Stock-Based Compensation

We currently grant share-based compensation pursuant to the Kohl’s Corporation 2010 Long-Term Compensation Plan, which provides for the granting of various forms of equity-based awards, including nonvested stock, performance share units and options to purchase shares of our common stock, to officers, key employees and directors. As of February 1, 2014, there were 18.5 million shares authorized and 12.1 million shares available for grant under the 2010 Long-Term Compensation Plan. Options and nonvested stock that are surrendered or terminated without issuance of shares are available for future grants.

Annual grants of stock options and nonvested stock are typically made in the first quarter of the fiscal year. Grants to newly-hired and promoted employees and other discretionary grants are made periodically throughout the remainder of the year. We also have outstanding options which were granted under previous compensation plans.

Stock options

The majority of stock options granted to employees typically vest in five equal annual installments. Outstanding options granted to employees after 2005 have a term of seven years. Outstanding options granted to employees prior to 2006 have a term of up to 15 years. Options granted to directors have a term of 10 years.

All stock options have an exercise price equal to the fair market value of the common stock on the date of grant. The fair value of each option award is estimated using a Black-Scholes option valuation model and the following assumptions as of the grant date:



	2013	2012	2011
Dividend yield	2.9%	2.6%	1.8%
Volatility	32.7%	33.7%	33.1%
Risk-free interest rate	0.9%	1.0%	2.0%
Expected life in years	5.5	5.5	5.5
Weighted average fair value at grant date	$10.68	$11.79	$14.54

7. Stock-Based Compensation (continued)

The dividend yield represents the expected dividends on our stock for the expected term of the option. The expected volatility assumption is based on the historical volatility of our stock. The risk-free interest rate for periods within the life of the option is based on a blend of U.S. Treasury bond rates. We use historical data to estimate the expected life of the option and the period of time that options granted are expected to be outstanding.

The following table summarizes our stock option activity for 2013, 2012, and 2011:



	2013				2012				2011
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	(Shares in Thousands)
Balance at beginning of year	15,212		$	53.96	16,564		$	53.41	17,869		$	53.17
Granted	575		47.86		1,458		49.00		1,056		52.60
Exercised	(2,494	)	41.02		(1,718	)	40.01		(1,349	)	43.12
Forfeited/expired	(1,918	)	56.59		(1,092	)	60.93		(1,012	)	62.07
Balance at end of year	11,375		$	56.05	15,212		$	53.96	16,564		$	53.41

The intrinsic value of options exercised represents the excess of our stock price at the time the option was exercised over the exercise price and was $30 million in 2013, $20 million in 2012 and $16 million in 2011.

Additional information related to stock options outstanding and exercisable at February 1, 2014, segregated by exercise price range, is summarized below:



	Stock Options Outstanding					Stock Options Exercisable
Range of Exercise Prices	Shares		Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Shares		Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
	(Shares in Thousands)
$ 17.00 – $ 35.50	313		1.1	$	34.70	313		1.1	$	34.70
$ 35.51 – $ 38.30	37		1.7	37.65		37		1.7	37.65
$ 38.31 – $ 41.63	948		2.3	41.58		634		2.4	41.55
$ 41.64 – $ 45.57	776		2.7	43.57		571		1.5	43.14
$ 45.58 – $ 50.37	2,529		4.9	48.25		1,401		4.6	48.44
$ 50.38 – $ 51.81	851		4.7	50.87		586		4.3	50.69
$ 51.82 – $ 66.25	2,979		3.2	57.24		2,162		2.8	58.51
$ 66.26 – $ 75.90	989		2.2	68.68		989		2.2	68.68
$ 75.91 – $ 77.62	1,953		0.2	75.99		1,953		0.2	75.99
	11,375		2.9	$	56.05	8,646		2.3	$	58.25
Intrinsic value (in thousands)	$	25,656				$	18,660

The intrinsic value of outstanding and exercisable stock options represents the excess of our closing stock price on February 1, 2014 ($50.63) over the exercise price multiplied by the applicable number of stock options.

7. Stock-Based Compensation (continued)

Nonvested stock awards

We have also awarded shares of nonvested common stock to eligible key employees and to our Board of Directors. Substantially all awards have restriction periods tied primarily to employment and/or service. Nonvested stock awarded to employees generally vests over four or five years. In 2013, 2012, and 2011, we also granted performance-vested restricted shares to selected members of senior management. Vesting of performance-vested shares is contingent upon achievement of certain performance criteria, such as designated net income levels or sales levels that exceed those of a group of our peers. Upon the satisfaction of the contingency, the performance-vested shares vest in accordance with a designated timetable, generally over a five-year period from the date of grant. Director awards vest over the term to which the director was elected, generally one year. In lieu of cash dividends, nonvested stock awards are granted restricted stock equivalents which vest consistently with the underlying nonvested stock awards.

The fair value of nonvested stock awards is the closing price of our common stock on the date of grant. We may acquire shares from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employee’s unvested stock award. Such shares are then designated as treasury shares.

The following table summarizes nonvested stock activity, including restricted stock equivalents issued in lieu of cash dividends, for 2013, 2012, and 2011:



	2013				2012				2011
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(Shares in Thousands)
Balance at beginning of year	2,323		$	50.47	1,946		$	51.11	1,116		$	49.30
Granted	1,189		49.22		1,038		48.86		1,198		52.34
Vested	(706	)	48.00		(492	)	49.77		(308	)	49.28
Forfeited	(153	)	50.48		(169	)	50.04		(60	)	51.31
Balance at end of year	2,653		$	50.56	2,323		$	50.47	1,946		$	51.11

The aggregate fair value of awards at the time of vesting was $34 million in 2013, $24 million in 2012 and $16 million in 2011.

Performance share units

In January 2014, we granted performance-based restricted stock units ("performance share units") to certain executives. The performance measurement period for these performance share units is fiscal years 2014 through 2016. The fair market value of the grant was $57.37 per unit and was determined using a Monte-Carlo valuation on the date of grant. The performance share units cover a target of 230,000 shares. The actual number of shares which will be earned at the end of the three-year vesting period will vary based on our cumulative financial performance over the vesting period. The number of performance share units earned will be modified up or down based on Kohl’s Relative Total Shareholder Return against a defined peer group during the vesting period. The payouts, if earned, will be settled in Kohl's common stock after the end of each multi-year performance period.

Other required disclosures

Stock-based compensation expense is included in Selling, General and Administrative expense in our Consolidated Statements of Income. Such expense totaled $55 million for 2013, $50 million for 2012 and $57 million for 2011. At February 1, 2014, we had approximately $178 million of unrecognized share-based compensation expense (before forfeitures and capitalization), which is expected to be recognized over a weighted-average period of 3 years.