Stock-Based Compensation | Stock-Based Compensation Under the provisions of Financial Accounting Standards Board ("FASB") ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”), all forms of share-based payment to employees and directors, including stock options, must be treated as compensation and recognized in the statement of operations. On May 8, 2014, the Board unanimously approved the 2014 Omnibus Incentive Plan (the “Omnibus Plan”), which is an amendment and restatement of our Second Amended and Restated 2002 Long-Term Incentive Plan, as amended (the “2002 Plan”). The Omnibus Plan became effective upon stockholder approval at the Annual Meeting of Stockholders on June 30, 2014. Stock-based compensation awarded after June 30, 2014 is awarded under the Omnibus Plan. Restricted Stock Units Certain of our employees have been awarded restricted stock units, pursuant to restricted stock unit agreements. The restricted stock units awarded to employees cliff vest at varying times, most typically following between one and three years of continuous service from the award date. Certain shares awarded may also vest upon a qualified retirement at or following age 65 , or upon a qualified early retirement under the provisions adopted in 2012 whereby the awardee completes 10 years of service, attains age 55 and retires. All restricted stock units awarded under the 2002 Plan immediately vest upon a change in control of the Company. The following table summarizes restricted stock units outstanding as of August 1, 2015 : Shares Weighted Average Grant-Date Fair Value (In thousands) Outstanding as of February 1, 2015 398 $ 4.60 Granted 795 3.14 Vested (272 ) 2.96 Cancelled (86 ) 3.16 Outstanding as of August 1, 2015 835 $ 3.89 Total compensation expense is being amortized over the shorter of the achievement of retirement or early retirement status, or the vesting period. Compensation expense related to restricted stock unit activity was $0.2 million for the second quarter of 2015 and $0.2 million for the second quarter of 2014 . Compensation expense related to restricted stock unit activity was $0.8 million for the first twenty-six weeks of 2015 and $1.8 million for the first twenty-six weeks of 2014 . As of August 1, 2015 , there was $1.7 million of unrecognized compensation cost related to restricted stock units that is expected to be recognized over the weighted average period of two years . No restricted stock units vested during the second quarters of 2015 and 2014 . The total fair value of restricted stock units vested was $0.8 million during the first twenty-six weeks of 2015 and less than $0.1 million during the first twenty-six weeks of 2014 . Additionally, certain of our employees have been awarded cash-settled restricted stock units, pursuant to cash-settled restricted stock unit agreements. The cash-settled restricted stock units awarded to employees cliff vest at varying times up to approximately three years of continuous service. Certain shares awarded may also vest upon a qualified retirement at or following age 65 , or upon a qualified early retirement under the provisions adopted in 2012 whereby the awardee completes 10 years of service, attains age 55 and retires. All cash-settled restricted stock units awarded under the 2002 Plan immediately vest upon a change in control of the Company. We may, in our sole discretion, at any time during the term, convert the cash-settled restricted stock units into stock-settled restricted stock units. The cash-settled restricted stock units are treated as liability awards in accordance with ASC 718. During January 2015, we converted 262,000 shares of cash-settled restricted stock units to stock-settled restricted stock units. The following table summarizes cash-settled restricted stock units outstanding as of August 1, 2015 : Shares Weighted Average Grant-Date Fair Value (In thousands) Outstanding as of February 1, 2015 747 $ 2.44 Granted — — Vested (46 ) 3.63 Cancelled (98 ) 2.20 Outstanding as of August 1, 2015 603 $ 1.51 Total compensation expense is being amortized over the shorter of the achievement of retirement or early retirement status, or the vesting period. Compensation expense related to restricted shares activity was a benefit of $0.4 million for the second quarter of 2015 and an expense of $0.4 million for the second quarter of 2014 . Compensation expense related to restricted shares activity was $0.1 million for the first twenty-six weeks of 2015 and $0.7 million for the first twenty-six weeks of 2014 . As of August 1, 2015 , there was $0.4 million of unrecognized compensation cost related to cash-settled restricted stock units that is expected to be recognized over the weighted average period of 1.7 years. Restricted Shares Certain of our employees and all of our directors have been awarded non-vested common stock (restricted shares), pursuant to non-vested stock agreements. The restricted shares awarded to employees generally cliff vest after up to three years of continuous service. Certain shares awarded may also vest upon a qualified retirement at or following age 65 , or upon a qualified early retirement under the provisions adopted in 2012 whereby an awardee completes 10 years of service, attains age 55 and retires. All restricted shares awarded under the 2002 Plan immediately vest upon a change in control of the Company. Grants of restricted shares awarded to directors vest in full after one year after the date of the grant. The following table summarizes non-vested shares of stock outstanding as of August 1, 2015 : Shares Weighted Average Grant-Date Fair Value (In thousands) Outstanding as of February 1, 2015 1,451 $ 11.61 Granted 372 3.17 Vested (286 ) 5.58 Cancelled (109 ) 13.66 Outstanding as of August 1, 2015 1,428 $ 10.46 Total compensation expense is being amortized over the shorter of the achievement of retirement or early retirement status, or the vesting period. Compensation expense related to restricted shares activity was $0.5 million for the second quarter of 2015 and $1.9 million for the second quarter of 2014 . Compensation expense related to restricted shares activity was $2.0 million for the first twenty-six weeks of 2015 and $3.7 million for the first twenty-six weeks of 2014 . As of August 1, 2015 , there was $2.7 million of unrecognized compensation expense related to restricted share awards that is expected to be recognized over the weighted average period of less than one year. The total fair value of shares vested was $0.3 million during the second quarter of 2015 and $4.5 million during the second quarter of 2014 . The total fair value of shares vested was $1.6 million during the first twenty-six weeks of 2015 and $8.3 million during the first twenty-six weeks of 2014 . In connection with the GoJane acquisition, we granted restricted shares to the two individual former stockholders of GoJane, with compensation expense recognized over the three year cliff vesting period. If the aggregate dollar value of the restricted shares on the vesting date is less than $8.0 million , then we shall pay to the two individual former stockholders an amount in cash equal to the difference between $8.0 million and the fair market value of the restricted shares on the vesting date. For the second quarter of 2015 , we recorded additional compensation expense of $1.4 million and have a corresponding liability of $6.4 million based on the Company's stock price as of August 1, 2015 . For the first twenty-six weeks of 2015 , we recorded additional compensation expense of $1.6 million . For the second quarter of 2014 , we recorded additional compensation expense of $1.1 million and had a corresponding liability of $3.4 million based on the Company's stock price as of August 2, 2014 . For the first twenty-six weeks of 2014 , we recorded additional compensation expense of $2.0 million . Performance Shares Certain of our executives have been awarded performance shares, pursuant to performance share agreements. The performance shares cliff vest at the end of three years of continuous service with us and are contingent upon meeting various separate performance conditions based upon consolidated earnings targets or market conditions based upon total shareholder return targets. All performance shares awarded under the 2002 Plan immediately vest upon a change in control of the Company. Compensation cost for the performance shares with performance conditions related to consolidated earnings targets is periodically reviewed and adjusted based upon the probability of achieving certain performance targets. If the probability of achieving targets changes, compensation cost will be adjusted in the period that the probability of achievement changes. The fair value of performance based awards is based upon the fair value of the Company's common stock on the date of grant. For market based awards that vest based upon total shareholder return targets, the effect of the market conditions is reflected in the fair value of the awards on the date of grant using a Monte-Carlo simulation model. A Monte-Carlo simulation model estimates the fair value of the market based award based upon the expected term, risk-free interest rate, expected dividend yield and expected volatility measure for the Company and its peer group. The annual grant issued during the first quarter of 2015 included performance conditions with both a consolidated earnings target and a total shareholder return target. Compensation expense for market based awards is recognized over the vesting period regardless of whether the market conditions are expected to be achieved. The following table summarizes performance shares of stock outstanding as of August 1, 2015 : Performance-based Market-based Performance Shares Performance Shares Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value (In thousands) (In thousands) Outstanding as of February 1, 2015 — $ — 489 $ 10.25 Granted 820 4.44 — — Vested — — — — Cancelled (324 ) 4.22 (145 ) 10.03 Outstanding as of August 1, 2015 496 $ 4.59 344 $ 10.34 Total compensation expense is being amortized over the vesting period. Compensation expense related to the market-based performance shares which we granted was a benefit of $0.4 million for the second quarter of 2015 and an expense of $1.0 million for the second quarter of 2014 . Compensation expense related to the market-based performance shares which we granted was a benefit of $0.1 million for the first twenty-six weeks of 2015 and an expense of $1.7 million for the first twenty-six weeks of 2014 . We recognized compensation expense of $0.2 million related to performance-based performance shares during the second quarter of 2015 and $0.4 million for the first twenty-six weeks of 2015 based on our determination of the likelihood of achieving the performance conditions associated with the respective shares. The following table summarizes unrecognized compensation cost and the weighted-average years expected to be recognized related to performance share awards outstanding as of August 1, 2015 : Performance-based Market-based Performance Shares Performance Shares Total unrecognized compensation (in thousands) $ 2,133 $ 1,155 Weighted-average years expected to recognize compensation cost (years) 2 1 Cash-Settled Stock Appreciation Rights ("CSARs") In conjunction with the execution of the employment agreement with Mr. Johnson, our former CEO, on May 3, 2013, we granted him an award of CSARs, with an award date value of $5.6 million . The number of CSARs granted was determined in accordance with the agreement by dividing $5.6 million by the Black Scholes value of the closing price of a share of the Company's common stock on the award date. For the second quarter of 2015 , we did not record any expense or benefit related to this incentive award. For the second quarter of 2014 , this incentive award did not have a material impact on the unaudited condensed consolidated financial statements. As of August 1, 2015 , there was no unrecognized compensation cost related to CSARs. As a result of the departure of Mr. Johnson after the end of the second quarter of 2014, 2/3 of these CSARs were forfeited. The remaining vested shares expired on August 29, 2015. The CSARs were treated as a liability based award, our expected volatility was 51% , expected term was 0.1 years, risk-free interest rate was 0.04% and expected forfeiture rate was 0% . Performance Based Bonus The Employment Agreement with Julian R. Geiger, our Chief Executive Officer, provides for a special performance based bonus. If, during any consecutive 90 calendar day period during the third year of the term of the Employment Agreement the average closing price per share of the Company’s common stock is $15.93 or higher, Mr. Geiger will be entitled to a performance-based cash bonus equal to 2% of the amount, if any, by which the Company’s average market capitalization during the period with the highest 90 day average stock price during the third year of the term of the Employment Agreement exceeds $255.4 million (the “Effective Date Market Cap”). If prior to the achievement of such performance metric, Mr. Geiger’s employment is terminated by the Company without Cause, by Mr. Geiger for Good Reason, upon Mr. Geiger’s death or by the Company due to his Disability, or there is a Change of Control (each a “Qualifying Event”), and as of the date of such Qualifying Event the common stock price exceeds $3.24 , then, the amount of the performance-based cash bonus will instead be 2% of the amount, if any, by which the Company’s average market capitalization over the 30 calendar day period immediately preceding the Qualifying Event exceeds the Effective Date Market Cap. This bonus is a market and service based liability award that is required to be marked-to-market under ASC 718. The fair value of this award is estimated using a Monte-Carlo simulation model. A Monte-Carlo simulation model estimates the fair value of a market based award based upon the expected term, risk-free interest rate, expected dividend yield and expected volatility measure for the Company. Compensation expense for this award is recognized over the vesting period regardless of whether the market condition is expected to be achieved. We have recorded a liability for this award that was immaterial to the unaudited condensed financial statements as of August 1, 2015 . Stock Options Under the Omnibus Plan, we may grant qualified and non-qualified stock options to purchase shares of our common stock to executives, consultants, directors, or other key employees. Stock options may not be granted at less than the fair market value at the date of grant. Stock options generally vest over four years on a pro-rata basis and expire after eight years. All outstanding stock options immediately vest upon (i) a change in control of the company (as defined in the plan) and (ii) termination of the employee within one year of such change of control. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model requires certain assumptions, including estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). For the first twenty-six weeks of 2015 , our expected volatility was 61.4% , expected term was 4.70 years, risk-free interest rate was 1.40% and expected forfeiture rate was 0% . No stock options were granted during the second quarter of 2015. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized in the unaudited condensed consolidated statements of operations. The effects of applying the provisions of ASC 718 and the results obtained through the use of the Black-Scholes option-pricing model are not necessarily indicative of future values. The following table summarizes stock option transactions for common stock during the second quarter of 2015 : Number of Shares Weighted Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (In thousands) (In years) (In millions) Outstanding as of February 1, 2015 2,247 $ 4.62 Granted 1,500 3.17 Exercised — — Cancelled 1 (159 ) 18.00 Outstanding as of August 1, 2015 3,588 $ 3.42 6.23 $ — Options vested as of August 1, 2015 and expected to vest 3,588 $ 3.42 6.23 $ — Exercisable as of August 1, 2015 63 $ 14.74 1.68 $ — 1 The number of options cancelled includes approximately 150,000 expired shares. In accordance with his employment agreement, Mr. Geiger was granted an award of options to purchase 1.5 million shares of our common stock during the first quarter of 2015. These stock options have a strike price of $3.17 per share, vest over two years on a pro-rata basis, and have a seven year life. During the third quarter of 2014, and also in accordance with his employment agreement, Mr. Geiger was granted an award of options to purchase 2.0 million shares, that had a strike price of $3.24 and vest over three years on a pro-rata basis with a seven year life. We recognized $0.7 million in compensation expense related to stock options during the second quarter of 2015 and less than $0.1 million during the second quarter of 2014 . We recognized $1.2 million in compensation expense related to stock options during the first twenty-six weeks of 2015 and less than $0.1 million during the first twenty-six weeks of 2014 . For the first twenty-six weeks of 2015 and the first twenty-six weeks of 2014 , the intrinsic value of options exercised was zero. The following table summarizes information regarding non-vested outstanding stock options as of August 1, 2015 : Shares Weighted Average Grant-Date Fair Value (In thousands) Non-vested as of February 1, 2015 2,035 $ 1.52 Granted 1,500 1.62 Vested (10 ) 2.70 Canceled — — Non-vested as of August 1, 2015 3,525 $ 1.56 As of August 1, 2015 , there was $3.8 million of total unrecognized compensation cost related to non-vested options that we expect will be recognized over the remaining weighted-average vesting period of two years. |