This excerpt taken from the SPCHA 10-K filed Jun 29, 2005.
The Company accounts for its employee stock option plan under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Under APB No. 25, no stock-based compensation is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying Common Stock on the date of grant and the related number of shares granted is fixed at that point in time.
The Company used the Black-Scholes option-pricing model with the following weighted-average assumptions in determining the fair value of options granted in fiscal 2005, 2004 and 2003: weighted-average risk-free interest rates of 4.0%, 4.0% and 4.0%, respectively; dividend yields of 0%; weighted-average volatility factors of the expected market price of the Companys Common Stock of 0.35 for 2005, 0.33 for 2004 and 0.41 for 2003; and a weighted average expected life of the option of five years. Because additional options are expected to be granted each year, the pro forma disclosures may not be representative of pro forma effects on reported results for future periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not provide a reliable single measure of the fair value of employee stock options.
The weighted average fair value of options granted during fiscal 2005, 2004 and 2003 were $1.16, $2.86 and $3.45, respectively.
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. The standard requires all entities to recognize compensation expense for all share-based payments granted to employees in an amount equal to the fair value. The new standard is effective for the next fiscal year that begins after June 15, 2005, and allows two different methods of transition. Depending on the model used to calculate stock-based compensation expense in the future and other requirements of SFAS No. 123(R), the pro forma disclosure may not be indicative of the stock-based compensation expense that will be recognized in the Companys future financial statements. The Company expects to implement the new standard in the first quarter ending June 30, 2006 and is currently evaluating the new standard and models which may be used to calculate future stock-based compensation expense.
|Sport Chalet, Inc.|
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation (continued)
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation (see Note 6):
|Net income as reported||$|