Stock-Based Compensation

9 Months Ended

Oct. 29, 2022

Stock-Based Compensation.

Stock-Based Compensation

NOTE 15—STOCK-BASED COMPENSATION

We recorded stock-based compensation expense of $10 million and $12 million during the three months ended October 29, 2022 and October 30, 2021, respectively, which is included in selling, general and administrative expenses on the condensed consolidated statements of income. We recorded stock-based compensation expense of $34 million and $37 million during the nine months ended October 29, 2022 and October 30, 2021, respectively. No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements.

2012 Stock Incentive Plan and 2012 Stock Option Plan

The Restoration Hardware 2012 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted on November 1, 2012. The Stock Incentive Plan provides for the grant of incentive stock options to our employees, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants.

The Restoration Hardware 2012 Stock Option Plan (the “Option Plan”) was adopted on November 1, 2012 and on such date 6,829,041 fully vested options were granted under this plan to certain of our employees and advisors. Aside from these options granted on November 1, 2012, no other awards were granted under the Option Plan.

As of January 29, 2022, there were a total of 1,185,322 shares issuable under the Stock Incentive Plan. On January 31, 2022, an additional 430,139 shares became issuable under the Stock Incentive Plan in accordance with the Stock Incentive Plan evergreen provision, increasing the total number of shares issuable under the Stock Incentive Plan to 1,615,461. Awards under the plans reduce the number of shares available for future issuance. Cancellations and forfeitures of awards previously granted under the Stock Incentive Plan increase the number of shares available for future issuance. Cancellations and forfeitures of awards previously granted under the Option Plan are immediately retired and are no longer available for future issuance.

On October 31, 2022, both the Stock Incentive Plan and Option Plan expired. Upon expiration of the Stock Incentive Plan, a total of 1,607,508 shares that were available for future issuance under the plan were cancelled and are no longer available for the grant of awards under the plan.

Information about stock options outstanding, vested or expected to vest, and exercisable as of October 29, 2022 is as follows:

	OPTIONS OUTSTANDING				OPTIONS EXERCISABLE
		WEIGHTED-
		AVERAGE	WEIGHTED-			WEIGHTED-
		REMAINING	AVERAGE			AVERAGE
	NUMBER OF	CONTRACTUAL	EXERCISE		NUMBER OF	EXERCISE
RANGE OF EXERCISE PRICES	OPTIONS	LIFE (IN YEARS)	PRICE		OPTIONS	PRICE
$25.39 — $45.82	276,530	3.53	$	35.63	276,530	$	35.63
$50.00 — $50.00	1,000,000	4.51		50.00	1,000,000		50.00
$53.47 — $61.30	197,830	1.56		61.19	197,830		61.19
$75.43 — $75.43	1,000,000	0.67		75.43	1,000,000		75.43
$87.31 — $154.82	798,216	6.80		132.81	226,266		123.03
$156.40 — $380.53	373,480	8.19		280.31	66,885		270.24
$385.30 — $716.75	827,250	8.05		419.05	713,330		389.36
Total	4,473,306		$	157.54	3,480,841	$	135.32
Vested or expected to vest	4,247,547		$	152.62

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of October 29, 2022 was $588 million, $574 million, and $517 million, respectively. Stock options exercisable as of October 29, 2022 had a weighted-average remaining contractual life of 4.03 years. As of October 29, 2022, the total unrecognized compensation expense related to unvested options was $91 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.39 years. In addition, as of October 29, 2022, the total unrecognized compensation expense related to a fully vested option grant made to Mr. Friedman in October 2020 was $19 million, which will be recognized on an accelerated basis through May 2025 (refer to Chairman and Chief Executive Officer Option Grant below).

As of October 29, 2022, we had 24,390 restricted stock units outstanding with a weighted-average grant date fair value of $437.37 per share. During the three months ended October 29, 2022, 1,780 restricted stock units vested with a weighted-average grant date fair value of $49.53 per share. During the nine months ended October 29, 2022, 4,700 restricted stock units vested with a weighted-average grant date fair value of $117.94 per share. As of October 29, 2022, there was $7.7 million of total unrecognized compensation expense related to unvested restricted stock and restricted stock units, which is expected to be recognized over a weighted-average period of 4.49 years.

Chairman and Chief Executive Officer Option Grant

On October 18, 2020, our Board of Directors granted Mr. Friedman an option to purchase 700,000 shares of our common stock with an exercise price equal to $385.30 per share under the 2012 Stock Incentive Plan. Refer to Note 18—Stock-Based Compensation in the 2021 Form 10-K. The option will result in aggregate non-cash stock compensation expense of $174 million, of which $4.1 million and $5.8 million was recognized during the three months ended October 29, 2022 and October 30, 2021, respectively, and $14 million and $18 million was recognized during the nine months ended October 29, 2022 and October 30, 2021, respectively (which is included in the stock-based compensation expense recorded during the three and nine months ended October 29, 2022 and October 30, 2021 noted above).