Kroger 2010 Annual Report Download - page 139

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A-59
NO T E S T O CO N S O L I D A T E D FI N A N C I A L ST A T E M E N T S , CO N T I N U E D
forfeited before they vest. Using alternative assumptions in the calculation of fair value would produce fair
values for stock option grants that could be different than those used to record stock-based compensation
expense in the Consolidated Statements of Operations. The decrease in the fair value of the stock options
granted during 2010 and 2009, compared to 2008, resulted primarily from a decrease in the Company’s
stock price.
The following table reflects the weighted-average assumptions used for grants awarded to option
holders:
2010 2009 2008
Weighted average expected volatility .................. 26.87% 28.06% 27.89%
Weighted average risk-free interest rate ................ 2.57% 3.17% 3.63%
Expected dividend yield ............................ 2.00% 1.80% 1.50%
Expected term (based on historical results) . . . . . . . . . . . . 6.9 years 6.8 years 6.8 years
The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant
date, continuously compounded, which matures at a date that approximates the expected term of options.
The dividend yield was based on our history and expectation of dividend payouts. Expected volatility
was determined based upon historical stock volatilities; however, implied volatility was also considered.
Expected term was determined based upon a combination of historical exercise and cancellation experience
as well as estimates of expected future exercise and cancellation experience.
Total stock compensation recognized in 2010, 2009 and 2008 was $79, $83 and $91, respectively. Stock
option compensation recognized in 2010, 2009 and 2008 was $25, $29 and $35, respectively. Restricted
shares compensation recognized in 2010, 2009 and 2008 was $54, $54 and $56 respectively.
The total intrinsic value of options exercised was $4, $6 and $18 in 2010, 2009 and 2008, respectively.
The total amount of cash received in 2010 by the Company from the exercise of options granted under
share-based payment arrangements was $29. As of January 29, 2011, there was $99 of total unrecognized
compensation expense remaining related to non-vested share-based compensation arrangements granted
under the Company’s equity award plans. This cost is expected to be recognized over a weighted-average
period of approximately two years. The total fair value of options that vested was $37, $39 and $53 in 2010,
2009 and 2008, respectively.
Shares issued as a result of stock option exercises may be newly issued shares or reissued treasury
shares. Proceeds received from the exercise of options, and the related tax benefit, may be utilized to
repurchase shares of the Company’s stock under a stock repurchase program adopted by the Company’s
Board of Directors. During 2010, the Company repurchased approximately two million shares of stock in
such a manner.
11. C O M M I T M E N T S A N D CO N T I N G E N C I E S
The Company continuously evaluates contingencies based upon the best available evidence.
The Company believes that allowances for loss have been provided to the extent necessary and that its
assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts
that vary from the Company’s estimates, future earnings will be charged or credited.