Saks Fifth Avenue 2008 Annual Report Download - page 87

SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
after the grant date, although the plan permits accelerated vesting in certain circumstances at the discretion of the
Human Resources and Compensation Committee of the Board of Directors.
In December 2004, the FASB issued SFAS No.123R, which requires companies to expense the value of
employee stock options and similar awards. Effective January 29, 2006, the Company adopted SFAS No.123R.
The adoption of this standard had an immaterial effect on the Company’s 2006 consolidated financial statements.
Total pre-tax stock-based compensation expense for the years ended January 31, 2009, February 2, 2008, and
February 3, 2007 was $16,395, $7,724, and $52,072, respectively. The related tax benefit for the years ended
January 31, 2009, February 2, 2008, and February 3, 2007 was $6,558, $3,090, and $20,829, respectively.
STOCK OPTIONS
The Company expenses the fair value of all stock-based option grants over the requisite service period on a
prospective basis utilizing the Black-Scholes option pricing model. The Black-Scholes model estimates the
expected value employees will receive from the options based on a number of assumptions, such as interest rates,
employee exercises, the Company’s stock price and dividend yield. The Company did not grant any stock options
in 2006. The weighted-average Black-Scholes fair value assumptions are as follows:
2008 2007
Expected life ............................................... 5years 5 years
Risk free interest rate ........................................ 2.5% 4.6%
Expected volatility .......................................... 36% 35%
Expected dividend yield ...................................... 0% 0%
The expected life is a significant assumption as it determines the period for which the risk free interest rate,
volatility and dividend yield must be applied. The expected life is the period over which employee groups are
expected to hold options. The expected life is calculated using the simplified method in accordance with SAB
107, as amended by SAB 110. The risk free interest rate is based on the expected U.S. Treasury rate over the
expected life. Volatility reflects movements in the Company’s stock price over the most recent historical period
equivalent to the expected life. The dividend yield is zero as the Company does not anticipate declaring
dividends in the foreseeable future.
The Company recognizes compensation expense for stock option awards with graded vesting on a straight
line basis over the requisite service period. The Company has not granted stock options with performance or
market conditions.
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