Stock Option and Award Plans and Stock-Based Compensation | 9 Months Ended |
Nov. 01, 2014 |
Stock Option and Award Plans and Stock-Based Compensation | ' |
12. Stock Option and Award Plans and Stock-Based Compensation |
On May 1, 2013, the Company’s Board of Directors approved the Company’s assumption and adoption of the 2006 Management Incentive Plan (the 2006 Plan) that was previously sponsored by Burlington Coat Factory Holdings, LLC. The Company’s 2013 Omnibus Incentive Plan (the 2013 Plan and, together with the 2006 Plan, the Plans) was adopted effective prior to and in connection with the Offering. The 2006 Plan and the 2013 Plan each provide for the granting of stock options, restricted stock and other forms of awards to key employees and directors of the Company or its affiliates. Prior to the Offering, grants made pursuant to the 2006 Plan were comprised of units of the Company’s common stock. Each “unit” consisted of 99 shares of Class A common stock and one share of Class L common stock. Awards previously granted under the 2006 Plan have been retroactively adjusted to reflect the Reclassification. |
As of November 1, 2014, there were 10,125,258 shares of common stock authorized for issuance under the 2006 Plan and 6,000,000 shares of common stock authorized for issuance under the 2013 Plan. |
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Stock Options |
The Company accounts for awards issued under the Plans in accordance with ASC Topic No. 718, “Stock Compensation.” Options granted during the nine month period ended November 1, 2014 were all service-based awards and were granted under the 2006 Plan at exercise prices ranging from $27.40 to $38.66 per share. Options granted during the nine month period ended November 2, 2013 were all service-based awards and were granted under the 2006 Plan at an exercise price of $50.00 per unit. All service-based awards granted during the nine months ended November 1, 2014 vest 25% on each of the first four anniversaries of the grant date. The final exercise date for any option granted is the tenth anniversary of the grant date. |
During the second quarter of Fiscal 2013, the Company made a special one-time grant under the 2006 Plan to certain members of its management team which resulted in the grant of options to purchase an aggregate of 1,595,000 shares of common stock. These one-time grants vest 20% on each of the first five anniversaries of the Trigger Date. The Trigger Date is defined as the date after the vesting of all other options held by the grantee which were granted to the grantee prior to May 2013 and remain outstanding and unvested as of the date of the one-time grant. |
In order to mitigate the impact of the $336.0 million dividend paid in connection with the issuance of the Holdco Notes in February 2013, the Company’s Board of Directors in May 2013 approved a modification to all then outstanding options through a combination of exercise price reductions and cash payments to option holders. The reduction of the exercise prices of each outstanding option was as follows: |
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| • | | from $2.78 per unit to $0.79 - $1.65 per unit; | | | | | | | | | | | | | |
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| • | | from $4.55 per unit to $0.79 per unit; | | | | | | | | | | | | | |
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| • | | from $5.91 per unit to $0.79 - $0.94 per unit; | | | | | | | | | | | | | |
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| • | | from $10.91 per unit to $3.17 - $5.02 per unit; and | | | | | | | | | | | | | |
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| • | | from $10.96 per unit to $3.17 - $5.07 per unit. | | | | | | | | | | | | | |
The modifications, through a combination of either reduced exercise prices or cash payments, did not affect the existing vesting schedules. The modification, which contemplated the fair value of awards both immediately before and after the modification, resulted in a total of $0.6 million and $2.4 million of incremental compensation expense during the three and nine months ended November 1, 2014, respectively, of which $0.1 million and $0.5 million, respectively is payable in cash. During the three and nine months ended November 2, 2013, the Company recorded $1.8 million and $9.0 million, respectively, of incremental compensation expense, of which $0.3 million and $4.0 million is payable in cash. These costs were recorded in the line item “Stock Option Modification Expense” in the Company’s Condensed Consolidated Statements of Operations. As of November 1, 2014, the Company expects to recognize $3.4 million of incremental compensation expense to be recorded over the remaining vesting periods, of which $0.6 million will be paid in cash. |
With the exception of the special one-time grants made during Fiscal 2013, all options awarded pursuant to the 2006 Plan become exercisable upon a change of control as defined in the Stockholders Agreement. The vesting of special one-time grants will not be accelerated in the event of a change of control, provided, however, that in the event that within two years after a change of control, the grantee’s employment is terminated without cause or the grantee resigns with good reason, then an incremental 20% of the special one-time grants shall be deemed vested as of the date of termination of grantee’s employment, but in no event more than the total number of special one-time grants granted to such grantee. Unless determined otherwise by the plan administrator, upon cessation of employment, options that have not vested will terminate immediately (subject to the potential acceleration of special one-time grants in the event of a change of control, as described above) and unexercised vested options will be exercisable for a period of 60 days. The final exercise date for any option granted is the tenth anniversary of the grant date. |
Non-cash stock compensation expense is as follows: |
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| | (in thousands) | |
| | Three Months Ended | | | Nine Months Ended | |
Type of Non-Cash Stock Compensation | | November 1, | | | November 2, | | | November 1, | | | November 2, | |
2014 | 2013 | 2014 | 2013 |
Stock Option Modification (a) | | $ | 487 | | | $ | 1,534 | | | $ | 1,887 | | | $ | 4,986 | |
Stock Option Grants (b) | | | 730 | | | | 963 | | | | 2,201 | | | | 3,155 | |
Restricted Stock Issuances(b) | | | 247 | | | | 20 | | | | 528 | | | | 61 | |
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Total (c) | | $ | 1,464 | | | $ | 2,517 | | | $ | 4,616 | | | $ | 8,202 | |
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(a) | Represents non-cash compensation related to the modification of outstanding stock options granted under the 2006 Plan during Fiscal 2013 which is included in the line item “Stock Option Modification Expense” in the Company’s Condensed Consolidated Statements of Operations. | | | | | | | | | | | | | | | |
(b) | Included in the line item “Selling, General and Administrative Expenses” in the Company’s Condensed Consolidated Statements of Operations. | | | | | | | | | | | | | | | |
(c) | For the three and nine months ended November 1, 2014, the tax benefit related to the Company’s non-cash stock compensation was approximately $0.6 million and $1.9 million, respectively. For the three and nine months ended November 2, 2013, the tax benefit related to the Company’s non-cash stock compensation was approximately $1.0 million and $3.2 million, respectively. | | | | | | | | | | | | | | | |
As of November 1, 2014, the Company had 3,777,194 options outstanding to purchase shares of common stock, all of which are service-based awards issued under the 2006 Plan, and there was $12.6 million of unearned non-cash stock-based option compensation, exclusive of the $3.4 million of incremental compensation associated with the modification, that the Company expects to recognize as expense over a weighted average period of 4.3 years. The service-based awards are expensed on a straight-line basis over the requisite service period. As of November 1, 2014, 818,354 outstanding options to purchase shares of common stock under the 2006 Plan had vested. As of November 1, 2014, no options were outstanding under the 2013 Plan. |
Stock option transactions during the nine month period ended November 1, 2014 are summarized as follows: |
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| | Number of | | | Weighted | | | | | | | | | |
Shares | Average | | | | | | | | |
| Exercise | | | | | | | | |
| Price Per | | | | | | | | |
| Share | | | | | | | | |
Options Outstanding February 1, 2014 | | | 4,619,323 | | | $ | 3.25 | | | | | | | | | |
Options Granted | | | 137,738 | | | | 29.2 | | | | | | | | | |
Options Exercised(a) | | | (914,067 | ) | | | 1.73 | | | | | | | | | |
Options Forfeited | | | (65,800 | ) | | | 2.39 | | | | | | | | | |
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Options Outstanding November 1, 2014 | | | 3,777,194 | | | $ | 4.58 | | | | | | | | | |
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(a) | Options exercised during the nine months ended November 1, 2014 had a total intrinsic value of $27.7 million. | | | | | | | | | | | | | | | |
The following table summarizes information about the options outstanding and exercisable under the 2006 Plan as of November 1, 2014: |
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| | Options Outstanding | | | Options Exercisable | |
Exercise Prices | | Number | | | Weighted | | | Number | | | Weighted | |
Outstanding at | Average | Exercisable at | Average |
November 1, | Remaining | November 1, | Remaining |
2014 | Contractual | 2014 | Contractual |
| Life (Years) | | Life (Years) |
$0.79 - $0.94 | | | 1,105,541 | | | | 6.43 | | | | 489,607 | | | | 5.69 | |
$3.17 | | | 326,113 | | | | 6.16 | | | | 167,184 | | | | 5.42 | |
$4.55 - $5.07 | | | 2,155,477 | | | | 8.35 | | | | 161,563 | | | | 6.11 | |
$26.96 | | | 52,761 | | | | 9.23 | | | | — | | | | — | |
$27.40 - $38.66 | | | 137,302 | | | | 9.58 | | | | — | | | | — | |
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| | | 3,777,194 | | | | | | | | 818,354 | | | | | |
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The aggregate intrinsic value of options outstanding as of November 1, 2014 was $141.1 million. |
The following table summarizes information about the stock options vested and expected to vest during the contractual term as of November 1, 2014: |
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| | Options | | | Weighted | | | Weighted | | | Aggregate Intrinsic | |
Average | Average | Value |
Remaining | Exercise | |
Contractual | Price | |
Life (Years) | | |
Vested and Expected to Vest | | | 3,628,374 | | | | 7.64 | | | $ | 4.5 | | | $ | 135.9 million | |
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The fair value of each stock option granted was estimated on the date of grant using the Monte Carlo Simulation option pricing model prior to the date of the Offering and the Black Scholes option pricing model subsequent to the date of the Offering. The fair value of each stock option granted was estimated using the following assumptions: |
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| | Nine Months | | | Nine Months | | | | | | | | | |
Ended | Ended | | | | | | | | |
November 1, | November 2, | | | | | | | | |
2014 | 2013 | | | | | | | | |
Risk-Free Interest Rate | | | 2.1 | % | | | 1.7 | % | | | | | | | | |
Expected Volatility | | | 41.0% - 44.0 | % | | | 36.8 | % | | | | | | | | |
Expected Life (years) | | | 6.3 | | | | 7.4 | | | | | | | | | |
Contractual Life (years) | | | 10 | | | | 10 | | | | | | | | | |
Expected Dividend Yield | | | 0 | % | | | 0 | % | | | | | | | | |
Weighted Average Grant Date Fair Value of Options Issued | | $ | 13.16 | | | $ | 5.64 | | | | | | | | | |
Restricted Stock Awards |
Under the 2006 Plan, the Company also has the ability to grant shares of restricted stock. During the nine months ended November 1, 2014, the Company granted 110,632 shares of restricted stock at fair values based upon the closing price of the Company’s common stock on the date of grant. There were no restricted stock awards granted during the nine months ended November 2, 2013. All shares of restricted stock granted to date under the 2006 Plan are service-based awards that cliff vest at the end of the requisite service period. Shares of restricted stock are expensed on a straight-line basis over the requisite service period of three to four years. Following a change of control, all unvested shares of restricted stock shall remain unvested, provided, however, that 100% of such shares shall vest if, following such change of control, the employment of the recipient is terminated without cause or the recipient resigns with good reason. |
As of November 1, 2014, there was $3.1 million of unearned non-cash stock-based compensation that the Company expects to recognize as an expense over the next 3.4 years. At November 1, 2014, 1,033,560 of the outstanding shares of restricted stock had vested. |
Award grant and vesting transactions during the nine month period ended November 1, 2014 are summarized as follows: |
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| | Number of | | | Weighted | | | | | | | | | |
Shares | Average Grant | | | | | | | | |
| Date Fair | | | | | | | | |
| Value Per | | | | | | | | |
| Awards | | | | | | | | |
Non-Vested Awards Outstanding, February 1, 2014 | | | 81,396 | | | $ | 12.58 | | | | | | | | | |
Awards Granted | | | 110,632 | | | | 28.95 | | | | | | | | | |
Awards Vested | | | (27,500 | ) | | | 5.56 | | | | | | | | | |
Awards Forfeited | | | (1,250 | ) | | | 27.4 | | | | | | | | | |
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Non-Vested Awards Outstanding, November 1, 2014 | | | 163,278 | | | $ | 24.74 | | | | | | | | | |
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