Safeway 2009 Annual Report Download - page 75

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Weighted-average fair value of options granted during the year:
2007 $9.90
2008 8.74
2009 6.90
The total intrinsic value of options exercised was $3.4 million in 2009, $13.5 million in 2008 and $120.2 million in 2007.
As of year-end 2009, there was $101.3 million of total unrecognized compensation cost related to nonvested stock-based
compensation arrangements granted under the Company’s stock option plans. That cost is expected to be recognized
over a weighted average period of 2.8 years.
Additional Stock Plan Information Safeway accounts for stock-based employee compensation in accordance with
generally accepted accounting principles for stock compensation. 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:
2009 2008 2007
Expected life (in years) 6.5 4.5 4.5
Expected stock volatility 31.53% - 40.2% 32.0% - 48.3% 26.4% - 31.5%
Risk-free interest rate 2.35% - 3.20% 2.58% - 3.19% 4.30% - 4.78%
Expected dividend yield during the expected term 1.3% - 1.9% 0.8% - 1.1% 0.7% - 0.8%
In 2009, the expected term of the awards was determined utilizing the “simplified method” outlined in SEC Staff
Accounting Bulletin No. 107 that utilizes the following formula: ((vesting term + original contract term)/2). Safeway
utilized this method in 2009 because it began issuing awards with longer contractual lives. In 2008, the Company
calculated the expected term based upon historical data. Prior to 2008, the Company used the simplified
method. Expected stock volatility was determined based upon a combination of historical volatility for periods preceding
the measurement date and estimates of implied volatility based upon 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 is based on Safeway’s
dividend policy at the time the options were granted.
Total share-based compensation expenses recognized as a component of operating and administrative expense is as
follows (in millions):
2009 2008 2007
Share-based compensation expense $ 59.9 $ 63.2 $ 53.6
Income tax benefit (21.9) (23.0) (19.4)
Share-based compensation expense recognized in
earnings, net of tax $ 38.0 $ 40.2 $ 34.2
57