Because the stock based compensation expense

Info icon This preview shows pages 12–14. Sign up to view the full content.

View Full Document Right Arrow Icon
Because the stock-based compensation expense recognized is based on awards ultimately expect- ed to vest, 'it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock Options Options to purchase common stock are granted to certain employees at 100% of market value on the date of grant. Cornrnencinq in 2010, the Company stopped granting stock options with the exception of historical contractual commitments ... Aon uses a lattice-binomial option-pricing model to value stock options. Lattice-based option valuation models utilize a range of assumptions over the expected term of the options ... The weighted average assumptions, the weighted average expected life and estimated fair value of employee stock options are summarized as follows: 2010 2009 2008 All All Other LPP SSP Otl'!er Key Years ended December 31 Options Options Options Options Executives Employees Weighted average volatility ..... 28.5% 35.5% 34.1% 32.0% 29.4% 29.9% Expected dividend yield ....... 1.6% 1.3% 1.5% 1.5% 1.3% 1.4% Risk-free rate ............. 3.0% 1.5% 2.0% 2.6% 3.2% 3.0% Weighted average expected life, in years ............... 6.1 4.4 5.6 6.5 5.1 5.7 Weighted average estimated fair value per share ......... $10.37 $12.19 $11.82 $12.34 $11.92 $12.87 - summary of the status of Aon's stock options and related information follows (shares In ands). 2010 2009 2008 Weighted- Average Exercise Price Per Shares Share Weighted- Average Exercise Price Per Shares Share Weighted- Average Exercise Price Per Shares share Years ended December 31 15,937 $33 4,545 22 143 38 (6,197) 27 (509) 35 13,919 32 11,293 30 19,666 $31 26,479 $31 1,551 38 1,539 44 (4,475) 27 (6,779) 30 (805) 38 (1,573) 41 15,937 33 19,666 31 9,884 31 10,357 30 8,257 8,140 Beginning outstanding . Options issued in connection with the Hewitt acquisition . Granted . Exercised . Forfeited and expired . Outstanding at end of year . Exercisable at end of year . Sharesavailable for grant . . . . . . . . . .. 22,777
Image of page 12

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Option grants and option exercises both affect the statement of cash flows. At grant, there is no cash inflow or outflow. However, the noncash stock option compensation expense is add back as a reconciling item in the operating section of the statement of cash flows (indirect meth- od). Aon reported an add-back on its 2010 statement of cash flows of $221 million. An interesting, often underappreciated, fact is that stock option expense pervades the income statement. Below is a footnote from Cisco System's 2010 lO-K that details the allocation of its stock option expense to cost of sales, research and development, sales and marketing expenses, aOC general and administrative expenses. 8-13 Module 8 I Equity Recognition and Owner Financing Expense and Valuation Information for Share-Based Awards Share-based compensation expense consists primarily of expenses for stock options, stock purchase rights, restricted stock, and restricted stock units granted to employees. The following table summarizes share-based compensation expense (in millions): July 31, 2010 July 25, 2009 July 2~; 2008 Years Ended $ 57 164 221 450 536 310 $ 46 128 174 382 441 234 $ 40 108 148 339 438 187 Cost of sales-product .
Image of page 13
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern