10. 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 allows 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 January 31, 2014, 19,871,333 of such shares are available for future grants.

Through May 2011, a significant majority of the Company's share-based awards were stock options that vest solely upon the continued employment of the recipient ("MSA Time Options") and options that vest upon the achievement of predetermined annual or cumulative financial-based targets ("MSA Performance Options"). MSA Time and MSA Performance Options generally vest ratably on an annual basis over a period of approximately five years, with limited exceptions.

Both the MSA Time Options and the MSA Performance Options are subject to various provisions set forth in a management stockholder's agreement ("MSA") entered into with each option holder. The MSA contains certain put and call rights and other provisions pertaining to both the option holder and the Company which may, in certain scenarios, affect the holder's ability to sell or realize market value for these instruments and any shares acquired thereunder.

Assuming specified financial targets are met, the MSA Performance Options vest as of the Company's fiscal year end, and as a result the initial and final tranche of each MSA 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 MSA Performance Options for that period may still subsequently vest, provided that a cumulative performance target is achieved. The MSA Time Options and MSA 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 Company has also issued share-based awards that are not subject to an MSA. These awards have generally been in the form of stock options, restricted stock units and performance share units. Stock options granted to employees and board members generally vest ratably on an annual basis over a four-year and three-year period, respectively. Restricted stock units generally vest ratably over a three-year period. Performance share units generally vest ratably over a three-year period, provided that certain minimum performance criteria are met in the year of grant. With limited exceptions, the performance share unit and restricted stock unit awards are automatically converted into shares of common stock on the vesting date.

The weighted average for key assumptions used in determining the fair value of all stock options granted in the years ended January 31, 2014, February 1, 2013, and February 3, 2012, and a summary of the methodology applied to develop each assumption, are as follows:



Expected dividend yield	0	%	0	%	0	%
Expected stock price volatility	26.2	%	26.8	%	38.7	%
Weighted average risk-free interest rate	1.2	%	1.5	%	2.3	%
Expected term of options (years)	6.3		6.3		6.8

Expected dividend yield—This is an estimate of the expected dividend yield on the Company's stock. 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 companies deemed to be comparable. 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.

A summary of MSA Time Options activity during the year ended January 31, 2014 is as follows:

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

Balance, February 1, 2013	1,350,642		$	13.69
Granted	—			—
Exercised	(871,037	)		11.11
Canceled	(15,042	)		25.17


Balance, January 31, 2014	464,563		$	18.15	5.6	$	17,730




Exercisable at January 31, 2014	292,807		$	15.43	5.3	$	11,973

The weighted average grant date fair value of MSA Time Options granted during 2011 was $13.47. The intrinsic value of MSA Time Options exercised during 2013, 2012 and 2011 was $39.4 million, $117.3 million and $41.4 million, respectively.

A summary of MSA Performance Options activity during the year ended January 31, 2014 is as follows:

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

Balance, February 1, 2013	1,264,826		$	13.96
Granted	—			—
Exercised	(868,441	)		11.28
Canceled	(20,076	)		22.69


Balance, January 31, 2014	376,309		$	19.68	5.8	$	13,790




Exercisable at January 31, 2014	336,716		$	18.56	5.7	$	12,714

The weighted average grant date fair value of MSA Performance Options granted during 2011 was $13.47. The intrinsic value of MSA Performance Options exercised during 2013, 2012 and 2011 was $39.1 million, $106.4 million and $41.8 million, respectively.

A summary of the Company's other stock option activity during the year ended January 31, 2014 is as follows:

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

Balance, February 1, 2013	1,211,771		$	42.77
Granted	875,269			48.80
Exercised	(53,813	)		41.51
Canceled	(192,685	)		46.69


Balance, January 31, 2014	1,840,542		$	45.26	8.5	$	20,356




Exercisable at January 31, 2014	369,424		$	38.51	7.4	$	6,580

The weighted average grant date fair value of other options granted was $13.86, $13.54 and $13.14 during 2013, 2012 and 2011, respectively. The intrinsic value of other options exercised during 2013, 2012, and 2011 was $0.8 million, $0.3 million and $1.6 million, respectively.

The number of performance share unit awards earned is based upon the Company's annual financial performance in the year of grant as specified in the award agreement. A summary of performance share unit award activity during the year ended January 31, 2014 is as follows:

(Intrinsic value amounts reflected in thousands)			Intrinsic Value

Balance, February 1, 2013	162,688
Granted	72,846
Converted to common stock	(54,973	)
Canceled	(21,142	)


Balance, January 31, 2014	159,419		$	8,978

The weighted average grant date fair value of performance share units granted was $48.11 and $45.25 during 2013 and 2012, respectively. No performance share units were granted during 2011.

A summary of restricted stock unit award activity during the year ended January 31, 2014 is as follows:

(Intrinsic value amounts reflected in thousands)			Intrinsic Value

Balance, February 1, 2013	288,927
Granted	509,440
Converted to common stock	(98,063	)
Canceled	(83,777	)


Balance, January 31, 2014	616,527		$	34,723

The weighted average grant date fair value of restricted stock units granted was $48.20, $45.33 and $33.16 during 2013, 2012 and 2011, respectively.

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 may vest in the future if certain specified earnings per share targets for fiscal years 2014 and 2015 are achieved.

The Company currently believes that the performance targets related to the unvested MSA Performance Options and restricted stock will be achieved. If such goals are not met, and no event occurs which would result in the acceleration of vesting of these awards as specified in the underlying agreements, future compensation cost relating to these unvested awards will not be recognized.

At January 31, 2014, the total unrecognized compensation cost related to nonvested stock-based awards was $53.5 million with an expected weighted average expense recognition period of 1.5 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 January 31, 2014.

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 Share Units		Restricted Stock Units		Equity Appreciation Rights		Total

Year ended January 31, 2014
Pre-tax	$	7,634	$	3,448	$	9,879	$	—	$	20,961
Net of tax	$	4,649	$	2,100	$	6,016	$	—	$	12,765
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