The Gap 2012 Annual Report Download - page 73

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55
As of February 2, 2013, there was $92 million (before any related tax benefit) of unrecognized share-based
compensation, adjusted for estimated forfeitures, related to unvested Stock Units, which is expected to be recognized
over a weighted-average period of 2.04 years. Total unrecognized share-based compensation may be adjusted for future
changes in estimated forfeitures.
Stock Units Granted Based on Performance Metrics
Under the 2011 Plan, some Stock Units are granted to certain employees only after the achievement of pre-determined
performance metrics. Once the Stock Unit is granted, vesting is then subject to continued service by the employee, and
expense is recognized over a period of three years on an accelerated basis.
At the end of each reporting period, we evaluate the probability that Stock Units will be granted. We record share-based
compensation expense based on the probability that the performance metrics will be achieved, with an offsetting increase
to current liabilities. We revalue the liability at the end of each reporting period and record an adjustment to share-based
compensation expense as required, based on the probability that the performance metrics will be achieved. Upon
achievement of the performance metrics, a Stock Unit is granted. At that time, the associated liability is reclassified to
stockholders’ equity.
Out of 3,798,940 Stock Units granted in fiscal 2012, 235,451 Stock Units were granted based on satisfaction of
performance metrics.
The liability related to potential Stock Units based on performance metrics, which is recorded in accrued expenses and
other current liabilities in the Consolidated Balance Sheets, was $3 million and $1 million as of February 2, 2013 and
January 28, 2012, respectively.
Stock Options
We have stock options outstanding under the 2011 Plan and the 2002 Plan. Stock options generally expire 10 years from
the grant date, three months after employee termination, or one year after the date of an employee’s retirement or death,
if earlier. Vesting generally occurs over a period of four years of continued service by the employee, with 25 percent
vesting on each of the four anniversary dates.
The fair value of stock options issued during fiscal 2012, 2011, and 2010 was estimated on the date of grant using the
following assumptions:
Fiscal Year
2012 2011 2010
Expected term (in years) 4.6 4.9 4.8
Expected volatility 33.6% 30.6% 29.0%
Dividend yield 2.1% 2.1% 1.8%
Risk-free interest rate 1.0% 2.3% 2.7%
A summary of stock option activity under the 2011 Plan and the 2002 Plan for fiscal 2012 is as follows:
Shares
Weighted-
Average
Exercise Price
Balance as of January 28, 2012 20,597,538 $ 19.10
Granted 2,467,175 $ 26.52
Exercised (9,454,063) $ 18.93
Forfeited/Expired (810,295) $ 20.43
Balance as of February 2, 2013 12,800,355 $ 20.56
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