Safeway 2011 Annual Report Download - page 75

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Activity in the Company’s stock option plans for the year ended December 31, 2011 was as follows:
Options
Weighted-
average
exercise price
Aggregate
intrinsic
value
(in millions)
Outstanding, beginning of year 33,397,873 $ 26.63 $ 33.5
2011 Activity:
Granted 2,537,623 21.39
Canceled (3,464,819) 31.23
Exercised (3,535,224) 20.76
Outstanding, end of year 28,935,453 $ 26.37 $ 16.5
Exercisable, end of year (1) 17,325,237 $ 27.97 $ 6.0
Vested and expected to vest, end of year (2) 24,891,655 $ 26.93 $ 12.7
(1) The remaining weighted-average contractual life of these options is 2.0 years.
(2) The remaining weighted-average contractual life of these options is 3.2 years.
Weighted-average fair value of options granted during the year:
2009 $6.90
2010 6.88
2011 5.87
The total intrinsic value of options exercised was $9.7 million in 2011, $26.3 million in 2010 and $3.4 million in 2009. As
of year-end 2011, there was $51.0 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 2.5 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:
2011 2010 2009
Expected life (in years) 6.5 6.5 6.5
Expected stock volatility 29.8% - 34.1% 30.3% - 31.2% 31.5% - 40.2%
Risk-free interest rate 1.5% - 2.7% 1.8% - 3.1% 2.4% - 3.2%
Expected dividend yield during the expected term 2.2% -2.7% 1.8% - 2.2% 1.3% - 1.9%
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). 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.
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