Foot Locker 2012 Annual Report Download - page 87

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FOOT LOCKER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Share-Based Compensation − (continued)
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 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 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 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 following table shows the Company’s assumptions used to compute the share-based
compensation expense:
Stock Option Plans Stock Purchase Plan
2012 2011 2010 2012 2011 2010
Weighted-average risk free
rate of interest 1.49% 2.07% 2.34% 0.22% 0.31% 0.85%
Expected volatility 43% 45% 45% 38% 37% 39%
Weighted-average expected
award life- in years 5.5 5.0 5.0 1.0 1.0 1.0
Dividend yield 2.3% 3.5% 4.0% 2.5% 3.4% 4.8%
Weighted-average
fair value $10.13 $5.86 $4.47 $6.11 $3.91 $2.54
Compensation expense related to the Company’s stock options and employee stock purchase plan was $10
million, $8 million, and $5 million for 2012, 2011, and 2010, respectively. As of February 2, 2013, there
was $5 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.
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