Dick's Sporting Goods 2007 Annual Report Download - page 51

Merger Integration and Store Closing Costs – Merger integration and store closing costs include the expense of closing Dick’s stores
in connection with the Galyan’s acquisition, advertising the re-branding of Galyan’s stores, duplicative administrative costs, recruiting
and system conversion costs. These costs were $37.8 million for fiscal 2005.
Earnings Per Share – The computation of basic earnings per share is based on the weighted average number of shares outstanding
during the period. The computation of diluted earnings per share is based on the weighted average number of shares outstanding plus
the incremental shares that would be outstanding assuming the exercise of dilutive stock options and warrants, calculated by
applying the treasury stock method.
Stock-Based Compensation – The Company has the availability to grant stock options to purchase common stock under Dick’s
Sporting Goods, Inc. 2002 Stock Option Plan and the Golf Galaxy, Inc. 2004 Incentive Plan (the “Plans”). The Company also has an
employee stock purchase plan (“ESPP”) which provides for eligible employees to purchase shares of the Company’s common stock.
Prior to the January 29, 2006 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based
Payment” (“SFAS 123R”), the Company accounted for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations.
Accordingly, because the exercise price of the option was equal to or greater than the market value of the underlying common stock
on the date of grant, and any purchase discounts under the Company’s ESPP plan were within statutory limits, no compensation
expense was recognized by the Company for stock-based compensation. As permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”), stock-based compensation was included as a proforma disclosure in the notes to the consolidated
financial statements.
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 pre-tax stock-based compensation expense recognized for the year ended February 2, 2008 and February 3, 2007 was
$29.0 million and $24.3 million, respectively. Total stock-based compensation expense consisted of stock option expense of
$27.5 million and $23.1 million and employee stock purchase plan (“ESPP”) expense of $1.5 million and $1.2 million, respectively.
The expense was recorded in selling, general and administrative expenses in the Consolidated Statements of Income. The related
total tax benefit was $11.0 million and $9.3 million for the year ended February 2, 2008 and February 3, 2007, respectively.
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.
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