Hormel Foods 2011 Annual Report Download - page 54

5
2Hormel Foods Corporation
A reconciliation of the number of options outstanding and
exercisable
(
in thousands
)
as of October 30, 2011, and
changes during the
fi
scal year then ended, is as
f
ollows:
Wei
g
hted
-
We
ig
hted-
A
vera
g
e
Averag
e
R
ema
i
n
i
n
g
A
ggregate
E
xercise
C
ontractual
I
ntrinsi
c
S
h
a
r
es
Pri
ce
Te
rm
Value
O
utstanding at
O
ctober
3
1
,
2010
22,0
4
8
$
16
.
47
G
r
a
nt
ed
2,
65
8
2
4.
96
E
x
e
r
cised
4
,
75
0
15.
2
7
Fo
rf
e
it
ed
24
19.11
O
utstanding at
O
ctober
30,
20
1
1
1
9,932
$
17.
89
5
.
7
yrs
$
2
4
0,
451
Exerc
i
sable at
October 30, 201
1
13,499
$
16.66 4.5
y
rs
$
179,436
T
he weighted-average grant date fair value of stock options
granted and the total intrinsic value of options exercised
(
in
thousands
)
during each of the past three fiscal years is as
f
ollows
:
F
i
sca
l Y
ea
r En
ded
O
ctober
30,
October 31
,
O
ctober
2
5
,
20
11
20
1
0
2009
W
e
i
ghted-average
g
rant date fair value
$
5
.
54
$
4
.
55
$
2
.9
3
I
ntrin
s
i
c
v
a
l
ue
o
f
exerc
i
sed opt
i
ons
$
5
4
,8
5
9
$
3
2
,3
78
$
5
,0
4
9
T
he
f
air value o
f
each option award is calculated on the date
of
g
rant usin
g
the Black-
S
choles valuation model utilizin
g
the
f
ollowin
g
wei
g
hted-avera
g
e assumptions
:
Fisca
l Y
ea
r En
ded
O
ctober
30
,October
3
1
,
O
ctober
2
5
,
20
11
20
1
0
2
009
R
isk-
f
ree interest rate
2
.
9%
3
.4
%
3
.2
%
D
ividend
y
iel
d
2
.
0%
2
.2
%
2
.
5%
S
tock
p
rice volatility
2
1.
0%
2
2.0
%
2
2.0
%
E
x
p
ected o
p
tion li
f
e
8
years
8
y
ears
8
y
ears
As part of the annual valuation process, the
C
ompany reas
-
s
esses the appropriateness of the inputs used in the valuation
models. The
C
om
p
any establishes the risk-free interest rate
using stripped U.
S
. Treasury yields as of the grant date where
the remaining term is approximately the expected life of the
o
p
t
i
on. The d
i
v
i
dend y
i
eld
i
s set based on the d
i
v
i
dend rate
a
pp
roved by the Com
p
any’s Board of Directors and the stock
pr
i
ce on the grant date. The expected volat
i
l
i
ty assumpt
i
on
i
s
s
et based pr
i
mar
i
ly on h
i
stor
i
cal volat
i
l
i
ty. As a reasonabl
e
-
ness test, implied volatility
f
rom exchan
g
e traded options is
also examined to validate the volatility ran
g
e obtained
f
rom
As of October 30, 2011, the Com
p
any had
$
41.8 million of
s
tandby letters o
f
credit issued on its behal
f
. The standby
letters of credit are
p
rimarily related to the Com
p
any’s self
-
i
nsured workers’ compensat
i
on programs. However, that
amount also includes a revocable $4.8 million standby letter
o
f
credit
f
or obli
g
ations o
f
an a
ffi
liated party that may arise
under worker compensation claims. Letters o
f
credit are
not reflected in the
C
ompany’s
C
onsolidated
S
tatements of
F
in
a
n
c
i
a
l P
os
iti
o
n
.
The
C
ompany is involved on an ongoing basis in litigation
arising in the ordinary course of business. In the opinion of
management, the outcome of litigation currently pending will
not materially affect the Com
p
any’s results of o
p
erations,
fi
nancial condition, or li
q
uidity
.
Note L
S
TOC
K
-
B
AS
E
D
C
O
M
PE
N
S
ATI
O
N
The Com
p
any issues stock o
p
tions and nonvested shares
as
p
art o
f
its stock incentive
p
lans
f
or em
p
loyees and non-
employee directors. The Company’s policy is to grant options
w
ith the exercise
p
rice e
q
ual to the market
p
rice o
f
the com
-
mon stock on the date of
g
rant. Options typically vest over
periods ran
g
in
g
f
rom six months to
f
our years and expire ten
y
ears after the date of the
g
rant. The
C
ompany reco
g
nizes
s
tock-based compensation expense ratably over the shorter
of the requisite service period or vestin
g
period. The fair value
of stock-based compensation
g
ranted to retirement-eli
g
ible
individuals is expensed at the time of grant
.
D
uring the first quarter of fiscal 2007, the Company made a
one-time grant of 100 stock options
(
pre-split
)
to each active,
f
ull-time em
p
loyee of the Com
p
any on January 8, 2007. This
grant was to vest upon the earlier o
f
fi
ve years or attainment
of closin
g
stock price of $50.00 per share (pre-split) for five
consecutive tradin
g
days, and had an expiration o
f
ten years
after the
g
rant date. Durin
g
the first quarter of fiscal
20
11, the
options vested a
f
ter the stock attained the required closin
g
price per share for five consecutive tradin
g
days.