Dollar General 2005 Annual Report Download - page 57

53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of shares of restricted stock or restricted stock units
eligible for issuance under the terms of this plan has been
capped at 4,000,000. At February 3, 2006, 3,510,841 shares
of restricted stock or restricted stock units were available
for grant under the plan.
During 2003, the Company also granted stock options
and restricted stock in transactions that were not made
under the stock incentive plan.The Company awarded
78,865 shares of restricted stock as a material inducement
to employment to its CEO at a fair value of $12.68 per
share. The difference between the market price of the
underlying stock and the purchase price on the date of
grant, which was set as zero for this restricted stock award,
was recorded as unearned compensation expense, and is
being amortized to expense on a straight-line basis over
the restriction period of five years. The CEO is entitled to
receive cash dividends and to vote these shares, but is pro-
hibited from selling or transferring shares prior to vesting.
Also during the first quarter of 2003, the Company award-
ed the CEO, as a material inducement to employment, an
option to purchase 500,000 shares at an exercise price of
$12.68 per share.The option generally vests at a rate of
166,666 shares on the second anniversary of the grant
date and 333,334 shares on the third anniversary of the
grant date, subject to accelerated vesting as provided in
the CEO’s Employment Agreement or in the plan. The
option will terminate no later than 10 years from the
grant date.
Pro forma information regarding net income and
earnings per share, as disclosed in Note 1, has been deter-
mined as if the Company had accounted for its employee
stock-based compensation plans under the fair value
method of SFAS No. 123. The fair value of options granted
during 2005, 2004 and 2003 was $6.33, $6.36 and $5.45,
respectively.The fair value of each stock option grant was
estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
2005 2004 2003
Expected dividend yield 0.9% 0.9% 0.9%
Expected stock price volatility 27.1% 35.5% 36.9%
Weighted average
risk-free interest rate 4.2% 3.5% 2.7%
Expected life of options (years) 5.0 5.0 3.7
A summary of the balances and activity for all of the
Company’s stock option awards for the last three fiscal
years is presented below:
Weighted
Average
Options Exercise
Issued Price
Balance, January 31, 2003 26,916,571 $ 15.73
Granted 4,705,586 18.39
Exercised (4,240,438) 11.68
Canceled (2,450,429) 17.76
Balance, January 30, 2004 24,931,290 16.75
Granted 2,250,900 18.88
Exercised (2,874,828) 11.87
Canceled (1,758,030) 18.97
Balance, January 28, 2005 22,549,332 17.42
Granted 2,364,200 21.72
Exercised (2,248,951) 13.07
Canceled (2,406,257) 19.23
Balance, February 3, 2006 20,258,324 $ 18.19
The following table summarizes information about all stock options outstanding at February 3, 2006:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 6.29 - $12.68 1,914,579 4.4 $ 11.11 1,581,245 $ 10.78
12.88 - 18.55 7,001,557 5.0 15.90 6,800,557 15.86
18.74 - 23.90 11,342,188 6.1 20.80 10,998,588 20.79
$ 6.29 - $23.90 20,258,324 5.6 $ 18.19 19,380,390 $ 18.24