Stock-Based Compensation | 6 Months Ended |
Jul. 29, 2014 |
Stock-Based Compensation | ' |
Stock-Based Compensation | ' |
8. Stock-Based Compensation |
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2011 Omnibus Incentive Plan—On November 3, 2011, the Company’s board of directors and shareholders adopted the Mattress Firm Holding Corp. 2011 Omnibus Incentive Plan to provide for the grant of equity-based awards to Company employees, directors and other service providers. A total of 4,206,000 shares of the Company’s common stock were reserved for grants under the 2011 Omnibus Incentive Plan. There were 2,568,039 shares available for future grants under the stock incentive plan as of July 29, 2014. |
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Stock Options—A portion of the stock options granted to the Company’s employees are subject to time-based vesting schedules, while the remaining portion of the stock options are subject to market-based vesting schedules, with such vesting based on specified stock price targets. The exercise price of the options is based upon the closing market price per share of the Company’s common stock on the date of grant, and the options have a term of 10 years. |
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The following table summarizes the stock option grants, exercises, and forfeitures for the twenty-six weeks ended July 29, 2014 (in thousands, except per share amounts): |
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| | | | Weighted | | | | | | | | | | |
| | | | Average | | | | | | | | | | |
| | Stock | | Exercise Price | | | | | | | | | | |
| | Options | | Per Share | | | | | | | | | | |
Outstanding, as of January 28, 2014 | | 1,291 | | $ | 23.32 | | | | | | | | | | |
Granted (a) | | 6 | | $ | 45.37 | | | | | | | | | | |
Exercised (b) | | -95 | | $ | 22.58 | | | | | | | | | | |
Forfeited | | -144 | | $ | 34.32 | | | | | | | | | | |
Outstanding, as of July 29, 2014 (c) | | 1,058 | | $ | 22.02 | | | | | | | | | | |
Exercisable, as of July 29, 2014 (d) | | 298 | | $ | 20.14 | | | | | | | | | | |
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| (a) | | The weighted average grant date fair value of stock options granted during the twenty-six weeks ended July 29, 2014 was $26.13. | | | | | | | | | | | | |
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| (b) | | The aggregate intrinsic value of stock options exercised during the twenty-six weeks ended July 29, 2014 was $2.3 million. The weighted average market price of shares exercised during the twenty-six weeks ended July 29, 2014 was $46.97. | | | | | | | | | | | | |
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| (c) | | Stock options outstanding as of July 29, 2014 have a weighted average remaining contractual term of 7.42 years and an aggregate intrinsic value of $27.3 million based on the market value of the Company’s common stock on July 29, 2014. | | | | | | | | | | | | |
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| (d) | | Stock options exercisable as of July 29, 2014 have a weighted average remaining contractual term of 7.17 years and an aggregate intrinsic value of $8.2 million based on the market value of the Company’s common stock on July 29, 2014. | | | | | | | | | | | | |
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Future vesting dates on the stock options range from August 13, 2014 to April 29, 2018, and expiration dates range from November 17, 2021 to April 29, 2024 at exercise prices and average contractual lives as follows: |
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Range of Exercise Prices | | Outstanding as of July 29, 2014 (in thousands) | | | Weighted Average Remaining Contractual Life (in years) | | Weighted Average Exercise Price | | Exercisable as of July 29, 2014 (in thousands) | | Weighted Average Remaining Contractual Life (in years) | | Weighted Average Exercise Price |
Time Based | | | | | | | | | | | | | | | |
$19.00 - $29.26 | | 470 | | | 7.35 | | $ | 19.55 | | 124 | | 7.33 | | $ | 19.34 |
$36.84 - $45.37 | | 108 | | | 8.79 | | $ | 40.60 | | 7 | | 4.39 | | $ | 36.84 |
Market Based | | | | | | | | | | | | | | | |
$19.00 - $29.26 | | 458 | | | 7.19 | | $ | 19.48 | | 158 | | 7.32 | | $ | 19.10 |
$36.84 - $45.37 | | 22 | | | 7.00 | | $ | 36.84 | | 9 | | 4.39 | | $ | 36.84 |
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The Company accounts for employee stock options under the fair value method of accounting using a Black Scholes methodology to measure time based option fair value at the date of grant and a Monte Carlo Simulation approach to measure market-based option fair value at the date of grant. The fair value of the stock options at the date of grant is recognized as expense over the vesting term, which represents the requisite service period. |
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The following assumptions were used to calculate the fair value of the Company’s time-based stock options on the date of grant utilizing the Black- Scholes option pricing model: |
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| | Twenty‑Six Weeks | | | | | | | | | | | | | |
Ended | | | | | | | | | | | | |
July 29, 2014 | | | | | | | | | | | | |
Weighted average expected life (in years) | | 6.25 | | | | | | | | | | | | | |
Volatility factor | | 60 | % | | | | | | | | | | | | |
Dividend yield | | 0 | % | | | | | | | | | | | | |
Risk-free interest rate | | 2.08 | % | | | | | | | | | | | | |
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The Company bases its expected option life on the expected exercise and termination behavior of the option holders and an appropriate model of the Company’s future stock price. The expected volatility assumption is derived from the historical volatility of similar companies’ common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options, combined with other relevant factors. The dividend yield is the annual rate of dividends per share over the exercise price of the option as of the grant date. |
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For the thirteen and twenty-six weeks ended July 29, 2014, the Company recognized $0.4 million and $1.2 million, respectively, of compensation expense associated with stock option awards in general and administrative expenses in the consolidated statement of operations compared to $0.7 million and $1.2 million for the thirteen and twenty-six weeks ended July 30, 2013, respectively. The Company did not capitalize any equity-based compensation costs related to stock options during the thirteen and twenty-six weeks ended July 29, 2014 and July 30, 2013. |
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As of July 29, 2014, the Company estimates that a total of approximately $5.7 million of currently unrecognized forfeiture adjusted compensation expense will be recognized over a weighted average period of 2.33 years for unvested stock option awards issued and outstanding. |
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Restricted Stock—The Company grants restricted stock to certain employees and to non-employee independent directors. A portion of the restricted stock granted to the Company’s employees is subject to time-based vesting schedules, while the remaining portion of the restricted stock is subject to market-based vesting schedules, with such vesting based on specified stock price targets. |
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The following table summarizes the restricted stock grants, vesting, and forfeitures for the twenty-six weeks ended July 29, 2014 (in thousands, except per share amounts): |
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| | | | Weighted | | | | | | | | | | |
| | | | Average | | | | | | | | | | |
| | Restricted | | Fair | | | | | | | | | | |
| | Shares | | Value | | | | | | | | | | |
Outstanding, as of January 28, 2014 | | 249 | | $ | 29.93 | | | | | | | | | | |
Granted (a) | | 10 | | $ | 37.83 | | | | | | | | | | |
Vested (b) | | -14 | | $ | 32.65 | | | | | | | | | | |
Forfeited | | -14 | | $ | 24.68 | | | | | | | | | | |
Unvested, as of July 29, 2014 | | 231 | | $ | 30.44 | | | | | | | | | | |
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| (a) | | The total grant-date fair value of restricted stock awards granted during the period was $0.4 million. | | | | | | | | | | | | |
| (b) | | The total fair value of awards vested during the twenty-six weeks ended July 29, 2014 was $0.6 million. | | | | | | | | | | | | |
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The Company accounts for restricted stock under the fair value method of accounting using the closing market price per share of the Company’s stock to measure time based restricted stock fair value at the date of grant and a Monte Carlo Simulation approach to measure market-based restricted stock fair value at the date of grant. The fair value of the restricted stock at the date of grant is recognized as expense over the vesting term, which represents the requisite service period. |
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The following assumptions were used to calculate the fair value of the Company’s market-based restricted stock on the grant date utilizing a Monte Carlo Simulation approach: |
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| | Twenty‑Six Weeks | | | | | | | | | | | | | |
Ended | | | | | | | | | | | | |
July 29, 2014 | | | | | | | | | | | | |
Weighted average expected life (in years) | | 4 | | | | | | | | | | | | | |
Volatility factor | | 40 | % | | | | | | | | | | | | |
Dividend yield | | 0 | % | | | | | | | | | | | | |
Risk-free interest rate | | 1.33 | % | | | | | | | | | | | | |
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For the thirteen and twenty-six weeks ended July 29, 2014, the Company recognized $0.8 million and $1.4 million, respectively, of compensation expense associated with restricted stock awards in general and administrative expenses in the condensed consolidated statement of operations compared to $0.3 million and $0.7 million for the thirteen and twenty-six weeks ended July 30, 2013, respectively. The Company did not capitalize any equity-based compensation costs related to restricted stock awards during the thirteen and twenty-six weeks ended July 29, 2014 and July 30, 2013. |
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As of July 29, 2014, the Company estimates that a total of approximately $5.2 million of currently unrecognized forfeiture adjusted compensation expense will be recognized over a weighted average period of 2.07 years for unvested restricted stock awards. |
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