Dollar General 2006 Annual Report Download - page 83

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Expected term of options - This is the period of time over which the options granted are
expected to remain outstanding. Because the terms of the Company’ s stock option grants prior to
August 2002 were significantly different than grants issued on and after that date and the
Company does not currently intend to grant stock options similar to those granted prior to
August 2002 in future periods, the Company believes that the historical and post-vesting
employee behavior patterns for grants prior to August 2002 are of little or no value in
determining future expectations and, therefore, has generally excluded these pre-August 2002
grants from its analysis of expected term. The Company has estimated expected term using a
computation based on an assumption that outstanding options will be exercised approximately
halfway through their contractual term, taking into consideration such factors as grant date,
expiration date, weighted-average time-to-vest, actual exercises and post-vesting cancellations.
Options granted have a maximum term of 10 years. An increase in the expected term will
increase compensation expense.
The Company issues new shares when options are exercised. A summary of stock option
activity during the year ended February 2, 2007 is as follows:
Options
Issued
Weighted Average
Exercise Price
Balance, February 3, 2006 20,258,324 $ 18.19
Granted 2,648,600 17.41
Exercised (1,573,354) 12.65
Canceled (1,934,689) 19.68
Balance, February 2, 2007 19,398,881 $ 18.38
During the years ended February 2, 2007, February 3, 2006 and January 28, 2005, the
weighted average grant date fair value of options granted was $5.86, $6.33 and $6.36,
respectively; 617,234, 8,281,184 and 1,037,126 options vested, net of forfeitures, respectively;
with a total fair value of approximately $2.5 million, $56.5 million and $4.2 million,
respectively; and the total intrinsic value of stock options exercised was $6.8 million, $16.7
million and $24.0 million, respectively.
At February 2, 2007, the aggregate intrinsic value of all outstanding options was $14.6
million with a weighted average remaining contractual term of 5.2 years, of which 16,923,305 of
the outstanding options are currently exercisable with an aggregate intrinsic value of $14.1
million, a weighted average exercise price of $18.50 and a weighted average remaining
contractual term of 4.7 years. At February 2, 2007, the total unrecognized compensation cost
related to non-vested stock options was $11.6 million with an expected weighted average
expense recognition period of 3.1 years.
All stock options granted in the years ended February 2, 2007 and February 3, 2006
under the terms of the Company’s stock incentive plan were non-qualified stock options issued at
a price equal to the fair market value of the Company’ s common stock on the date of grant, were
originally scheduled to vest ratably over a four-year period, and expire 10 years following the
date of grant.
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