SHARE-BASED COMPENSATION

12 Months Ended

Feb. 03, 2018

10. SHARE-BASED COMPENSATION

The Michaels Companies, Inc. Second Amended and Restated 2014 Omnibus Long-Term Incentive Plan provides for the grant of share-based awards for up to 28.6 million shares of common stock. As of February 3, 2018, there were 10.4 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. As of February 3, 2018, unrecognized compensation cost for all unvested share-based awards totaled $58.7 million and is expected to be recognized over a weighted-average period of 2.6 years. Share-based compensation expense totaled $24.3 million in fiscal 2017, $16.5 million in fiscal 2016 and $15.1 million in fiscal 2015 and is recorded in cost of sales and occupancy expense and SG&A 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 2017, 2016 and 2015:


	Fiscal Year
	2017			2016			2015
Risk-free interest rates (1)		1.7	%		1.1	%		1.2	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility (2)		29.9	%		29.8	%		29.7	%
Expected life of options in years (3)		4.1			4.1			4.0

(1)

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

(2)

We considered our historical and implied volatility as well as the 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.

The stock option activity during the fiscal year ended February 3, 2018 was as follows:


				Weighted-
				Average
				Remaining	Aggregate
	Number of	Weighted-		Contractual	Intrinsic
	Shares	Average Exercise		Term	Value
	(in thousands)	Price		(in years)	(in thousands)
Outstanding at beginning of year	7,662	$	17.94
Granted	2,134		22.05
Exercised	(1,366)		12.11
Expired/Forfeited	(454)		21.92
Outstanding at end of year	7,976		19.81	6.8	$	51,205

Shares exercisable at end of year	3,492	$	17.09	5.1	$	31,872

The total grant date fair value of options that vested during fiscal 2017, fiscal 2016 and fiscal 2015 was $8.3 million, $7.4 million and $7.3 million, respectively. The intrinsic value for options that vested during fiscal 2017, fiscal 2016 and fiscal 2015 was $5.4 million, $13.1 million and $18.1 million, respectively. The intrinsic value for options exercised was $15.7 million in fiscal 2017, $30.8 million in fiscal 2016 and $65.6 million in fiscal 2015. As of the beginning of fiscal 2017, there were 4.4 million nonvested options with a weighted-average fair value of $5.50 per share. As of the end of fiscal 2017, there were 4.5 million nonvested options with a weighted-average fair value of $5.77 per share. The weighted-average fair value of options granted during fiscal 2017, fiscal 2016 and fiscal 2015 was $5.88, $6.27 and $6.01, respectively. During fiscal 2017, there were 1.6 million options that vested and 0.5 million options that were cancelled with a weighted-average fair value of $5.22 and $5.66 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. Compensation expense is recorded for all restricted stock awards and restricted stock units based on the amortization of the fair market value at the date of grant over the vesting period.

Restricted stock award activity during the fiscal year ended February 3, 2018 was as follows:


	Number of Shares (in thousands)	Weighted-Average Fair Value
Outstanding at beginning of year	964	$	21.58
Vested	(357)		21.21
Forfeited	(86)		22.34
Outstanding at end of year	521	$	22.84

Restricted stock unit activity during the fiscal year ended February 3, 2018 was as follows:


	Number of Shares (in thousands)	Weighted-Average Fair Value
Outstanding at beginning of year	802	$	23.91
Granted	983		22.19
Vested	(207)		23.88
Forfeited	(118)		23.24
Outstanding at end of year	1,460	$	22.81

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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