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EXCEL - IDEA: XBRL DOCUMENT - Gordmans Stores, Inc.Financial_Report.xls
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v2.4.0.6
SHARE BASED COMPENSATION
9 Months Ended
Oct. 27, 2012
SHARE BASED COMPENSATION

F. SHARE BASED COMPENSATION

The Gordmans Stores, Inc. 2010 Omnibus Incentive Compensation Plan (the “2010 Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and other share-based awards. Directors, officers and other associates of the Company and its subsidiaries, as well as others performing consulting or advisory services, are eligible for grants under the 2010 Plan. An aggregate of 2,573,086 shares of the Company’s common stock are available under the 2010 Plan, subject to adjustments for stock splits and other actions affecting the Company’s common stock. The exercise price of an option granted under the 2010 Plan will not be less than 100% of the fair value of a share of the Company’s common stock on the date of grant, provided the exercise price of an incentive stock option granted to a person holding greater than 10% of the Company’s voting power may not be less than 110% of such fair value on such date. The term of each option may not exceed ten years or, in the case of an incentive stock option granted to a ten percent stockholder, five years. During the thirty-nine weeks ended October 27, 2012, 331,900 stock options were granted and 73,600 shares of restricted stock were awarded pursuant to the 2010 Plan. There were 498,673 shares of common stock available for future grants under the 2010 Plan at October 27, 2012.

In connection with the Company’s initial public offering in August 2010, all existing options outstanding (1,285,570 shares issuable at a weighted average exercise price of $2.66 per share) under the Company’s 2009 Stock Option Plan were terminated. In exchange, each participant received the following awards under the 2010 Plan: (1) 12 months from the date of the option termination agreement, vested restricted stock to replace the intrinsic value of the participant’s vested options under the 2009 Stock Option Plan and (2) unvested restricted stock to replace the intrinsic value of the participant’s unvested options under the 2009 Stock Option Plan, with a similar vesting schedule as that of the existing options. The termination and exchange of options did not result in any additional compensation expense. In addition, each participant received options in an amount determined by the Compensation Committee of the Company’s Board of Directors, with an exercise price equal to the Company’s initial public offering price, subject to time vesting at a rate of 20% per year over five years. In exchange for 1,285,570 stock options outstanding at the time of the initial public offering, 977,547 shares of restricted stock were awarded on August 11, 2011, which was 12 months from the date of the option termination agreements.

 

A summary of restricted stock activity during the thirty-nine weeks ended October 27, 2012 is set forth in the table below:

 

     Number
of Shares
    Weighted Average
Grant Date
Fair Value
 

Non-vested, January 28, 2012

     220,618      $ 2.36   

Granted

     73,600        17.85   

Repurchased

     —          —     

Forfeited

     —          —     

Vested

     (98,577     2.36   
  

 

 

   

Non-vested, October 27, 2012

     195,641        8.19   
  

 

 

   

Restricted stock awarded during the thirty-nine weeks ended October 27, 2012 vest at varying rates of 25% per year over four years and 20% per year over five years as applicable. Unrecognized compensation expense on the restricted stock was $1.7 million at October 27, 2012, which is expected to be recognized over a period of 2.7 years. The total fair value of shares vested during the thirty-nine weeks ended October 27, 2012 was $1.9 million.

A summary of stock option activity during the thirty-nine weeks ended October 27, 2012 is set forth in the table below:

 

     Number
of Stock
Options
    Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (Years)
     Aggregate
Intrinsic
Value (1)
(thousands)
 

Outstanding, January 28, 2012

     686,022      $ 14.15         

Granted

     331,900        18.17         

Forfeited

     (29,600     16.50         
  

 

 

         

Outstanding, October 27, 2012

     988,322        15.43         8.8       $ —     

Exercisable, October 27, 2012

     122,445        14.26         8.2         89   

Vested or expected to vest at October 27, 2012

     964,277        15.40         8.8         —     

 

(1) The aggregate intrinsic value for stock options is the difference between the current market value of the Company’s stock as of October 27, 2012 and the option strike price. The stock price at October 27, 2012 was $14.99, which is less than the strike price of the outstanding options and options that are vested or expected to vest.

The Company uses the Black-Scholes option valuation model to estimate fair value of the options. This model requires an estimate of the volatility of the Company’s share price; however, because the Company’s shares or options have not been publicly traded for a significant period of time, the Company determined that it was not practical to estimate the expected volatility of its share price. Thus, the Company accounted for equity share options based on a value calculated using the historical volatility of an appropriate industry sector index instead of the expected volatility of the entity’s share price. The historical volatility was calculated using comparisons to peers in the Company’s market sector, which was chosen due to the proximity of size and industry to the Company over the expected term of the option.

In determining the expense to be recorded for options, the significant assumptions utilized in applying the Black-Scholes option valuation model are the risk-free interest rate, expected term, dividend yield and expected volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the assumption in the model. The expected term of the option awards is estimated using the simplified method, or the average of the vesting period and the original contractual term.

The weighted average assumptions used by the Company in applying the Black-Scholes valuation model for option grants during the thirty-nine weeks ended October 27, 2012 are illustrated in the following table:

 

     39 Weeks
Ended
October 27,
2012
 

Risk-free interest rate

     1.0 - 1.5

Dividend yield

     2.0

Expected volatility

     34.0

Expected life (years)

     6.25 - 6.50   

Weighted average fair value of options granted

   $ 5.03   

 

Stock options issued during the thirty-nine weeks ended October 27, 2012 are subject to time vesting at varying rates of either 20% per year over five years or 25% per year over four years as applicable and a term of ten years. None of the stock options outstanding at October 27, 2012 were subject to performance or market-based vesting conditions. As of October 27, 2012, the unrecognized compensation expense on stock options was $3.4 million, which is expected to be recognized over a weighted average period of 3.6 years.

For the thirteen week periods ended October 27, 2012 and October 29, 2011, share-based compensation expense was $0.3 million and $0.4 million, respectively. Share-based compensation expense for the thirty-nine week periods ended October 27, 2012 and October 29, 2011 was $0.7 million and $1.2 million, respectively. Share-based compensation expense is recorded in selling, general and administrative expenses in the consolidated statements of operations.