Safeway 2007 Annual Report Download - page 76

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes stock option information at year-end 2007:
Options outstanding Options exercisable
Range of exercise prices
Number
of options
Weighted-
average
remaining
contractual life
(in years)
Weighted-
average
exercise
price
Number of
options
Weighted-
average
exercise
price
$ 2.38 to $ 18.11 3,717,208 3.12 $ 17.05 1,543,939 $ 15.58
18.12 20.15 4,270,597 2.66 19.89 2,392,159 19.90
20.16 21.54 4,050,180 3.42 20.80 1,449,424 20.82
21.97 23.01 5,537,045 4.01 22.84 1,324,722 22.75
23.02 24.01 1,776,796 3.95 23.81 379,983 23.72
24.04 27.40 1,911,269 4.49 25.55 1,051,127 26.02
27.97 34.94 2,001,980 3.76 31.76 1,112,190 31.15
35.37 35.37 5,553,655 5.15 35.37 – –
35.56 45.67 3,743,420 2.20 40.38 3,278,684 40.93
45.94 62.50 3,842,912 2.81 52.32 3,835,865 52.32
2.38 62.50 36,405,062 3.57 29.18 16,368,093 32.86
Additional Stock Plan Information In December 2004, the FASB issued SFAS No. 123 (revised 2004). Safeway elected
to early adopt SFAS No. 123R in the first quarter of 2005 using the modified prospective approach. Under the modified
prospective method, compensation expense has been and will be recorded for the unvested portion of previously issued
awards that remain outstanding at January 2, 2005 using the same estimate of the grant date fair value and the same
attribution method used to determine the pro forma disclosure under SFAS No. 123. SFAS No. 123R requires that all
share-based payments to employees, including grants of employee stock options after January 1, 2005, be recognized in
the financial statements as compensation cost based on the fair value on the date of grant.
The Company determines fair value of such awards using the Black-Scholes option pricing model. The following
weighted-average assumptions used, by year, to value Safeway’s grants are as follows:
2007 2006 2005
Expected life (in years) 4.5 4.5 4.5
Expected stock volatility 26.4% - 31.5% 27.1% - 27.7% 28.9% - 30.8%
Risk-free interest rate 4.30% - 4.78% 4.43% - 4.78% 3.83% - 4.09%
Expected dividend yield during the expected term 0.7% - 0.8% 0.8% - 0.9% 0% - 1%
The expected term of the awards was determined using the “simplified method” stated in SEC Staff Accounting Bulletin
No. 107 that utilizes the following formula: ((vesting term + original contract term)/2). Expected stock volatility was
determined based upon a combination of historical volatility for the 4.5-year-period preceding the measurement date and
estimates of implied volatility based on open interests in traded option contracts on Safeway common stock. The risk-free
interest rate was based on the yield curve in effect at the time the options were granted, using U.S. constant maturities
over the expected life of the option. Expected dividend yield was based on the Company’s dividend policy at the time the
options were granted.
The Company recognized stock-based compensation expense of $48.4 million ($0.07 per diluted share) during fiscal
2007, $51.2 million ($0.07 per diluted share) during fiscal 2006 and $59.7 million ($0.08 per diluted share) during fiscal
2005 as a component of operating and administrative expense.
54