Petsmart 2013 Annual Report Download - page 75

PetSmart, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
F-23
Stock-based Compensation Expense
Stock-based compensation expense, net of forfeitures, and the total income tax benefit recognized in the
Consolidated Statements of Income and Comprehensive Income were as follows (in thousands):
Year Ended
February 2, 2014 February 3, 2013 January 29, 2012
(52 weeks) (53 weeks) (52 weeks)
Stock options expense ............................................................ $ 10,850 $ 11,159 $ 11,435
Restricted stock expense ........................................................ 7,214 4,885 4,624
Performance share unit expense............................................. 10,236 13,913 11,930
Stock-based compensation expense – equity awards........... 28,300 29,957 27,989
Management equity unit expense........................................... 3,387 10,242 11,457
Total stock-based compensation expense ............................ $ 31,687 $ 40,199 $ 39,446
Tax benefit.............................................................................. $ 12,404 $ 15,010 $ 14,764
At February 2, 2014, the total unrecognized stock-based compensation expense for equity awards, net of
estimated forfeitures, was $32.8 million and is expected to be recognized over a weighted average period of 1.9
years. At February 2, 2014, the total unrecognized stock-based compensation expense for liability awards, net of
estimated forfeitures, was $0.5 million and is expected to be recognized over a weighted average period of 0.2
years.
We estimated the fair value of stock options issued using a lattice option pricing model. Expected volatilities
are based on implied volatilities from traded call options on our stock, historical volatility of our stock, and other
factors. We use historical data to estimate option exercises and employee terminations within the valuation model.
The expected term of options granted is derived from the output of the option valuation model and represents the
period of time we expect options granted to be outstanding. The risk-free rates for the periods within the contractual
life of the option are based on the monthly United States Treasury yield curve in effect at the time of the option
grant using the expected life of the option. Stock options are amortized straight-line over the vesting period net of
estimated forfeitures by a charge to income. Actual values of grants could vary significantly from the results of
the calculations.
The following assumptions were used to value stock option grants:
Year Ended
February 2, 2014 February 3, 2013 January 29, 2012
Dividend yield.......................................................... 1.00% 1.20% 1.40%
Expected volatility ................................................... 30.2% 28.8% 31.6%
Risk-free interest rate............................................... 1.33% 1.70% 1.24%
Forfeiture rate........................................................... 13.4% 13.8% 14.3%
Expected lives .......................................................... 5.1 years 5.6 years 5.1 years
Vesting periods......................................................... 4.0 years 4.0 years 4.0 years
Term......................................................................... 7.0 years 7.0 years 7.0 years
Weighted average fair value..................................... $ 15.62 $ 14.54 $ 10.76
Restricted stock expense reflects the fair market value on the date of the grant, net of forfeitures, and is
amortized on a straight-line basis by a charge to income over the requisite service period.