12. STOCK OPTION PLANS
The Company grants options for common shares (“stock options”) to employees under various plans at an option price equal to the fair market value of the stock at the date of grant. The Company accounts for stock options under the fair value recognition provisions. Under this method, the Company recognizes compensation expense for all share-based payments granted. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. Equity awards may be made at one of four meetings of its Board of Directors occurring shortly after the Company’s release of quarterly earnings. The 2013 primary grant was made in conjunction with the June meeting of the Company’s Board of Directors.
Stock options typically expire 10 years from the date of grant. Stock options vest between one and five years from the date of grant. At February 1, 2014, approximately 11 million common shares were available for future option grants under these plans.
In addition to the stock options described above, the Company awards restricted stock to employees, as well as to non-employee directors, under various plans. The restrictions on these awards generally lapse between one and five years from the date of the awards. The Company records expense for restricted stock awards in an amount equal to the fair market value of the underlying shares on the grant date of the award, over the period the awards lapse. As of February 1, 2014, approximately 5 million common shares were available under the 2005, 2008 and 2011 Long-Term Incentive Plans (the “Plans”) for future restricted stock awards or shares issued to the extent performance criteria are achieved. The Company has the ability to convert shares available for stock options under the Plans to shares available for restricted stock awards. Under some of the Plans, four shares available for option awards can be converted into one share available for restricted stock awards.
All awards become immediately exercisable upon certain changes of control of the Company.
Stock Options
Changes in options outstanding under the stock option plans are summarized below:
|
|
|
Shares |
|
Weighted- |
| |
|
Outstanding, year-end 2010 |
|
35.9 |
|
$ |
21.45 |
|
|
Granted |
|
3.9 |
|
$ |
24.69 |
|
|
Exercised |
|
(5.9 |
) |
$ |
20.28 |
|
|
Canceled or Expired |
|
(2.9 |
) |
$ |
24.43 |
|
|
|
|
|
|
|
| |
|
Outstanding, year-end 2011 |
|
31.0 |
|
$ |
21.80 |
|
|
Granted |
|
4.1 |
|
$ |
22.04 |
|
|
Exercised |
|
(6.7 |
) |
$ |
18.35 |
|
|
Canceled or Expired |
|
(1.9 |
) |
$ |
23.28 |
|
|
|
|
|
|
|
| |
|
Outstanding, year-end 2012 |
|
26.5 |
|
$ |
22.61 |
|
|
Granted |
|
4.2 |
|
$ |
37.68 |
|
|
Exercised |
|
(8.8 |
) |
$ |
22.22 |
|
|
Canceled or Expired |
|
(0.2 |
) |
$ |
25.47 |
|
|
|
|
|
|
|
| |
|
Outstanding, year-end 2013 |
|
21.7 |
|
$ |
25.66 |
|
A summary of options outstanding and exercisable at February 1, 2014 follows:
|
Range of Exercise Prices |
|
Number |
|
Weighted- |
|
Weighted- |
|
Options |
|
Weighted-average |
| ||
|
|
|
(in millions) |
|
(in years) |
|
|
|
(in millions) |
|
|
| ||
|
$13.78 - $18.57 |
|
2.1 |
|
0.99 |
|
$ |
16.62 |
|
2.1 |
|
$ |
16.62 |
|
|
$18.58 - $20.97 |
|
3.6 |
|
4.80 |
|
$ |
20.09 |
|
2.9 |
|
$ |
20.06 |
|
|
$20.98 - $23.37 |
|
5.2 |
|
7.28 |
|
$ |
22.11 |
|
2.6 |
|
$ |
22.21 |
|
|
$23.38 - $28.17 |
|
3.1 |
|
7.22 |
|
$ |
24.82 |
|
1.6 |
|
$ |
24.89 |
|
|
$28.18 - $32.97 |
|
3.6 |
|
4.01 |
|
$ |
28.51 |
|
3.5 |
|
$ |
28.44 |
|
|
$32.98 - $40.99 |
|
4.1 |
|
9.44 |
|
$ |
37.81 |
|
— |
|
$ |
37.76 |
|
|
$13.78 - $40.99 |
|
21.7 |
|
6.12 |
|
$ |
25.66 |
|
12.7 |
|
$ |
22.88 |
|
The weighted-average remaining contractual life for options exercisable at February 1, 2014, was approximately 4.5 years. The intrinsic value of options outstanding and exercisable at February 1, 2014 was $233 and $169, respectively.
Restricted stock
Changes in restricted stock outstanding under the restricted stock plans are summarized below:
|
|
|
Restricted |
|
Weighted-average |
| |
|
Outstanding, year-end 2010 |
|
4.4 |
|
$ |
22.39 |
|
|
Granted |
|
2.5 |
|
$ |
24.63 |
|
|
Lapsed |
|
(2.5 |
) |
$ |
21.96 |
|
|
Canceled or Expired |
|
(0.2 |
) |
$ |
23.80 |
|
|
|
|
|
|
|
| |
|
Outstanding, year-end 2011 |
|
4.2 |
|
$ |
23.92 |
|
|
Granted |
|
2.6 |
|
$ |
22.23 |
|
|
Lapsed |
|
(2.4 |
) |
$ |
24.34 |
|
|
Canceled or Expired |
|
(0.1 |
) |
$ |
23.28 |
|
|
|
|
|
|
|
| |
|
Outstanding, year-end 2012 |
|
4.3 |
|
$ |
22.67 |
|
|
Granted |
|
3.2 |
|
$ |
37.69 |
|
|
Lapsed |
|
(2.5 |
) |
$ |
22.97 |
|
|
Canceled or Expired |
|
(0.1 |
) |
$ |
27.31 |
|
|
|
|
|
|
|
| |
|
Outstanding, year-end 2013 |
|
4.8 |
|
$ |
32.31 |
|
The weighted-average grant date fair value of stock options granted during 2013, 2012 and 2011was $8.98, $4.39 and $6.00, 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 extensive judgment and financial estimates, including the term employees are expected to retain their stock options before exercising them, the volatility of the Company’s stock 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 2013, compared to 2012, resulted primarily from an increase in the Company’s share price, an increase in the weighted average risk-free interest rate and a decrease in the expected dividend yield. The decrease in the fair value of the stock options granted during 2012, compared to 2011, resulted primarily from a decrease in the Company’s share price, a decrease in the weighted average risk-free interest rate and an increase in the expected dividend yield.
The following table reflects the weighted-average assumptions used for grants awarded to option holders:
|
|
|
2013 |
|
2012 |
|
2011 |
|
|
Weighted average expected volatility |
|
26.34 |
% |
26.49 |
% |
26.31 |
% |
|
Weighted average risk-free interest rate |
|
1.87 |
% |
0.97 |
% |
2.16 |
% |
|
Expected dividend yield |
|
1.82 |
% |
2.49 |
% |
1.90 |
% |
|
Expected term (based on historical results) |
|
6.8 years |
|
6.9 years |
|
6.9 years |
|
The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant date, continuously compounded, which matures at a date that approximates the expected term of the options. The dividend yield was based on our history and expectation of dividend payouts. Expected volatility was determined based upon historical stock volatilities; however, implied volatility was also considered. Expected term was determined based upon a combination of historical exercise and cancellation experience as well as estimates of expected future exercise and cancellation experience.
Total stock compensation recognized in 2013, 2012 and 2011 was $107, $82 and $81, respectively. Stock option compensation recognized in 2013, 2012 and 2011 was $24, $22 and $22, respectively. Restricted shares compensation recognized in 2013, 2012 and 2011 was $83, $60 and $59, respectively.
The total intrinsic value of options exercised was $115, $44 and $24 in 2013, 2012 and 2011, respectively. The total amount of cash received in 2013 by the Company from the exercise of options granted under share-based payment arrangements was $196. As of February 1, 2014, there was $154 of total unrecognized compensation expense remaining related to non-vested share-based compensation arrangements granted under the Company’s equity award plans. This cost is expected to be recognized over a weighted-average period of approximately two years. The total fair value of options that vested was $20, $23 and $33 in 2013, 2012 and 2011, respectively.
Shares issued as a result of stock option exercises may be newly issued shares or reissued treasury shares. Proceeds received from the exercise of options, and the related tax benefit, may be utilized to repurchase the Company’s common shares under a stock repurchase program adopted by the Company’s Board of Directors. During 2013, the Company repurchased approximately eight million common shares in such a manner.