Walmart 2002 Annual Report Download - page 38

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8 Stock Option Plans
The Company follows Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related
interpretations in accounting for its employee stock options because the alternative fair value accounting provided under FASB Statement
123, “Accounting for Stock-Based Compensation,” (FAS No. 123) requires the use of option valuation models that were not developed for
use in valuing employee stock options. Because the exercise price of the Company’s employee stock options equals the market price of
the underlying stock on the date of the grant, no compensation expense is recognized. The options granted under the stock option plans
generally expire ten years from the date of grant. Options granted prior to November 17, 1995, may be exercised in nine annual installments.
Generally, options granted on or after November 17, 1995 and before fiscal 2001 may be exercised in seven annual installments. Options
granted after fiscal 2001 may be exercised in five annual installments.
Pro forma information regarding net income and income per share is required by FAS No. 123 and has been determined as if the Company
had accounted for its employee stock option plans under the fair value method of that statement. The fair value of these options was
estimated at the date of the grant using the Black-Scholes option pricing model with the following assumption ranges: risk-free interest rates
between 4.4% and 7.2%, dividend yields between .4% and 1.3%, volatility factors between .23 and .41, and an expected life of the option of
7.4 years for the options issued prior to November 17, 1995, 5.8 years for options issued thereafter and 2.0 to 4.0 years for options converted
from ASDA stock options.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation methods require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the
existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Using the Black-Scholes
option evaluation model, the weighted average value of options granted during the years ending January 31, 2002, 2001, and 2000, were
$24, $22, and $13, per option, respectively.
The effect of applying the fair value method of FAS No. 123 to the stock option grants subsequent to February 1, 1995, results in the
following net income and net income per share (amounts in millions except per share data):
Fiscal years ended January 31, 2002 2001 2000
Pro forma net income $ 6,592 $ 6,235 $ 5,324
Pro forma earnings per share – basic $ 1.48 $ 1.40 $ 1.20
Pro forma earnings per share – dilutive $ 1.47 $ 1.39 $ 1.19
Pro forma disclosures are not likely to be representative of the effects on reported net income for future years.
The following table summarizes information about stock options outstanding as of January 31, 2002:
Weighted Weighted average
Range Number of average Weighted average Number of exercise price
of exercise outstanding remaining exercise price of options of exerciseable
prices options life in years outstanding options exerciseable options
$ 4.24 to 7.25 64,000 1.6 $ 5.67 54,000 $ 5.95
10.81 to 15.41 16,128,000 3.8 11.89 8,616,000 12.05
17.53 to 23.33 6,894,000 6.0 19.29 3,409,000 19.39
24.72 to 34.53 1,258,000 8.6 26.40 218,000 30.30
39.88 to 45.75 5,815,000 7.1 40.84 2,183,000 40.99
46.00 to 54.56 17,629,000 8.5 48.30 2,299,000 46.60
55.38 to 63.44 1,937,000 9.2 55.87 44,000 58.85
$ 4.24 to 63.44 49,725,000 6.5 $ 31.28 16,823,000 $ 22.35