Dick's Sporting Goods 2007 Annual Report Download - page 52

Dick’s Sporting Goods, Inc. | 2007 Annual Report50
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 11):
2005
(Dollars in thousands, except per share data)
Net income, as reported $ 72,980
Deduct: Stock-based compensation expense, net of tax (13,484)
Proforma net income $ 59,496
Net income per common share – basic:
As reported $ 0.73
Deduct: Stock-based compensation expense, net of tax (0.14)
Proforma $ 0.59
Net income per common share – diluted:
As reported $0.68
Deduct: Stock-based compensation expense, net of tax (0.12)
Proforma $ 0.56
Disclosures for 2007 and 2006 are not presented because the amounts are recognized in the Consolidated Statements of Income.
The fair value of stock-based awards to employees is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
Employee Stock Options Employee Stock Purchase Plan
Black-Scholes Valuation Assumptions12007 2006 2005 2007 2006 2005
Expected life (years)25.29 5.29 5.29 0.5 0.5 0.5
Expected volatility336.08–37.39% 37–39% 39–41% 25.66–39.19% 24–32% 27–40%
Weighted average volatility 36.96% 38.79% 40.53% 34.29% 28.44% 35.10%
Risk-free interest rate43.39–4.94% 4.44–4.97% 3.63–4.44% 3.32–5.02% 5.09–5.31% 3.38–4.40%
Expected dividend yield ——————
Weighted average grant date fair values $ 11.45 $ 8.34 $ 7.63 $ 6.87 $ 5.12 $ 4.15
1This table excludes valuation assumptions related to the assumption of outstanding Golf Galaxy options by Dick’s in conjunction with the acquisition of Golf Galaxy
on February 13, 2007.
2The expected life of the options represents the estimated period of time until exercise and is based on historical experience of the similar awards.
3Beginning on the date of adoption of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), expected
volatility is based on the historical volatility of the Company’s common stock since the inception of the Company’s shares being publicly traded in October 2002;
prior to the date of adoption of SFAS 123R, expected volatility was estimated using the Company’s historical volatility and volatility of other publicly-traded retailers.
4The risk-free interest rate is based on the implied yield available on U.S. Treasury constant maturity interest rates whose term is consistent with the expected life
of the stock options.
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market
conditions and experience. See Note 11 for additional details regarding stock-based compensation.
Income Taxes – The Company utilizes the asset and liability method of accounting for income taxes under the provisions of
SFAS No. 109, “Accounting for Income Taxes,” and provides deferred income taxes for temporary differences between the
amounts reported for assets and liabilities for financial statement purposes and for income tax reporting purposes.
The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109 (“SFAS 109”), on February 4, 2007. As a result of the
implementation of FIN 48, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.
At the adoption date of February 4, 2007, the Company recorded a decrease to retained earnings of $1.5 million. Also at the date
of adoption, the Company had $12.0 million of unrecognized tax benefits, of which approximately $9.1 million would affect our
effective tax rate if recognized.