EXPRESS, INC. - 10-Q filing on 2012-12-05

Share-Based Compensation

9 Months Ended

Oct. 27, 2012

The following summarizes our share-based compensation expense:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 27, 2012		October 29, 2011		October 27, 2012		October 29, 2011
	(in thousands)				(in thousands)
Stock options	$	2,032	$	1,669	$	6,089	$	4,798
Restricted stock units and restricted stock	1,318		1,049		6,104		2,529
Restricted shares (equity issued pre-IPO)	1		12		14		156
Total share-based compensation	$	3,351	$	2,730	$	12,207	$	7,483

During the thirteen and thirty-nine weeks ended October 27, 2012, the stock compensation related income tax benefit recognized by the Company was $0.2 million and $1.7 million, respectively; and during the thirteen and thirty-nine weeks ended October 29, 2011, was minimal and $0.1 million, respectively.

Stock Options

During the thirty-nine weeks ended October 27, 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 thirty-nine weeks ended October 27, 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	576		$	23.98
Exercised	(35	)	$	17.45
Forfeited or expired	(37	)	$	19.80
Outstanding, October 27, 2012	3,171		$	19.01	8.3	$	—
Expected to vest at October 27, 2012	2,180		$	19.61	8.4	$	—
Exercisable at October 27, 2012	961		$	17.63	7.9	$	—

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



	Thirty-Nine Weeks Ended
	October 27, 2012
(in thousands, except per share amounts)
Weighted average grant date fair value of options granted	$	12.79
Total intrinsic value of options exercised	$	267
Total fair value of options vested	$	6,503

As of October 27, 2012, there was approximately $17.6 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of approximately 1.3 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:



	Thirty-Nine Weeks Ended
	October 27, 2012		October 29, 2011
Risk-free interest rate ⁽¹⁾	1.12	%	1.39	%
Price Volatility ⁽²⁾	55.9	%	55.4	%
Expected term (years) ⁽³⁾	6.17		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 thirty-nine weeks ended October 27, 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 thirty-nine weeks ended October 27, 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	826		$	24.13
Vested	(176	)	$	17.89
Forfeited	(12	)	$	21.83
Unvested, October 27, 2012	1,538		$	21.57

The total fair value/intrinsic value of RSUs and restricted stock that vested was $3.2 million and $0.1 million during the thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively. As of October 27, 2012, there was approximately $18.6 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 1.5 years.