Annual report pursuant to Section 13 and 15(d)

SHARE-BASED COMPENSATION

v3.20.1
SHARE-BASED COMPENSATION
12 Months Ended
Feb. 01, 2020
SHARE-BASED COMPENSATION  
SHARE-BASED COMPENSATION

10. SHARE-BASED COMPENSATION

The Michaels Companies, Inc. Second Amended and Restated 2014 Omnibus Long-Term Incentive Plan provides for the grant of share-based awards for up to 28.6 million shares of common stock. As of February 1, 2020, there were 6.5 million shares of common stock remaining available for grant. Generally, time-based share awards vest ratably over four years and stock options expire eight to ten years from the grant date. Restricted awards that are performance-based are expected to vest between one to four years from the grant date. As of February 1, 2020, unrecognized compensation cost for all unvested share-based awards totaled $62.6 million and is expected to be recognized over a weighted-average period of 2.5 years. Share-based compensation expense totaled $22.9 million, $27.1 million and $24.3 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively, and is recorded in cost of sales and occupancy expense and SG&A in the consolidated statements of comprehensive income.

Stock Options

The fair value of each stock option is estimated using the Black-Scholes option pricing model. The following table presents the weighted-average assumptions used during fiscal years 2019, 2018 and 2017:

Fiscal Year

    

2019

    

2018

    

2017

    

Risk-free interest rates (1)

 

1.9

%

2.5

%

1.7

%

Expected dividend yield

0.0

%

0.0

%

0.0

%

Expected volatility (2)

 

37.9

%

32.8

%

29.9

%

Expected life of options in years (3)

 

4.3

4.1

4.1

(1) Based on interest rates for U.S. Treasury instruments with terms consistent with the expected lives of the awards.
(2) We considered our historical and implied volatility as well as the implied volatilities for exchange-traded options of a peer group of companies.
(3) Expected lives were based on an analysis of historical exercises and post-vesting employment termination.

The stock option activity during the fiscal year ended February 1, 2020 was as follows:

    

    

    

Weighted-

    

Average

Remaining

Aggregate

Number of

Weighted-

Contractual

Intrinsic

Shares

Average Exercise

Term

Value

(in thousands)

Price

(in years)

(in thousands)

Outstanding at beginning of year

8,544

$

19.73

Granted

3,109

10.37

Exercised

(65)

7.83

Expired/Forfeited

(4,016)

19.10

Outstanding at end of year

7,572

$

16.32

 

7.0

$

Shares exercisable at end of year

3,602

$

19.58

 

4.9

$

The total grant date fair value of options that vested during fiscal 2019, fiscal 2018 and fiscal 2017 was $7.0 million, $9.5 million and $8.3 million, respectively. There was no intrinsic value for options that vested during fiscal 2019. The intrinsic value for options that vested during fiscal 2018 and fiscal 2017 was $4.1 million and $5.4 million, respectively. The intrinsic value for options exercised during fiscal 2019, fiscal 2018 and fiscal 2017 was $0.3 million, $2.6 million and $15.7 million, respectively. As of the beginning of fiscal 2019, there were 4.0 million nonvested options with a weighted-average fair value of $5.93 per share. As of the end of fiscal 2019, there were 4.0 million nonvested options with a weighted-average fair value of $4.15 per share. The weighted-average fair value of options granted during fiscal 2019, fiscal 2018 and fiscal 2017 was $3.45, $5.85 and $5.88, respectively. During fiscal 2019, there were 1.2 million options that vested and 4.0 million options that were cancelled with a weighted-average fair value of $5.94 and $5.31 per share, respectively.

Restricted Shares

The Company issues restricted shares to certain key employees and its Board of Directors. Restricted share units awarded to employees that are time-based vest ratably over four years. Restricted share units that are performance-based vest based on predetermined financial and operational targets and are expected to vest between one to four years from the grant date. Restricted shares awarded to Board of Director members vest ratably over one year. Compensation expense for all time-based restricted stock awards and restricted stock units is based on the amortization of the fair market value at the date of grant over the vesting period. Compensation expense for performance-based restricted share units is based on the estimated timing of the achievement of predetermined financial and operational targets.

Restricted stock unit activity during the fiscal year ended February 1, 2020 was as follows:

    

Number of Shares (1)
(in thousands)

    

Weighted-Average Fair Value

Outstanding at beginning of year

3,298

$

19.53

Granted

 

3,578

 

10.09

Vested

 

(662)

 

20.86

Forfeited

 

(1,551)

 

16.66

Outstanding at end of year

4,663

$

13.05

(1) Includes 1.1 million of awards with vesting subject to performance conditions outstanding at the beginning of the year, 0.7 million forfeited during the year and 0.4 million outstanding at the end of the year, with a weighted average fair value of $17.38 per share, respectively.

Restricted stock award activity during the fiscal year ended February 1, 2020 was as follows:

    

Number of Shares
(in thousands)

    

Weighted-Average Fair Value

Outstanding at beginning of year

172

$

24.60

Granted

 

162

 

9.44

Vested

 

(160)

21.26

Forfeited

 

(31)

24.77

Outstanding at end of year

143

$

11.11