Harris Teeter 2007 Annual Report Download - page 48

44
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
The Company adopted SFAS 123R as of the beginning of the first quarter of fiscal 2006 utilizing the
modified prospective method which requires fair-value accounting for all share-based payments to employees
for new awards and previously granted awards that were not vested as of the adoption date. The Company
previously measured compensation expense using the intrinsic value method of accounting prescribed under
APB 25 as permitted by SFAS 123 and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition
and Disclosure.” Under the intrinsic value method, compensation expense was measured and recorded as the
excess, if any, of the market value at the date of grant over the exercise price. Since the exercise price of the stock
options were equal to the market price at the date of grant, expense has only been recorded for restricted stock
awards in prior years. In accordance with the modified prospective method of transition, results for prior years
have not been restated to reflect this change.
Compensation expense related to stock options amounted to $324,000 and $645,000 for fiscal years 2007
and 2006, respectively. The fiscal 2006 expense was recorded in connection with the adoption of SFAS 123R
and related to stock options that were not fully vested at the beginning of the fiscal year. The fair value of the
stock options was estimated at the date of grant using the Black-Scholes option pricing model. The Company
used historical data to estimate the expected life, volatility and expected forfeitures of the stock option value.
The risk-free rate was based on the U.S. Treasury rate in effect at the time of grant. No new options have been
issued in fiscal years 2007, 2006 or 2005.
As previously discussed, no compensation cost was recognized in fiscal 2005 for the stock options granted
in fiscal 2004 and prior years. Had compensation cost been determined based on the fair value at the grant date
consistent with the provisions of SFAS 123, the Company’s pro forma net income and basic and diluted net
income per share would have been as follows (in thousands, except per share data):
2005
Net Income - as reported ................................................. $ 68,598
Deduct: Total stock-based employee compensation expense
determined under the fair value based method, net of taxes . . . . . . . . . . . . . . . . . . . (647 )
Net Income - proforma .................................................. $ 67,951
Net Income Per Share -
Basic - as reported ................................................ $ 1.45
- pro forma ................................................. 1.44
Diluted - as reported ................................................ 1.44
- pro forma ................................................. 1.42
A summary of the status of the Company’s stock option plans as of September 30, 2007, October 1, 2006,
and October 2, 2005, changes during the years ending on those dates and related weighted average exercise price
is presented below (shares in thousands):
2007 2006 2005
Stock Options Shares Price Shares Price Shares Price
Outstanding at beginning of year . . . . . 1,179 $ 15.82 1,544 $ 15.78 2,329 $ 16.23
Exercised . . . . . . . . . . . . . . . . . . . . . . . . (440 ) 15.50 (339 ) 15.47 (719 ) 17.19
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . (7 ) 16.40 (7 ) 15.84 (66 ) 16.25
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . (1 ) 15.83 (19 ) 19.07 — —
Outstanding at end of year . . . . . . . . . . . 731 $ 16.01 1,179 $ 15.82 1,544 $ 15.78
Vested and expected to vest . . . . . . . . . . 728 $ 16.01 1,170 $ 15.81 1,522 $ 15.78
Options exercisable at year end . . . . . . . 447 $ 15.85 611 $ 15.59 632 $ 15.86