STOCK OPTION PLANS

6 Months Ended

Aug. 16, 2014

STOCK OPTION PLANS

STOCK OPTION PLANS

3.  STOCK OPTION PLANS

The Company recognized total share-based compensation of $36 and $23 in the second quarters ended August 16, 2014 and August 17, 2013, respectively.  The Company recognized total share-based compensation of $76 and $47 in the first two quarters of 2014 and 2013, respectively.  These costs were recognized as operating, general and administrative costs in the Company’s Consolidated Statements of Operations.

The Company grants options for common shares (“stock options”) to employees, as well as to its non-employee directors, under various plans at an option price equal to the fair market value of the shares at the date of grant.  In addition to stock options, the Company awards restricted stock to employees and its non-employee directors under various plans.  Equity awards may be made once each quarter on a predetermined date.  It has been the Company’s practice to make a general annual grant to employees, which occurred in the second quarter of 2014.  Special grants may be made in the other three quarters.  Grants to non-employee directors occur on the same date that the general annual grant to employees occurs.

Stock options granted in the first two quarters of 2014 expire 10 years from the date of grant and vest between one year and five years from the date of grant. Restricted stock awards granted in the first two quarters of 2014 have restrictions that lapse between one year and five years from the date of the awards.  All grants and awards become immediately exercisable, in the case of options, and restrictions lapse, in the case of restricted stock, upon certain changes in control of the Company.

Changes in equity awards outstanding under the plans are summarized below.

Stock Options

	Shares subject to option		Weighted-average exercise price
Outstanding, February 1, 2014	21.7		$	25.66
Granted	4.1		$	49.21
Exercised	(3.2	)	$	22.75
Canceled or Expired	(0.2	)	$	28.70
Outstanding, August 16, 2014	22.4		$	30.40

Restricted Stock

	Restricted shares outstanding		Weighted-average grant-date fair value
Outstanding, February 1, 2014	4.8		$	32.31
Granted	2.8		$	48.99
Vested	(2.3	)	$	32.84
Forfeited	(0.1	)	$	35.35
Outstanding, August 16, 2014	5.2		$	41.14

The weighted-average grant date fair value of stock options granted during the first two quarters of 2014 and 2013, was $11.96 and $8.97, 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 accounting judgment and financial estimates, including the term option holders are expected to retain their stock options before exercising them, the volatility of the Company’s share 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 the first two quarters of 2014, compared to the first two quarters of 2013, resulted primarily from an increase in the Company’s share price, which decreased the expected dividend yield, and an increase in the weighted average risk-free interest rate.

The following table reflects the weighted-average assumptions used for grants awarded to option holders:

	2014	2013
Risk-free interest rate	2.06%	1.87%
Expected dividend yield	1.51%	1.82%
Expected volatility	25.29%	26.34%
Expected term	6.6 Years	6.8 Years