over a 3-year period. The restricted stock unit grants have a performance-based annual vesting on the anniversary date over their respective terms. The Company records compensation cost associated with its restricted stock unit grants on a straight-line basis over the vesting term.
In addition to the four stock option plans, the Company has the 1997 Non-Employee Directors Fee Plan (1997 Fee Plan) under which the Company is authorized to issue up to 250,000 shares of Common Stock and permits non-employee directors to elect to receive directors’ fees in the form of common stock rather than cash. Common stock issued in lieu of cash directors’ fees is issued at the end of the quarter in which the fees are earned, with the number of shares being based on the fair market value of the common stock for the five trading days immediately preceding the last business day of the quarter.
The 1997 Fee Plan also permits non-employee directors to irrevocably elect to defer receipt of all or any portion of the shares of common stock which would otherwise be payable. As of December 31, 2005 and 2004 there were 11,090 and 35,941 shares, respectively, which were accrued but not yet issued in connection with director’s elections.
In the fourth quarter of 2001, the Company cancelled approximately 548,000 “out of the money”
options, including approximately 440,000 options issued under the 1997 Plan and approximately 108,000 options issued under the 1997 Non-employee Director Plan. As a result, 62,806 options granted in 2001, under the 1997 Plan and to holders of some of the options cancelled, were subjected to variable
accounting treatment. Under FIN 44, stock options issued within six months of a cancellation must be accounted for as variable under certain circumstances. Variable accounting requires companies to re-measure compensation costs for the variable options based on the Company’s share price until the options are exercised, cancelled or forfeited without replacement. Compensation is dependent on fluctuations in the quoted market prices for the Company’s common stock. Such compensation costs will be recognized over a three-year vesting schedule until the options are fully vested, exercised, cancelled or forfeited, after which time the compensation will be recognized immediately at each reporting period. With the adoption of FAS 123(R) in January of 2006, FIN 44 will be superseded and the Company will no longer be required to account for these options under variable accounting.
In the fourth quarter of 2005, the Company accelerated the vesting for substantially all of its outstanding options, and expects to record minimal expenses for its remaining unvested stock options during 2006. The pre-tax charge estimated by the Company to be avoided as a result of the acceleration amounts to approximately $7.7 million over the course of the original vesting periods. The fair value for any future grants will be included in expense over the vesting periods.
Compensation (income) costs charged to operations associated with the Company’s stock option plans were ($150), $277, and $719 in 2005, 2004, and 2003, respectively. The changes in stock option associated compensation cost were due to the vesting of options combined with market price fluctuations in the Company’s common stock under variable accounting and the accrual of expenses relating to the issuance of restricted stock.
A summary of stock option activity and weighted average exercise prices follows:
Years Ended December 31,
2005 2004 2003
Options
Weighted-Average Exercise
Price Options
Weighted-Average Exercise
Price Options
Weighted-Average Exercise Price Outstanding at beginning of year 13.691,215,240 $ 978,952 $ 2.42 2.411,554,513 $ Granted 314,123 22.75 750,730 20.86 22,500 5.39 Forfeited (51,830) 20.06 (28,930) 8.06 (69,222) 2.13 Exercised (137,499) 2.47 (485,512) 2.41 (528,839) 2.46 Outstanding at end of year 16.721,340,034 $ 13.691,215,240 $ 978,952 $ 2.42 Outstanding exercisable at year-end 1,329,366 $ 16.82 339,465 $ 6.40 501,631 $ 2.61 Weighted-average fair value of options
granted during the year $ 11.03 $ 13.67 $ 3.35 A summary of stock options outstanding and exercisable as of December 31, 2005 follows:
Weighted-Average Average Average
Options Remaining Exercise Options Exercise
Exercise Price Outstanding Contractual Life (years) Price Exercisable Price Up to $1.50 30,312 5.84 $ 1.50 30,312 $ 1.50
$1.51-$3.00 283,812 6.23 2.23 280,645 2.23
$3.01-$10.00 26,503 6.21 4.46 19,002 4.09
$10.01-$20.00 505,460 8.85 19.27 505,460 19.27 Over $20.00 493,947 8.82 24.03 493,947 24.03 1,340,034 8.17 $ 16.72 1,329,366 $ 16.82 Remaining non-exercisable options as of December 31, 2005 become exercisable as follows:
Years ending December 31, Amount
2006 10,668
10,668 18. EARNINGS PER SHARE
A reconciliation of the number of common shares used in the calculation of basic and diluted earnings per share (EPS) is presented below: