Nordstrom 2010 Annual Report Download - page 63

Nordstrom, Inc. and subsidiaries 55
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
The stock-based compensation expense before income tax benefit was recorded in our consolidated statements of earnings as follows:
Fiscal year 2010 2009 2008
Cost of sales and related buying and occupancy costs $13 $10 $10
Selling, general and administrative expenses 29 22 18
Total stock-based compensation expense before income tax benefit $42 $32 $28
The benefits of tax deductions in excess of the compensation cost recognized for stock-based awards are classified as financing cash inflows and are
reflected as “Excess tax benefit from stock-based compensation” in the consolidated statements of cash flows.
Stock Options
We used the following assumptions to estimate the fair value for stock options at grant date:
Fiscal year 2010 2009 2008
Risk-free interest rate: Represents the yield on U.S. Treasury zero-coupon
securities that mature over the 10-year life of the stock options.
0.5% - 4.0% 0.7% - 3.3% 2.0% - 4.3%
Weighted average volatility: Based on a combination of the historical
volatility of our common stock and the implied volatility of exchange traded
options for our common stock.
40.0% 61.0% 45.0%
Weighted average expected dividend yield: Our forecasted dividend yield
for the next ten years.
1.3% 1.3% 1.3%
Expected life in years: Represents the estimated period of time until option
exercise. The expected term of options granted was derived from the output
of the Binomial Lattice option valuation model and was based on our
historical exercise behavior, taking into consideration the contractual term
of the option and our employees’ expected exercise and post-vesting
employment termination behavior.
5.7 5.3 5.5
The weighted average fair value per option at the grant date was $13, $7 and $15 in 2010, 2009 and 2008. In 2010, 2009 and 2008, stock option awards to
employees were approved by the Compensation Committee of our Board of Directors and their exercise price was set at $36.94, $13.47 and $38.02,
the closing price of our common stock on February 26, 2010, February 27, 2009 and February 28, 2008 (the dates of grant). The stock option awards
provide recipients with the opportunity for financial rewards when our stock price increases. The awards are determined based upon a percentage of
the recipients’ base salary and the fair value of the stock options. In 2010, we awarded stock options to 1,259 employees compared with 1,213 and
1,230 employees in 2009 and 2008.
As of January 29, 2011, we have 14.7 options outstanding under the 2010 Plan. Options vest over four years, and expire ten years after the date of
grant. A summary of the stock option activity for 2010 is presented below:
Fiscal year 2010
Shares
Weighted-
average
exercise price
Weighted-average
remaining contractual
life (years)
Aggregate
intrinsic
value
Outstanding, beginning of year 14.5 $24
Granted 2.6 37
Exercised (2.1)
17
Cancelled (0.3)
30
Expired - 11
Outstanding, end of year 14.7 $27 6 $218
Options exercisable at end of year 7.5 $28 5 $111
Options vested or expected to vest at end of year 13.8 $27 6 $204
The total intrinsic value of options exercised during 2010, 2009 and 2008 was $51, $23 and $14. The total fair value of stock options vested during
2010, 2009 and 2008 was $27, $25 and $24. As of January 29, 2011, the total unrecognized stock-based compensation expense related to nonvested
stock options was $36, which is expected to be recognized over a weighted average period of 28 months.