Foot Locker 2010 Annual Report Download - page 80

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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
2010 2009 2008 2010 2009 2008
Weighted-average risk free rate of
interest.................. 2.3% 1.93% 2.43% 0.85% 1.74% 4.16%
Expected volatility ............ 45% 53% 37% 39% 39% 27%
Weighted-average expected award
life .................... 5.0years 4.6 years 4.6 years 1.0 year 1.0 year 1.0 year
Dividend yield ............... 4.0% 6.0% 5.1% 4.8% 4.4% 2.8%
Weighted-average fair value ...... $4.47 $2.89 $2.49 $2.54 $4.17 $7.80
Compensation expense related to the Company’s stock options and employee stock purchase plan was
$5 million, $4 million, and $4 million for 2010, 2009, and 2008, respectively. As of January 29, 2011, there was
$3 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock
options, which is expected to be recognized over a remaining weighted-average period of approximately 1 year.
The information set forth in the following table covers options granted under the Company’s stock option
plans:
2010 2009 2008
Number of
Shares
Weighted-
Average
Exercise
Price Number of
Shares
Weighted-
Average
Exercise
Price Number of
Shares
Weighted-
Average
Exercise
Price
(in thousands, except prices per share)
Options outstanding at
beginning of year........ 7,002 $16.88 6,080 $18.64 5,977 $19.57
Granted ................ 1,311 $15.10 1,521 $10.02 588 $11.73
Exercised............... (942) $11.65 (181) $ 8.76 (81) $ 9.76
Expired or cancelled........ (151) $20.41 (418) $21.03 (404) $24.12
Options outstanding at end of
year................. 7,220 $17.17 7,002 $16.88 6,080 $18.64
Options exercisable at end of
year................. 5,088 $18.81 5,084 $18.85 4,812 $18.89
Options available for future
grant at end of year ...... 10,339 2,214 4,890
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