DSW 2009 Annual Report Download - page 57

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Stock Options — DSW uses the Black-Scholes option-pricing model to value stock-based compensation
expense. This model assumes that the estimated fair value of options is amortized over the options’ vesting periods
and the compensation costs are included in operating expenses in the consolidated statements of income. DSW
recognizes compensation expense for stock option awards granted subsequent to the adoption of ASC 718
Compensation — Stock Compensation (“ASC 718”) and time-based restricted stock awards on a straight-line
basis over the requisite service period of the award. Prior to the adoption of ASC 718, compensation expense for
stock option awards granted was recorded using an accelerated method.
Forfeitures of options are estimated at the grant date based on historical rates of RVI’s stock option activity and
reduce the compensation expense recognized. The expected term of options granted is derived from historical data
of RVI’s stock options due to the limited historical data on DSW stock activity. The risk-free interest rate is based on
the yield for U.S. Treasury securities with a remaining life equal to the five year expected term of the options at the
grant date. Expected volatility is based on the historical volatility of the DSW Common Shares. The expected
dividend yield is zero, which is based on DSW’s intention of not declaring dividends to shareholders combined with
the limitations on declaring dividends as set forth in DSW’s credit facility.
The following table illustrates the weighted-average assumptions used in the Black-Scholes option-pricing
model for options granted in each of the periods presented:
January 30,
2010
January 31,
2009
February 2,
2008
Fiscal Years Ended
Assumptions:
Risk-free interest rate .............................. 1.9% 2.7% 4.5%
Year end volatility of DSW common stock .............. 57.6% 48.5% 39.4%
Expected option term .............................. 4.9years 4.9 years 5.0 years
Dividend yield . . . ................................ 0.0% 0.0% 0.0%
DSW expensed $4.2 million, $3.8 million and $3.2 million, respectively, in fiscal 2009, 2008 and 2007 related
to stock options. The weighted average grant date fair value of each option granted in fiscal 2009, 2008 and 2007
was $5.10, $5.77 and $17.27 respectively. As of January 30, 2010, the total compensation cost related to nonvested
options not yet recognized was approximately $9.8 million, with a weighted average expense recognition period
remaining of 3.0 years. The following tables summarize the Company’s stock option plan and related per share
weighted average exercise prices (“WAEP”) and weighted average grant date fair value using the Black-Scholes
option pricing model (shares and intrinsic value in thousands):
Shares WAEP Shares WAEP Shares WAEP
January 30, 2010 January 31, 2009 February 2, 2008
Fiscal Years Ended
Outstanding beginning of year .......... 2,125 $22.04 1,520 $28.65 1,084 $22.14
Granted ........................... 946 $10.17 1,112 $12.87 527 $41.67
Exercised ......................... (91) $14.55 (1) $12.92 (13) $20.04
Forfeited .......................... (476) $20.21 (506) $21.85 (78) $27.46
Outstanding end of year ............... 2,504 $18.20 2,125 $22.04 1,520 $28.65
Options exercisable end of year ......... 773 $23.26 533 $24.77 379 $20.90
F-13
DSW INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)