Management's Discussion and Analysis of Financial ... - Wal-Mart

Notes to Consolidated Financial StatementsAs of January 31, 2011, there was $331 million of total unrecognizedcompensation cost related to restricted stock and performance shareawards granted under the Plan, which is expected to be recognizedover a weighted-average period of 2.3 years. The total fair value ofshares vested during the fiscal years ended January 31, 2011, 2010 and2009, was $142 million, $110 million and $55 million, respectively.Restricted Stock RightsIn fiscal 2007, the Company began issuing restricted stock rights to mostassociates in lieu of stock option awards. Restricted stock rights are associaterights to Company stock after a specified service period. Grantsissued before fiscal 2009 typically vest over five years with 40% vestingthree years from grant date and the remaining 60% vesting five yearsfrom grant date. Beginning in fiscal 2009, the vesting schedule wasadjusted for new grants to 50% vesting three years from grant date andthe remaining 50% vesting five years from grant date. The fair value ofeach restricted stock right is determined on the date of grant using thestock price discounted for the expected dividend yield through the vestingperiod and is recognized ratably over the vesting period. Expecteddividend yield over the vesting period is based on the expected dividendyield rate over the life of the grant. The weighted-average discount for thedividend yield used to determine the fair value of restricted stock rightsgranted in fiscal 2011, 2010 and 2009 was 9.1%, 8.5% and 6.8%, respectively.A summary of the Company’s restricted stock rights activity for fiscal 2011presented below represents the maximum number of shares that couldbe earned or vested under the Plan (in thousands, except per share prices):Weighted-AverageGrant-DateFair ValueRestricted Stock Rights Shares Per ShareRestricted Stock Rightsat February 1, 2010 14,024 $46.50Granted 5,520 50.04Vested (1,177) 42.72Forfeited (1,529) 47.38Restricted Stock Rightsat January 31, 2011 16,838 $47.71As of January 31, 2011, there was $397 million of total unrecognized compensationcost related to restricted stock rights granted under the Plan,which is expected to be recognized over a weighted-average period of2.3 years. The fair value of the restricted stock rights vested in fiscal 2011,2010 and 2009, was $50 million, $49 million, and $0 million, respectively.Stock OptionsThe fair value of each stock option award is estimated on the date ofgrant using the Black-Scholes-Merton option valuation model that usesvarious assumptions for inputs, which are noted in the following table.Generally, the Company uses expected volatilities and risk-free interestrates that correlate with the expected term of the option when estimatingan option’s fair value. To determine the expected life of the option, theCompany bases its estimates on historical exercise and expiration activityof grants with similar vesting periods. Expected volatility is based onhistorical volatility of our stock. The expected risk-free interest rate is basedon the U.S. Treasury yield curve at the time of the grant. The expecteddividend yield over the vesting period is based on the expected dividendyield rate over the life of the grant. The following table represents theweighted-average assumptions used by the Company to estimate thefair values of the Company’s stock options at the grant dates:Fiscal Years Ended January 31,2011 2010 2009Dividend yield 2.3% 2.1% 1.9%Volatility 17.1% 18.7% 16.7%Risk-free interest rate 1.8% 1.4% 2.0%Expected life in years 3.1 3.1 3.4Weighted-average fair valueof options granted $12.53 $10.41 $9.97Stock options granted during fiscal 2011 were primarily issued under theSharesave Plan. A summary of the stock option award activity for fiscal2011 is presented below (in thousands, except years and per share prices):Weighted- Weighted-Average Average AggregateExercise Price Remaining IntrinsicStock Options Shares Per Share Life in Years ValueOutstanding atFebruary 1, 2010 41,959 $49.32Granted 1,921 43.79Exercised (7,868) 47.66Forfeitedor expired (2,626) 49.85Outstanding atJanuary 31, 2011 33,386 49.35 4.2 $228,076Exercisable atJanuary 31, 2011 23,793 $51.31 3.2 $117,319As of January 31, 2011, there was $42 million of total unrecognizedcompensation cost related to stock options granted under the Plan, whichis expected to be recognized over a weighted-average period of 1.2 years.The following table includes additional information related to stock options:Fiscal Years Ended January 31,(Amounts in millions) 2011 2010 2009Fair value of stock options vested $ 54 $ 79 $107Intrinsic value of stock options excercised 51 39 173Proceeds from stock option exercised 205 111 585Walmart 2011 Annual Report 39