Lowe's 2012 Annual Report Download - page 62

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48
The Company recognized share-based payment expense in SG&A expense in the consolidated statements of earnings
totaling $100 million, $107 million and $115 million in 2012, 2011 and 2010, respectively. The total associated income tax
benefit recognized was $33 million, $32 million and $38 million in 2012, 2011 and 2010, respectively.
Total unrecognized share-based payment expense for all share-based payment plans was $95 million at February 1, 2013,
of which $59 million will be recognized in 2013, $33 million in 2014 and $3 million thereafter. This results in these
amounts being recognized over a weighted-average period of 1.7 years.
For all share-based payment awards, the expense recognized has been adjusted for estimated forfeitures where the requisite
service is not expected to be provided. Estimated forfeiture rates are developed based on the Company’s analysis of
historical forfeiture data for homogeneous employee groups.
General terms and methods of valuation for the Company’s share-based awards are as follows:
Stock Options
Stock options generally have terms of seven years, with one-third of each grant vesting each year for three years, and are
assigned an exercise price equal to the closing market price of a share of the Company’s common stock on the date of
grant. These options are expensed on a straight-line basis over the grant vesting period, which is considered to be the
requisite service period.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. When
determining expected volatility, the Company considers the historical performance of the Company’s stock, as well as
implied volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, based
on the options’ expected term. The expected term of the options is based on the Company’s evaluation of option holders’
exercise patterns and represents the period of time that options are expected to remain unexercised. The Company uses
historical data to estimate the timing and amount of forfeitures. The weighted average assumptions used in the Black-
Scholes option-pricing model and weighted-average grant date fair value for options granted in 2012, 2011 and 2010 are as
follows:
2012 2011 2010
Weighted-average assumptions used:
Expected volatility ................................................................ 38.6% 39.9% 39.4%
Dividend yield ...................................................................... 1.76% 1.39% 1.07%
Risk-free interest rate ........................................................... 0.75% 1.83% 2.02%
Expected term, in years ........................................................ 4.41 4.44 4.42
Weighted-average grant date fair value ................................... $ 7.84 $ 7.93 $ 7.68
The total intrinsic value of options exercised, representing the difference between the exercise price and the market price
on the date of exercise, was approximately $84 million, $8 million and $6 million in 2012, 2011 and 2010, respectively.
Transactions related to stock options for the year ended February 1, 2013 are summarized as follows:
Shares
(In thousands)
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Remaining
Term
(In years)
Aggregate
Intrinsic Value
(In thousands)1
Outstanding at February 3, 2012 .......... 20,531 $ 26.38
Granted ................................................ 2,863 28.27
Canceled, forfeited or expired.............. (3,891) 29.66
Exercised ............................................. (10,785) 25.53
Outstanding at February 1, 2013 .......... 8,718 $ 26.58 4.26 $ 104,470
Vested and expected to vest at
February 1, 20132 ................................. 8,627 $ 26.56 4.24 $ 103,482
Exercisable at February 1, 2013 .......... 4,021 $ 2 6.36 2.83 $ 49,041
1 Options for which the exercise price exceeded the closing market price of a share of the Company’s common stock at
February 1, 2013 are excluded from the calculation of aggregate intrinsic value.
2 Includes outstanding vested options as well as outstanding nonvested options after a forfeiture rate is applied.