EXPRESS, INC. - 10-Q filing on 2016-12-07

Share-Based Compensation

9 Months Ended

Oct. 29, 2016

The Company records the fair value of share-based payments to employees in the unaudited Consolidated Statements of Income and Comprehensive Income as compensation expense, net of forfeitures, over the requisite service period.

Share-Based Compensation Plans

The following summarizes share-based compensation expense:



	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
	(in thousands)
Restricted stock units and restricted stock	$	2,701	$	3,283	$	8,701	$	12,341
Stock options	502		762		2,082		2,773
Total share-based compensation	$	3,203	$	4,045	$	10,783	$	15,114

The stock compensation related income tax benefit recognized by the Company during the thirteen and thirty-nine weeks ended October 29, 2016 was $0.1 million and $6.0 million, respectively. The stock compensation related income tax benefit recognized by the Company during the thirteen and thirty-nine weeks ended October 31, 2015 was $0.8 million and $4.6 million, respectively.

Stock Options

During the thirty-nine weeks ended October 29, 2016, the Company granted stock options under the 2010 Plan. Stock options granted in 2016 under the 2010 Plan vest 25% per year over four years or upon reaching retirement eligibility, defined as providing ten years of service and being at least 55 years old. These options have a ten year contractual life. 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 29, 2016 was as follows:



	Number of Shares		Grant Date Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
	(in thousands, except per share amounts and years)
Outstanding, January 31, 2016	3,446		$	18.31
Granted	229		$	21.14
Exercised	(159	)	$	17.23
Forfeited or expired	(1,184	)	$	19.20
Outstanding, October 29, 2016	2,332		$	18.21	5.9	$	28
Expected to vest at October 29, 2016	547		$	18.37	8.3	$	—
Exercisable at October 29, 2016	1,760		$	18.14	5.1	$	28

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



	Thirty-Nine Weeks Ended
	October 29, 2016		October 31, 2015
	(in thousands, except per share amounts)
Weighted average grant date fair value of options granted (per share)	$	9.50	$	7.79
Total intrinsic value of options exercised	$	547	$	175

As of October 29, 2016, there was approximately $2.8 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of approximately 1.6 years.

The Company uses the Black-Scholes-Merton option-pricing model to value stock options granted to employees. 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 award, 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 29, 2016		October 31, 2015
Risk-free interest rate ⁽¹⁾	1.60	%	1.60	%
Price volatility ⁽²⁾	43.15	%	47.81	%
Expected term (years) ⁽³⁾	6.54		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)	Primarily based on the historical volatility of the Company's common stock over a period consistent with the expected term of the stock options.


(3)	Beginning in 2016, the Company calculated the expected term assumption using the midpoint scenario, which combines historical exercise data with hypothetical exercise data for outstanding options. The Company believes this data currently represents the best estimate of the expected term of new employee options.


(4)	The Company does not currently plan on paying regular dividends.

Restricted Stock Units and Restricted Stock

During the thirty-nine weeks ended October 29, 2016, the Company granted restricted stock units ("RSUs") under the 2010 Plan, including 0.3 million RSUs with performance conditions. The fair value of RSUs is determined based on the Company's closing stock price on the day prior to the grant date in accordance with the 2010 Plan. The expense for RSUs without performance conditions is recognized using the straight-line attribution method. The expense for RSUs with performance conditions is recognized using the graded vesting method based on the expected achievement of the performance conditions. The RSUs with performance conditions are also subject to time-based vesting. All of the RSUs granted during the thirty-nine weeks ended October 29, 2016 that are earned based on the achievement of performance criteria will vest on April 15, 2019. RSUs without performance conditions vest ratably over four years.

The Company's activity with respect to RSUs and restricted stock, including awards with performance conditions, for the thirty-nine weeks ended October 29, 2016 was as follows:



	Number of Shares		Grant Date Weighted Average Fair Value Per Share
	(in thousands, except per share amounts)
Unvested, January 31, 2016	2,212		$	16.66
Granted ⁽¹⁾	653		$	20.45
Performance Shares Adjustment ⁽²⁾	(50	)	$	16.28
Vested	(790	)	$	17.26
Forfeited	(128	)	$	17.55
Unvested, October 29, 2016	1,897		$	17.66


(1)	Approximately 0.3 million RSUs with three-year performance conditions were granted in the first quarter of 2016. None of these RSUs are currently included as granted in the table above. The number of performance-based RSUs that are ultimately earned may vary from 0% to 200% of target depending on the achievement of predefined financial performance targets.


(2)	Relates to a change in estimate of RSUs with performance conditions granted in 2015. Currently, 112% of the number of shares granted in 2015 are expected to vest based on estimates against predefined financial performance targets.

The total fair value of RSUs and restricted stock that vested during the thirty-nine weeks ended October 29, 2016 was $13.6 million. As of October 29, 2016, there was approximately $22.3 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 1.7 years.