Safeway 2005 Annual Report Download - page 71

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
51
The following table summarizes stock option information at year-end 2005:
Options outstanding Options exercisable
Range of exercise prices
Number
of options
Weighted-
average
remaining
contractual life
(in years)
Weighted-
average
exercise
price
Number of
options
Weighted-average
exercise price
$ 2.38 to $ 4.47 2,907,935 2.05 $ 2.89 2,907,935 $ 2.89
4.50 18.11 5,083,071 4.39 16.37 991,105 9.24
18.12 19.99 4,580,151 4.84 19.80 1,052,982 19.77
20.00 20.75 6,342,596 4.87 20.57 701,208 20.17
20.86 22.83 3,090,408 5.77 22.25 614,134 22.51
22.85 27.15 3,647,094 4.79 25.26 1,930,035 25.65
27.40 35.75 2,196,512 4.21 32.34 1,760,391 32.45
35.94 45.94 3,056,480 3.89 41.75 2,689,406 41.59
46.09 52.94 1,591,583 4.76 49.21 1,295,664 49.35
53.23 62.50 2,369,914 4.92 54.41 2,296,471 54.32
2.38 62.50 34,865,744 4.50 25.23 16,239,331 29.16
Additional Stock Plan Information In December 2004, the FASB issued SFAS No. 123 (revised 2004). Safeway elected to
early adopt SFAS No. 123R in the first quarter of 2005 using the modified prospective approach. Under the modified
prospective method, compensation expense has been and will be recorded for the unvested portion of previously issued
awards that remain outstanding at January 2, 2005 using the same estimate of the grant date fair value and the same
attribution method used to determine the pro forma disclosure under SFAS No. 123. SFAS No. 123R requires that all share-
based payments to employees, including grants of employee stock options after January 1, 2005, be recognized in the
financial statements as compensation cost based on the fair value on the date of grant.
The Company determines fair value of such awards using the Black-Scholes option pricing model. The following weighted
average assumptions were used to value Safeway’s grants in 2005: 4.5 years expected life; expected stock volatility of
28.9% to 30.8%; risk-free interest rate of 3.83% to 4.09%; and expected dividend yield of 0% - 1% during the expected
term.
The expected term of the awards was determined using the “simplified method” stated in SEC Staff Accounting Bulletin No.
107 that utilizes the following formula: ((vesting term + original contract term)/2). Expected stock volatility was determined
based upon a combination of historical volatility for the 4.5-year-period preceding the measurement date and estimates of
implied volatility based on open interests in traded option contracts on Safeway common stock. The risk-free interest rate
was based on the yield curve in effect at the time the options were granted, using U.S. constant maturities over the expected
life of the option. Expected dividend yield was based on the Company’s dividend policy at the time the options were
granted.
The Company recognized stock-based compensation expense of $59.7 million ($0.08 per diluted share) during fiscal 2005 as
a component of operating and administrative expense.
Had compensation cost for Safeway’s stock option plans been determined based on the fair value at the grant date for
awards from 1996 through 2004, consistent with the provisions of SFAS No. 123, the Company’s net income and earnings
per share would have been reduced to the pro forma amounts disclosed in Note A.