Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

v2.4.1.9
Share-Based Compensation
12 Months Ended
Jan. 31, 2015
Share-Based Compensation  
Share-Based Compensation

8. SHARE-BASED COMPENSATION

 

The Michaels Companies, Inc. Amended and Restated 2014 Omnibus Long-Term Incentive Plan (“2014 Omnibus Plan”) provides for the grant of share-based awards for up to 21 million shares of common stock. As of January 31, 2015, there were 8.8 million shares of common stock remaining available for grant. Generally, awards vest ratably over four or five years and expire eight to ten years from the grant date. During fiscal 2014 and the last quarter of fiscal 2013, the Company measured share-based compensation for new awards using the grant date fair value accounting guidance of ASC 718. During fiscal 2012 and the first three quarters of fiscal 2013, the Company determined its employee stock options should be recorded under the liability accounting guidance of ASC 718. As such we measured share-based compensation based on either the grant date fair value of the equity awards or the fair value of our option awards at the end of the period. As of January 31, 2015, compensation cost for all share-based awards not yet recognized related to nonvested awards totaled $14 million and is expected to be recognized over a weighted-average period of 2.8 years. Share-based liabilities paid in fiscal 2013 totaled $19 million. Share-based compensation totaled $19 million in fiscal 2014, $34 million in fiscal 2013 and $21 million in fiscal 2012 and is recorded in cost of sales and occupancy expense and share-based compensation 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 2014, 2013 and 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year

 

 

    

 

2014

    

2013

    

2012

    

Risk-free interest rates (1)

 

 

 

 

 

1.3 

%  

 

0.1 

-

1.4 

%  

 

0.1 

-

1.1 

%

Expected dividend yield

 

 

 

 

 

0.0 

%  

 

 

 

0.0 

%  

 

 

 

0.0 

%

Expected volatility (2)

 

 

 

27.5 

-

28.4 

%  

 

25.5 

-

32.5 

%  

 

29 

-

35.2 

%

Expected life of options in years (3)

 

 

 

 

 

4.0 

 

 

4.0 

-

5.0 

 

 

1.0 

-

5.0 

 

Fair value of equity per share (4)

 

 

$

15.16 

-

22.75 

 

$

14.76 

-

18.28 

 

$

16.32 

-

16.99 

 


(1)

Based on interest rates for U.S. Treasury instruments with terms consistent with the expected lives of the awards.

(2)

We considered both the historical volatility as well as 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 behavior. Since fair value was remeasured at the end of the year in fiscal 2012, and at the end of the third quarter in fiscal 2013, the expected life was adjusted based on the remaining life of the options.

(4)

The Company’s common stock valuations for periods prior to our IPO on June 27, 2014, fiscal 2013 and fiscal 2012 relied on projections of our future performance, estimates of our weighted-average cost of capital, and metrics based on the performance of a peer group of similar companies, including valuation multiples and stock price volatility.  Subsequent to June 27, 2014, the Company used the closing market price of our common stock on the grant date.

 

The stock option activity during the fiscal year ended January 31, 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted-

    

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

 

Number of

 

Weighted-

 

Contractual

 

Intrinsic

 

 

 

Shares

 

Average Exercise

 

Term (In

 

Value

 

 

 

(In millions)

 

Price

 

years)

 

(In millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at beginning of year

 

11.8 

 

$

9.37 

 

 

 

 

 

 

Granted

 

1.6 

 

 

15.88 

 

 

 

 

 

 

Exercised

 

(3.0)

 

 

7.67 

 

 

 

 

 

 

Expired/Forfeited

 

(0.6)

 

 

11.82 

 

 

 

 

 

 

Outstanding at end of year

 

9.8 

 

 

10.86 

 

4.9 

 

$

146 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares exercisable at end of year

 

5.5 

 

$

8.35 

 

3.2 

 

$

96 

 

 

The total fair value of options that vested during fiscal 2014, fiscal 2013 and fiscal 2012 was $15 million, $17 million and $30 million, respectively. The intrinsic value for options that vested during fiscal 2014, fiscal 2013 and fiscal 2012 was $33 million, $25 million and $22 million, respectively. The intrinsic value for options exercised was $42 million in fiscal 2014, $27 million in fiscal 2013 and $5 million in fiscal 2012. As of the beginning of fiscal 2014, there were 5.2 million nonvested options with a weighted-average fair value of $6.04 per share. As of the end of fiscal 2014, there were 4.3 million nonvested options with a weighted-average fair value of $4.66 per share. The weighted-average fair value of options granted during fiscal 2014 and fiscal 2013 was $3.77 and $4.68, respectively. During fiscal 2014, there were 2.0 million options that vested and 0.6 million options that were cancelled with a weighted-average fair value of $7.16 and $5.77 per share, respectively.

 

Restricted Shares

 

The Company issues restricted shares to certain key employees and its Board of Directors. Generally, restricted shares awarded to employees vest ratably over four or five years. Restricted shares awarded to Board of Director members vest ratably over one year.

 

Restricted share activity during the fiscal year ended January 31, 2015 was as follows:

 

 

 

 

 

 

 

 

 

Number of

 

Weighted-

 

 

Shares

 

Average Fair

 

    

(in millions)

    

Value

Outstanding at beginning of year

 

0.80 

 

$

17.07 

Granted

 

0.30 

 

 

16.04 

Vested

 

(0.20)

 

 

16.64 

Forfeited

 

 —

 

 

16.49 

Outstanding at end of year

 

0.90 

 

$

16.79