Macy's 2008 Annual Report Download - page 90

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of one-half of the stock credits earned plus reinvested dividend equivalents will be paid in cash in early 2012 and
the value of the other half of such earned stock credits plus reinvested dividend equivalents will be paid in cash
in early 2013. Compensation expense for stock credit awards is recorded on a straight-line basis primarily over
the vesting period and is calculated based on the ending stock price for each reporting period. At January 31,
2009 and February 2, 2008, the liabilities under the stock credit plans, which is reflected in other liabilities on the
Consolidated Balance Sheets, was $23 million and $53 million, respectively.
During 2008, the Company recorded approximately $55 million of stock-based compensation expense for
stock options and approximately $6 million of stock-based compensation expense for restricted stock. Also
during 2008, the Company recorded a credit of approximately $18 million related to stock credits, reflecting a
decrease in the stock price used to calculate settlement amounts. During 2007, the Company recorded
approximately $63 million of stock-based compensation expense for stock options and approximately $4 million
of stock-based compensation expense for restricted stock. Also during 2007, the Company recorded a credit of
approximately $7 million related to stock credits, reflecting a decrease in the stock price used to calculate
settlement amounts. During 2006, the Company recorded approximately $47 million of stock-based
compensation expense for stock options, approximately $41 million of stock-based compensation expense for
stock credits and approximately $3 million of stock-based compensation expense for restricted stock. All stock-
based compensation expense is recorded in selling, general and administrative expense in the Consolidated
Statements of Operations. The income tax benefit recognized in the Consolidated Statements of Operations
related to stock-based compensation was approximately $16 million, approximately $22 million, and
approximately $34 million for 2008, 2007 and 2006, respectively.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-
pricing model. The Company estimates the expected volatility and expected option life assumption consistent
with SFAS 123R and Securities and Exchange Commission Staff Accounting Bulletin No. 107. The expected
volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and
the expected option life is calculated based on historical stock option experience as the best estimate of future
exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The
risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each
stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-
based compensation expense only for those awards that are expected to vest. For options granted, the Company
recognizes the fair value on a straight-line basis primarily over the vesting period of the options.
The fair value of stock-based awards granted during 2008, 2007 and 2006 and the weighted average
assumptions used to estimate the fair value of stock options are as follows:
2008 2007 2006
Weighted average grant date fair value of stock options granted
during the period ........................................ $ 7.42 $ 16.64 $ 13.83
Weighted average grant date fair value of restricted stock granted
during the period ........................................ $ 24.85 $ 44.10 $ 36.24
Dividend yield ............................................ 2.2% 1.2% 1.5%
Expected volatility ......................................... 36.2% 36.9% 39.8%
Risk-free interest rate ....................................... 2.7% 4.6% 4.6%
Expected life ............................................. 5.3years 5.3 years 5.3 years
F-42