Red Lobster 2001 Annual Report Download - page 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
treasury in connection with the granting of non-quali-
fied stock options and restricted stock or RSUs to key
employees, excluding directors and Section 16 report-
ing officers. Restricted stock and RSUs may be granted
under the plan for up to five percent of the shares
authorized under the plan. The Director Plan provides
for the issuance of up to 250,000 common shares out
of the Company’s treasury in connection with the
granting of non-qualified stock options and restricted
stock and RSUs to non-employee directors. Under all
of the plans, stock options are granted at a price equal
to the fair market value of the shares at the date of grant,
for terms not exceeding ten years, and have various
vesting periods at the discretion of the Compensation
Committee. Restricted stock and RSUs granted under
the 1995 and the 2000 Plans generally vest no sooner
than one year from the date of grant, although the
restricted period may be accelerated based on perform-
ance goals established by the Committee.
The Company also maintains the Compensation
Plan for Non-Employee Directors that was adopted in
2000. This plan provides that non-employee directors
may elect to receive their annual retainer and meeting
fees in any combination of cash, deferred cash, or
Company common shares, and authorizes the issuance
of up to 50,000 common shares out of the Company’s
treasury for this purpose. The common shares issuable
under the plan shall have a fair market value equivalent
to the value of the foregone retainer and meeting fees.
The per share weighted average fair value of stock
options granted during 2001, 2000, and 1999 was $17.54,
$6.47, and $10.21, respectively. These amounts were
determined using the Black-Scholes option pricing
model which values options based on the stock price
at the grant date, the expected life of the option, the
estimated volatility of the stock, expected dividend pay-
ments, and the risk-free interest rate over the expected
life of the option. The dividend yield was calculated by
dividing the current annualized dividend by the option
price for each grant. The expected volatility was deter-
mined considering stock prices for the fiscal year the
grant occurred and prior fiscal years, as well as consider-
ing industry volatility data. The risk-free interest rate
was the rate available on zero coupon U.S. government
obligations with a term equal to the remaining term for
each grant. The expected life of the option was estimated
based on the exercise history from previous grants.
The weighted-average assumptions used in the
Black-Scholes model were as follows:
Stock Options
Granted in Fiscal Year
2001 2000 1999
Risk-free interest rate 7.00% 6.50% 5.60%
Expected volatility of stock 30.0% 30.0% 30.0%
Dividend yield 0.1% 0.1% 0.1%
Expected option life 6.0 years 6.0 years 6.0 years
The Company applies APB 25 in accounting for its
stock option plans and, accordingly, no compensation cost
has been recognized in the Company’s consolidated finan-
cial statements for stock options granted under any of its
stock plans. Had the Company determined compensation
cost based on the fair value at the grant date for its
stock options as prescribed under SFAS 123, the
Company’s net earnings and net earnings per share
would have been reduced to the pro forma amounts
indicated below:
Fiscal Year
2001 2000 1999
Net earnings
As reported $197,000 $176,705 $140,538
Pro forma $184,542 $168,171 $134,527
Basic net earnings
per share
As reported $ 1.64 $ 1.38 $ 1.02
Pro forma $ 1.54 $ 1.31 $ 0.98
Diluted net earnings
per share
As reported $ 1.59 $ 1.34 $ 0.99
Pro forma $ 1.49 $ 1.27 $ 0.95
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2001
DARDEN RESTAURANTS