Foot Locker 2007 Annual Report Download - page 50

34
Share-Based Compensation
Effective January 29, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards
No. 123(R), “Share-Based Payment,” and related interpretations, (“SFAS No. 123(R)”) to account for stock-based
compensation using the modified prospective transition method and, therefore, the Company did not restate its prior
period results. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees,” (“APB No. 25”), and revises guidance in SFAS No. 123, “Accounting for Stock-Based Compensation”
(“SFAS No. 123”). Among other things, SFAS No. 123(R) requires that compensation expense be recognized in the
financial statements for share-based awards based on the grant date fair value of those awards. The modified
prospective transition method applies to unvested stock options, restricted shares and stock appreciation rights and
issuances under the employee stock purchase plan outstanding as of January 29, 2006 based on the grant-date fair
value estimated in accordance with the pro forma provisions of SFAS No. 123, and any new share-based awards granted
subsequent to January 29, 2006, based on the grant-date fair value estimated in accordance with the provisions of
SFAS No. 123(R). Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and
is recognized over the requisite service periods of the awards.
Prior to January 29, 2006, the Company accounted for these stock-based compensation plans in accordance with
APB No. 25 and related interpretations. This method did not result in compensation cost for stock options and shares
purchased under employee stock purchase plans. No compensation expense for employee stock options was recorded,
as all stock options granted under the stock option plans had an exercise price that was not less than the quoted
market price at the date of grant. Compensation expense was also not recorded for employee purchases of stock under
the employee stock purchase plans as it was considered non-compensatory under APB No. 25. Prior to the Company’s
adoption of SFAS No. 123(R), as required under the disclosure provisions of SFAS No. 123, as amended, the Company
provided pro forma net income and earnings per common share for each period as if it had applied the fair value method
to measure stock-based compensation expense.
During 2006, the Company recorded a cumulative effect of a change in accounting of $1 million to reflect estimated
forfeitures for prior periods related to the Company’s nonvested restricted stock awards. Prior to the adoption of
SFAS No. 123(R), the Company recognized compensation cost of restricted stock awards over the vesting term based
upon the fair value of the Company’s common stock at the date of grant. Forfeitures were recorded as they occurred,
however under SFAS No. 123(R) an estimate of forfeitures is required to be included over the vesting term. Under
SFAS No. 123(R), the Company will continue to recognize compensation expense over the vesting term, net of estimated
forfeitures. See Note 23 for information on the assumptions the Company used to calculate the fair value of stock-
based compensation.
SFAS No. 123(R) requires the benefits associated with tax deductions in excess of recognized compensation cost
to be reported as a financing cash flow rather than as an operating cash flow as previously required. For 2007 and
2006, the Company recorded an excess tax benefit of $1 million and $2 million, respectively, as a financing cash flow
as required by the standard.
Upon exercise of stock options, issuance of restricted stock or issuance of shares under the employee stock
purchase plan, the Company will issue authorized but unissued common stock or use common stock held in treasury.
The Company may make repurchases of its common stock from time to time, subject to legal and contractual restrictions,
market conditions and other factors.