11. Share-based payments

The Company accounts for share-based payments in accordance with applicable accounting standards, under which the fair value of each award is separately estimated and amortized into compensation expense over the service period. The fair value of the Company's stock option grants are estimated on the grant date using the Black-Scholes-Merton valuation model. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.

On July 6, 2007, the Company's Board of Directors adopted the 2007 Stock Incentive Plan for Key Employees, which plan was subsequently amended (as so amended, the "Plan"). The Plan provides for the granting of stock options, stock appreciation rights, and other stock-based awards or dividend equivalent rights to key employees, directors, consultants or other persons having a service relationship with the Company, its subsidiaries and certain of its affiliates. The number of shares of Company common stock authorized for grant under the Plan is 31,142,858. As of February 1, 2013, 20,140,249 of such shares are available for future grants.

Under the Plan, the Company has granted options that vest solely upon the continued employment of the recipient ("Time Options"), options that vest upon the achievement of predetermined annual or cumulative financial-based targets ("Performance Options") and other awards. Time and Performance stock options generally vest ratably on an annual basis over a five-year period, with limited exceptions, while other awards vest over varying time periods.

Assuming specified financial targets are met, the Performance Options vest as of the Company's fiscal year end, and as a result the initial and final tranche of each Performance Option grant may be prorated based upon the date of grant. In the event the performance target is not achieved in any given annual performance period, the Performance Options for that period may still subsequently vest, provided that a cumulative performance target is achieved. Vesting of the Time Options and Performance Options is also subject to acceleration in the event of an earlier change in control or certain public offerings of the Company's common stock. Each of these options, whether Time Options or Performance Options, have a contractual term of 10 years and an exercise price equal to the fair value of the underlying common stock on the date of grant.

The weighted average for key assumptions used in determining the fair value of all options granted in the years ended February 1, 2013, February 3, 2012, and January 28, 2011, and a summary of the methodology applied to develop each assumption, are as follows:



Expected dividend yield	0	%	0	%	0	%
Expected stock price volatility	26.8	%	38.7	%	39.1	%
Weighted average risk-free interest rate	1.5	%	2.3	%	2.8	%
Expected term of options (years)	6.3		6.8		7.0

Expected dividend yield—This is an estimate of the expected dividend yield on the Company's stock. The Company is subject to limitations on the payment of dividends under its Credit Facilities as further discussed in Note 6. An increase in the dividend yield will decrease compensation expense.

Expected stock price volatility—This is a measure of the amount by which the price of the Company's common stock has fluctuated or is expected to fluctuate. For awards issued under the Plan through October 2011, the expected volatilities were based upon the historical volatilities of a peer group of four companies. Beginning in November 2011, the expected volatilities for awards are based on the historical volatility of the Company's publicly traded common stock. An increase in the expected volatility will increase compensation expense.

Weighted average risk-free interest rate—This is the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

Expected term of options—This is the period of time over which the options granted are expected to remain outstanding. The Company has estimated the expected term as the mid-point between the vesting date and the contractual term of the option. An increase in the expected term will increase compensation expense.

Both the Time Options and the Performance Options are subject to various provisions set forth in a management stockholder's agreement entered into with each option holder by which the Company may require the employee, upon termination, to sell to the Company any vested options or shares received upon exercise of the Time Options or Performance Options at amounts that differ based upon the reason for the termination. In particular, in the event that the employee resigns "without good reason" (as defined in the management stockholder's agreement), then any options whether or not then exercisable are forfeited and any shares received upon prior exercise of such options are callable at the Company's option at an amount equal to the lesser of fair value or the amount paid for the shares (i.e., the exercise price). In such cases, because the employee would not benefit in any share appreciation over the exercise price, for accounting purposes such options are not considered vested until the expiration of the Company's call option, which is generally five years subsequent to the date of grant. Accordingly, all references to the vesting provisions or vested status of the options discussed in this note give effect to the vesting pursuant to these accounting provisions and may differ from descriptions of the vesting status of the Time Options and Performance Options located elsewhere in this report or the Company's other SEC filings.

A summary of Time Options activity during the year ended February 1, 2013 is as follows:

(Intrinsic value amounts reflected in thousands)			Average Exercise Price			Intrinsic Value

Balance, February 3, 2012	4,258,581		$	10.55
Granted	—			—
Exercised	(2,861,681	)		8.97
Canceled	(46,258	)		16.10

Balance, February 1, 2013	1,350,642		$	13.69	5.9	$	44,017

Exercisable at February 1, 2013	723,335		$	11.42	5.4	$	25,215

The weighted average grant date fair value of Time Options granted during 2011 and 2010 was $13.47 and $12.61, respectively. The intrinsic value of Time Options exercised during 2012, 2011 and 2010 was $117.3 million, $41.4 million and $5.5 million, respectively.

A summary of Performance Options activity during the year ended February 1, 2013 is as follows:

(Intrinsic value amounts reflected in thousands)			Average Exercise Price			Intrinsic Value

Balance, February 3, 2012	3,968,237		$	10.75
Granted	—			—
Exercised	(2,661,902	)		9.12
Canceled	(41,509	)		16.87

Balance, February 1, 2013	1,264,826		$	13.96	6.0	$	40,879

Exercisable at February 1, 2013	916,223		$	12.61	5.8	$	30,850

The weighted average grant date fair value of Performance Options granted during 2011 and 2010 was $13.47 and $12.61, respectively. The intrinsic value of Performance Options exercised during 2012, 2011 and 2010 was $106.4 million, $41.8 million and $14.7 million, respectively.

The Company currently believes that the performance targets related to the unvested Performance Options will be achieved. If such goals are not met, and there is no change in control or certain public offerings of the Company's common stock which would result in the acceleration of vesting of the Performance Options, future compensation cost relating to unvested Performance Options will not be recognized.

Other options include awards granted to employees and members of the board of directors and generally vest solely upon the continued employment or board service of the recipient over a period of four years for employees and three years for board members. A summary of other stock option activity during the year ended February 1, 2013 is as follows:

(Intrinsic value amounts reflected in thousands)			Average Exercise Price			Intrinsic Value

Balance, February 3, 2012	217,137		$	29.05
Granted	1,063,303			45.46
Exercised	(8,532	)		13.36
Canceled	(60,137	)		45.14

Balance, February 1, 2013	1,211,771		$	42.77	8.9	$	4,416

Exercisable at February 1, 2013	142,026		$	28.76	7.3	$	2,489

The weighted average grant date fair value of other options granted was $13.54 and $13.14 during 2012 and 2011, respectively. No other options were granted in 2010. The intrinsic value of other options exercised during 2012, 2011 and 2010 was $0.3 million, $1.6 million and $15.5 million, respectively.

From time to time, the Company has issued share unit awards including restricted stock units and, beginning in 2012, performance stock units. All nonvested performance stock unit and restricted stock unit awards granted in the periods presented had a purchase price of zero. The nonvested performance share unit and restricted stock unit awards granted under the plan generally vest ratably over a three-year period, and, with limited exceptions, are automatically converted into shares of common stock on the vesting date.

The number of performance stock unit awards issued is based upon the Company's annual financial performance as specified in the award agreement. A summary of performance stock unit award activity during the year ended February 1, 2013 is as follows:

(Intrinsic value amounts reflected in thousands)			Intrinsic Value

Balance, February 3, 2012	—
Granted	171,497
Converted to common stock	—
Canceled	(8,809	)

Balance, February 1, 2013	162,688		$	7,529

The weighted average grant date fair value of performance stock units granted was $45.25 during 2012. No performance stock units were granted during 2011 or 2010.

A summary of restricted stock unit award activity during the year ended February 1, 2013 is as follows:

(Intrinsic value amounts reflected in thousands)			Intrinsic Value

Balance, February 3, 2012	13,024
Granted	305,618
Converted to common stock	(4,873	)
Canceled	(24,842	)

Balance, February 1, 2013	288,927		$	13,372

The weighted average grant date fair value of restricted stock units granted was $45.33 and $33.16 during 2012 and 2011, respectively. No restricted stock units were granted in 2010.

In March 2012, the Company issued a performance-based award of 326,037 shares of restricted stock to its Chairman and Chief Executive Officer. This restricted stock award had a fair value on the grant date of $45.25 per share and a purchase price of zero, and may vest in the future if certain specified earnings per share targets for fiscal years 2014 and 2015 are achieved. The Company will not begin recognizing compensation cost for these awards until the future periods that the awards relate to, and then only if the Company believes that the performance targets related to the unvested restricted stock will be achieved. As a result, this award is not included in the unrecognized compensation cost award disclosure which follows.

At February 1, 2013, the total unrecognized compensation cost related to nonvested stock-based awards was $27.7 million with an expected weighted average expense recognition period of 1.7 years.

In October 2007, the Company's Board of Directors adopted an Equity Appreciation Rights Plan, which plan was later amended and restated (as amended and restated, the "Rights Plan"). The Rights Plan provides for the granting of equity appreciation rights to nonexecutive managerial employees. During 2011, 818,847 equity appreciation rights were granted, 768,561 of such rights vested, primarily in conjunction with the Company's December 2011 stock offering and 50,286 of such rights were cancelled. No such rights are outstanding as of February 1, 2013.

The fair value method of accounting for share-based awards resulted in share-based compensation expense (a component of SG&A expenses) and a corresponding reduction in net income before income taxes as follows:

(In thousands)	Stock Options		Performance Stock Units		Restricted Stock Units		Equity Appreciation Rights		Total

Year ended February 1, 2013
Pre-tax	$	14,078	$	4,082	$	3,504	$	—	$	21,664
Net of tax	$	8,578	$	2,487	$	2,135	$	—	$	13,200
Year ended February 3, 2012
Pre-tax	$	15,121	$	—	$	129	$	8,731	$	23,981
Net of tax	$	9,208	$	—	$	79	$	5,317	$	14,604
Year ended January 28, 2011
Pre-tax	$	12,722	$	—	$	83	$	17,366	$	30,171
Net of tax	$	7,755	$	—	$	51	$	10,587	$	18,393