EXPRESS, INC. - 10-Q filing on 2012-08-30

Share-Based Compensation

6 Months Ended

Jul. 28, 2012

The following summarizes our share-based compensation expense:



	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
	(in thousands)				(in thousands)
Stock options	$	2,159	$	1,705	$	4,057	$	3,129
Restricted stock units and restricted stock	2,838		841		4,786		1,480
Restricted shares (equity issued pre-IPO)	3		61		13		144
Total share-based compensation	$	5,000	$	2,607	$	8,856	$	4,753

The stock compensation related income tax benefit recognized by the Company during the thirteen weeks ended July 28, 2012 was minimal and was $1.5 million for the twenty-six weeks ended July 28, 2012; and $0.1 million during the thirteen and twenty-six weeks ended July 30, 2011, respectively.

Stock Options

During the twenty-six weeks ended July 28, 2012, the Company granted stock options under the Express, Inc., 2010 Incentive Compensation Plan (the "2010 Plan"). The fair value of the stock options is determined using the Black-Scholes-Merton option-pricing model as described further below. The majority of stock options granted under the 2010 plan vest 25% per year over 4 years and have a 10 year contractual life, however those granted to the Chief Executive Officer vest ratably over 3 years. The expense for stock options is recognized using the straight-line attribution method.

The Company's activity with respect to stock options during the twenty-six weeks ended July 28, 2012 was as follows:



	Number of Shares		Grant Date Weighted Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands, except per share amounts and years)
Outstanding, January 28, 2012	2,667		$	17.93
Granted	527		$	25.16
Exercised	(35	)	$	17.45
Forfeited or expired	(34	)	$	19.63
Outstanding, July 28, 2012	3,125		$	19.13	8.5	$	44
Expected to vest at July 28, 2012	2,162		$	19.78	8.6	$	33
Exercisable at July 28, 2012	929		$	17.56	8.1	$	11

The following provides additional information regarding the Company's stock options:



	Twenty-Six Weeks Ended
	July 28, 2012
(in thousands, except per share amounts)
Weighted average grant date fair value of options granted	$	13.43
Total intrinsic value of options exercised	$	267
Total fair value of options vested	$	6,171

As of July 28, 2012, there was approximately $20.0 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of approximately 1.5 years.

The Company uses the Black-Scholes-Merton option-pricing model to value stock options granted to employees and directors. The Company's determination of the fair value of stock options is affected by the Company's stock price as well as a number of subjective and complex assumptions. These assumptions include the risk-free interest rate, the Company's expected stock price volatility over the term of the awards, expected term of the award, and dividend yield.

The fair value of stock options was estimated at the grant date using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:



	Twenty-Six Weeks Ended
	July 28, 2012		July 30, 2011
Risk-free interest rate ⁽¹⁾	1.14	%	2.37	%
Price Volatility ⁽²⁾	55.9	%	53.5	%
Expected term (years) ⁽³⁾	6.16		6.25
Dividend yield ⁽⁴⁾	—		—


(1)	Represents the yield on U.S. Treasury securities with a term consistent with the expected term of the stock options.

(2)

Because the Company's stock has a limited history of being publicly traded, this was based on the historical volatility of selected comparable companies over a period consistent with the expected term of the stock options. Comparable companies were selected primarily based on industry, stage of life cycle, and size. Beginning with the second anniversary of the IPO, the Company began using its own volatility as an additional input in the determination of expected volatility.


(3)	Calculated utilizing the “simplified” methodology prescribed by SAB No. 107 due to the lack of historical exercise data necessary to provide a reasonable basis upon which to estimate the term.


(4)	Based on the fact that the Company does not currently plan on paying regular dividends.

Restricted Stock Units and Restricted Stock

During the twenty-six weeks ended July 28, 2012, the Company granted restricted stock units (“RSUs”) and restricted stock under the 2010 Plan, including 0.4 million shares of performance-based restricted stock and 0.1 million shares of performance-based RSUs. The fair value of the RSUs and restricted stock is determined based on the Company's stock price on the grant date. The expense for RSUs and restricted stock is recognized using the straight-line attribution method except for awards with performance conditions, for which the graded vesting method is used. These awards have vesting conditions with requisite service periods of 3 years for the Chief Executive Officer, 4 years for other employees, and 1 year for members of the Board.

The Company's activity with respect to RSUs and restricted stock for the twenty-six weeks ended July 28, 2012 was as follows:



	Number of Shares		Grant Date Weighted Average Fair Value
	(in thousands, except per share amounts)
Unvested, January 28, 2012	900		$	18.52
Granted	762		$	25.14
Vested	(168	)	$	17.75
Forfeited	(9	)	$	21.77
Unvested, July 28, 2012	1,485		$	21.97

The total fair value/intrinsic value of RSUs and restricted stock that vested during the twenty-six weeks ended July 28, 2012 was $3.0 million. The number of RSUs and restricted stock vested during the twenty-six weeks ended July 30, 2011 was minimal. As of July 28, 2012, there was approximately $23.9 million of total unrecognized compensation expense related to unvested RSUs and restricted stock, which is expected to be recognized over a weighted-average period of approximately 1.8 years.