Safeway 1998 Annual Report Download - page 34

Additional Stock Option Plan Information The Company accounts
for its stock-based awards using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and its re l a t e d
i n t e r p retations. Accord i n g l y, no compensation expense has
been recognized in the financial statements for employee stock
option awards granted at fair market value.
S FAS No. 123, “Accounting for Stock-Based Compensation,”
requires the disclosure of pro forma net income and earnings
per share as if the Company had adopted the fair value method
as of the beginning of fiscal 1995. Under SFAS 123, the fair
value of stock-based awards to employees is calculated thro u g h
the use of option pricing models, even though such models
w e re developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which
significantly differ from the Company’s stock option awards.
These models also require subjective assumptions, including
f u t u re stock price volatility and expected time to exerc i s e ,
which greatly affect the calculated values. The Company’s
calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: seven
to nine years expected life to vesting; stock volatility of 31% in
both 1998 and 1997, and 30% in 1996; risk-free interest rates
of 5.26% in 1998 and 6.29% in both 1997 and 1996; and no
dividends during the expected term.
The Company’s calculations are based on a single option
valuation approach and forf e i t u res are recognized as they
o c c u r. However, the impact of outstanding non-vested stock
options granted prior to 1995 has been excluded from the pro
f o rma calculation; accord i n g l y, the pro forma results pre s e n t e d
Activity in the Company’s stock option plans for the three-year period ended January 2, 1999 was as follows:
Weighted Average
Options Exercise Price
Outstanding, year-end 1995 44,330,644 $ 3.52
1996 Activity:
Granted 3,991,984 16.65
Canceled (724,454) 5.07
Exercised (8,825,018) 2.04
Outstanding, year-end 1996 38,773,156 5.07
1997 Activity:
Granted 3,981,766 26.25
Converted Vons options 7,578,098 7.34
Canceled (962,522) 10.01
Exercised (8,373,270) 5.06
Outstanding, year-end 1997 40,997,228 7.53
1998 Activity:
Granted 4,987,038 40.28
Converted Dominick’s options 922,701 19.70
Canceled (848,482) 14.61
Exercised (6,680,083) 3.90
Outstanding, year-end 1998 39,378,402 12.15
Exercisable, year-end 1996 23,034,640 4.25
Exercisable, year-end 1997 25,887,094 4.75
Exercisable, year-end 1998 24,447,905 5.79
Weighted average fair value of options granted during the year:
1996 $ 7.64
1997 12.43
1998 17.06
The following table summarizes stock option information at year-end 1998:
Options Outstanding Options Exercisable
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Range of Number Weighted-Average Weighted-Average Number Weighted-Average
Exercise Prices of Options Remaining Contractual Life Exercise Price of Options Exercise Price
$ 0.50 to $ 0.50 1,047,000 0.35 years $ 0.50 1,047,000 $ 0.50
1.46 to 9.44 25,297,992 7.06 4.71 20,730,918 4.37
9.67 to 17.63 3,495,840 8.31 13.63 1,756,064 14.78
18.94 to 29.88 4,468,929 8.50 25.59 807,537 24.87
31.44 to 39.00 2,261,808 9.19 35.13 25,496 32.82
40.06 to 48.06 2,806,833 9.56 41.80 80,890 42.56
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0.50 to 48.06 39,378,402 7.46 12.15 24,447,905 5.79
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Options to purchase 18.4 million shares were available for grant at year-end 1998.