Kohl's 2008 Annual Report Download - page 59

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KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7. Stock-Based Compensation (continued)
Stock options
The majority of stock options granted to employees vest in four equal annual installments. Remaining stock
options vest in five to seven equal annual installments. Outside directors’ stock options are typically granted
upon a director’s election or re-election to our Board of Directors and vest over one to three years, depending on
the length of the term to which the director was elected. Options granted to employees after 2005 have a term of
seven years. Outstanding options granted to employees prior to 2006 have a term of up to 15 years. Options
granted to directors have a term of 10 years.
All stock options have an exercise price equal to the fair market value of the common stock on the date of
grant. The fair value of each option award is estimated using a Black-Scholes option valuation model and the
following weighted-average assumptions:
2008 2007 2006
Dividend yield ............................................. 0% 0% 0%
Volatility .................................................. 36.6% 30.4% 31.1%
Risk-free interest rate ........................................ 2.5% 4.7% 4.7%
Expected life in years ........................................ 5.3 5.2 5.2
Weighted-average fair value at grant date ........................ $15.52 $26.33 $19.52
The dividend yield represents the expected dividends on our stock for the expected term of the option. The
expected volatility assumption is based on the historical volatility of our stock. The risk-free interest rate for
periods within the life of the option is based on a blend of U.S. Treasury bond rates. We use historical data to
estimate the expected life of the option and the period of time that options granted are expected to be outstanding.
The following table summarizes our stock option activity for 2008, 2007 and 2006:
2008 2007 2006
Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price
(Shares in Thousands)
Balance at beginning of year ................... 17,313 $55.79 15,226 $49.21 15,802 $43.82
Granted ................................ 3,568 41.93 5,079 72.29 3,679 53.37
Forfeited/expired ......................... (1,612) 59.37 (852) 60.55 (867) 53.43
Exercised ............................... (135) 40.87 (2,140) 46.21 (3,388) 27.50
Balance at end of year ......................... 19,134 $53.01 17,313 $55.79 15,226 $49.21
The intrinsic value of options exercised represents the excess of our stock price at the time the option was
exercised over the exercise price and was $1 million in 2008, $58 million in 2007 and $115 million in 2006.
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