Foot Locker 2009 Annual Report Download - page 77

The 2002 Directors’ Plan replaced both the Directors’ Stock Plan, which was adopted in 1996, and the
Directors’ Stock Option Plan, which was adopted in 2000. No further grants or awards may be made under either of
the prior plans. Options granted prior to 2003 have a three-year vesting schedule. Options granted beginning in
2003 become exercisable one year from the date of grant.
In addition, options to purchase shares of common stock remain outstanding under the Company’s 1995
Stock Option and Award Plan (the ‘‘1995 Plan’’). The 1995 Plan is substantially the same as the 1998 Plan. As of
March 8, 2005 no further awards may be made under the 1995 Plan.
Employee Stock Purchase Plan
Under the Company’s 2003 Employee Stock Purchase Plan (the ‘‘2003 Employee Stock Purchase Plan’’),
participating employees are able to contribute up to 10 percent of their annual compensation through payroll
deductions to acquire shares of the Company’s common stock at 85 percent of the lower market price on one of
two specified dates in each plan year. Under the 2003 Employee Stock Purchase Plan, 3,000,000 shares of
common stock are authorized for purchase beginning June 2005. Of the 3,000,000 shares of common stock
authorized for purchase under this plan, 604 participating employees purchased 125,992 shares in 2009, and 587
participating employees purchased 96,800 shares in 2008. To date, a total of 663,717 shares have been purchased
under this plan.
Total compensation expense related to the Company’s share based compensation plans was $12.1 million,
$8.6 million and $10.4 million for 2009, 2008 and 2007 respectively. The total related tax benefit for 2009 and
2008 was not significant and was $1.0 million for 2007.
Valuation Model and Assumptions
The Company uses a Black-Scholes option-pricing model to estimate the fair value of share-based awards.
The Black-Scholes option-pricing model incorporates various and highly subjective assumptions, including
expected term and expected volatility.
The Company estimates the expected term of share-based awards granted using the Company’s historical
exercise and post-vesting employment termination patterns, which it believes are representative of future
behavior. The expected term for the Company’s employee stock purchase plan valuation is based on the length of
each purchase period as measured at the beginning of the offering period, which is one year. The Company
estimates the expected volatility of its common stock at the grant date using a weighted-average of the
Company’s historical volatility and implied volatility from traded options on the Company’s common stock. The
Company believes that the combination of historical volatility and implied volatility provides a better estimate of
future stock price volatility. The risk-free interest rate assumption is determined using the Federal Reserve
nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the
award being valued. The expected dividend yield is derived from the Company’s historical experience. The
Company estimates pre-vesting option forfeitures at the time of grant and periodically revises those estimates in
subsequent periods if actual forfeitures differ from those estimates. The Company records stock-based
compensation expense only for those awards expected to vest using an estimated forfeiture rate based on its
historical pre-vesting forfeiture data. The following table shows the Company’s assumptions used to compute the
share-based compensation expense:
Stock Option Plans Stock Purchase Plan
2009 2008 2007 2009 2008 2007
Weighted-average risk free rate of
interest ................. 1.93% 2.43% 4.43% 1.74% 4.16% 5.00%
Expected volatility ............ 53% 37% 28% 39% 27% 22%
Weighted-average expected award
life .................... 4.6years 4.6 years 4.2 years 1.0 year 1.0 year 1.0 year
Dividend yield ............... 6.0% 5.1% 2.3% 4.4% 2.8% 2.0%
Weighted-average fair value ..... $2.89 $2.49 $5.28 $4.17 $7.80 $4.96
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