Kroger 2013 Annual Report Download - page 133

A-60
NO T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S , CO N T I N U E D
Restricted stock
Changes in restricted stock outstanding under the restricted stock plans are summarized below:
Restricted
shares
outstanding
(in millions)
Weighted-average
grant-date
fair value
Outstanding, year-end 2010...................................... 4.4 $22.39
Granted ................................................... 2.5 $24.63
Lapsed .................................................... (2.5) $21.96
Canceled or Expired ......................................... (0.2) $23.80
Outstanding, year-end 2011 ...................................... 4.2 $23.92
Granted ................................................... 2.6 $22.23
Lapsed .................................................... (2.4) $24.34
Canceled or Expired ......................................... (0.1) $23.28
Outstanding, year-end 2012...................................... 4.3 $22.67
Granted ................................................... 3.2 $37.69
Lapsed .................................................... (2.5) $22.97
Canceled or Expired ......................................... (0.1) $27.31
Outstanding, year-end 2013...................................... 4.8 $32.31
The weighted-average grant date fair value of stock options granted during 2013, 2012 and 2011 was
$8.98, $4.39 and $6.00, respectively. The fair value of each stock option grant was estimated on the date of
grant using the Black-Scholes option-pricing model, based on the assumptions shown in the table below. The
Black-Scholes model utilizes extensive judgment and financial estimates, including the term employees are
expected to retain their stock options before exercising them, the volatility of the Company’s stock price
over that expected term, the dividend yield over the term and the number of awards expected to be 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 increase in the fair value of the stock options granted during
2013, compared to 2012, resulted primarily from an increase in the Company’s share price, an increase in the
weighted average risk-free interest rate and a decrease in the expected dividend yield. The decrease in the
fair value of the stock options granted during 2012, compared to 2011, resulted primarily from a decrease in
the Company’s share price, a decrease in the weighted average risk-free interest rate and an increase in the
expected dividend yield.
The following table reflects the weighted-average assumptions used for grants awarded to option holders:
2013 2012 2011
Weighted average expected volatility ....................... 26.34% 26.49% 26.31%
Weighted average risk-free interest rate ..................... 1.87% 0.97% 2.16%
Expected dividend yield ................................. 1.82% 2.49% 1.90%
Expected term (based on historical results) ................. 6.8 years 6.9 years 6.9 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 the 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.