Dick's Sporting Goods 2006 Annual Report Download - page 49

Effective January 29, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective
transition method. Under this transition method, stock-based compensation expense was recognized in the consolidated financial
statements for granted, modified, or settled stock options and for expense related to the ESPP, since the related purchase discount
exceeded the amount allowed under SFAS 123R for non-compensatory treatment. The provisions of SFAS 123R apply to new stock
options and stock options outstanding, but not yet vested, on the effective date of January 29, 2006. Results for prior periods have
not been restated, as provided for under the modified-prospective transition method.
Total stock-based compensation expense recognized for the year ended February 3, 2007 was $24.3 million before income taxes
and consisted of stock option and ESPP expense of $23.1 million and $1.2 million, respectively. Based upon the nature of the
employees to which it relates, the expense was recorded in selling, general and administrative expenses in the consolidated
statements of income. The related total tax benefit was $9.3 million for the year ended February 3, 2007.
Prior to the adoption of SFAS 123R, the Company presented all tax benefits resulting from the exercise of stock options as operating
cash inflows in the consolidated statements of cash flows, in accordance with the provisions of the Emerging Issues Task Force
(“EITF”) Issue No 00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon
Exercise of a Nonqualified Employee Stock Option.” SFAS 123R requires the benefits of tax deductions in excess of the compensation
cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows, on a prospective basis.
This amount is shown as “Excess tax benefit from stock-based compensation” on the consolidated statements of cash flows.
In November 2005, the FASB issued Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects
of Share-Based Payment Awards” (“FSP 123R-3”). The Company has elected to adopt the alternative transition method provided in
FSP 123R-3 for calculating the tax effects of stock-based compensation under SFAS 123R. The alternative transition method includes
simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects
of stock-based compensation, and for determining the impact on the APIC pool and consolidated statements of cash flows of the
tax effects of stock-based compensation awards that are outstanding upon adoption of SFAS 123R.
The following table illustrates the effect on the net income and net income per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation (see Note 9):
2005 2004
(Dollars in thousands, except per share data)
Net income, as reported $72,980 $ 68,905
Deduct: Stock-based compensation expense, net of tax of related tax effects (13,484) (11,761)
Proforma net income $59,496 $ 57,144
Net income per common share – basic
As reported $1.47 $ 1.44
Deduct: Stock-based compensation expense, net of tax (0.28) (0.25)
Proforma $ 1.19 $ 1.19
Net income per common share – diluted:
As reported $1.35 $ 1.30
Deduct: Stock-based compensation expense, net of tax (0.25) (0.22)
Proforma $ 1.10 $ 1.08
Disclosures for 2006 are not presented because the amounts are recognized in the consolidated statements of income.
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