Annual report pursuant to Section 13 and 15(d)

SHARE-BASED COMPENSATION

v3.19.1
SHARE-BASED COMPENSATION
12 Months Ended
Feb. 02, 2019
SHARE-BASED COMPENSATION  
SHARE-BASED COMPENSATION

11. 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 2, 2019, there were 7.5 million shares of common stock remaining available for grant. Generally, time-based share awards vest ratably over four or five 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 2, 2019, unrecognized compensation cost for all unvested share-based awards totaled $68.2 million and is expected to be recognized over a weighted-average period of 2.5 years. Share-based compensation expense totaled $27.1 million in fiscal 2018, $24.3 million in fiscal 2017 and $16.5 million in fiscal 2016 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 2018, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year

 

 

    

2018

    

2017

    

2016

    

Risk-free interest rates (1)

 

 

2.5

%

 

1.7

%

 

1.1

%

Expected dividend yield

 

 

0.0

%

 

0.0

%

 

0.0

%

Expected volatility (2)

 

 

32.8

%

 

29.9

%

 

29.8

%

Expected life of options in years (3)

 

 

4.1

 

 

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 exercise and post-vesting employment termination.

 

The stock option activity during the fiscal year ended February 2, 2019 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

 

7,976

 

$

19.81

 

 

 

 

 

Granted

 

2,088

 

 

19.38

 

 

 

 

 

Exercised

 

(369)

 

 

10.81

 

 

 

 

 

Expired/Forfeited

 

(1,151)

 

 

22.50

 

 

 

 

 

Outstanding at end of year

 

8,544

 

$

19.73

 

6.6

 

$

490

 

 

 

 

 

 

 

 

 

 

 

Shares exercisable at end of year

 

4,588

 

$

18.41

 

4.9

 

$

490

 

The total grant date fair value of options that vested during fiscal 2018, fiscal 2017 and fiscal 2016 was $9.5 million,  $8.3 million and $7.4 million, respectively. The intrinsic value for options that vested during fiscal 2018, fiscal 2017 and fiscal 2016 was $4.1 million, $5.4 million and $13.1 million, respectively. The intrinsic value for options exercised during fiscal 2018,  fiscal 2017 and fiscal 2016 was $2.6 million, $15.7 million and $30.8 million, respectively. As of the beginning of fiscal 2018, there were 4.5 million nonvested options with a weighted-average fair value of $5.77 per share. As of the end of fiscal 2018, there were 4.0 million nonvested options with a weighted-average fair value of $5.93 per share. The weighted-average fair value of options granted during fiscal 2018, fiscal 2017 and fiscal 2016 was $5.85,  $5.88 and $6.27, respectively. During fiscal 2018, there were 1.8 million options that vested and 1.2 million options that were cancelled with a weighted-average fair value of $5.40 and $5.97 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 or five 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 2, 2019 was as follows:

 

 

 

 

 

 

 

 

    

Number of Shares
(in thousands)

    

Weighted-Average Fair Value

Outstanding at beginning of year

 

1,460

 

$

22.81

Granted (1)

 

2,663

 

 

18.49

Vested

 

(407)

 

 

22.87

Forfeited

 

(418)

 

 

21.14

Outstanding at end of year

 

3,298

 

$

19.53

 


(1)

Includes 1.1 million awards granted with vesting subject to performance conditions, with a weighted average fair value of $17.38 per share.

 

Restricted stock award activity during the fiscal year ended February 2, 2019 was as follows:

 

 

 

 

 

 

 

 

    

Number of Shares
(in thousands)

    

Weighted-Average Fair Value

Outstanding at beginning of year

 

521

 

$

22.84

Vested

 

(289)

 

 

21.41

Forfeited

 

(60)

 

 

24.37

Outstanding at end of year

 

172

 

$

24.60