Stein Mart 2008 Annual Report Download - page 39

STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in tables in thousands, except per share amounts)
F-15
Stock Options
The fair value of each stock option granted during 2008, 2007 and 2006 was estimated at the date of grant using the Black-Scholes options
pricing model with the following weighted-average assumptions: expected volatility of 58.7%, 46.2% and 47.2% respectively, expected
dividend yield of 0%, 2.1% and 1.5% respectively, a risk-free interest rate of 1.5%, 4.4% and 4.8% respectively, and an expected option
term of 4.1 years, 4.8 years and 5.2 years respectively. The expected volatility is based on the historical volatility of our stock prices over
assumed expected terms. The risk-free interest rate is estimated from yields of U.S. Treasury instruments of varying maturities with terms
consistent with the expected terms of the options. The expected term of an option is calculated from a lattice model using historical
employee exercise data.
A summary of stock option information for the three years ended January 31, 2009 is as follows (in thousands, except per share amounts):
Number of
Shares
Weighted-Average
Exercise Price
Aggregate
Intrinsic Value
Weighted-Average
Remaining
Contractual Term
Outstanding at January 28, 2006 2,775 $12.63
Granted 751 16.66
Exercised (190) 11.23
Cancelled or forfeited (72) 13.82
Outstanding at February 3, 2007 3,264 13.81
Granted 567 12.35
Exercised (284) 12.39
Cancelled or forfeited (914) 15.76
Outstanding at February 2, 2008 2,633 12.75
Granted 1,264 1.33
Cancelled or forfeited (629) 11.27
Outstanding at January 31, 2009 3,268 $ 8.62 $ - 5.0 years
Exercisable stock options at January 31, 2009 1,106 $10.32 $ - 3.5 years
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value (the difference between the Company’s
closing stock price on the last trading date of 2008 and the exercise price, multiplied by the number of in-the-money options) that would
have been received by the option holders had all option holders exercised their options on January 31, 2009. This amount changes based
on the fair market value of the Company’s common stock. There were no in-the-money options at January 31, 2009.
As of January 31, 2009, there was $2.5 million of unrecognized compensation cost related to stock options which is expected to be
recognized over a weighted-average period of 1.8 years. The weighted-average grant-date fair value of options granted during 2008 was
$0.58. The total intrinsic value of stock options exercised was $0.9 million during both 2007 and 2006. No stock options were exercised
during 2008. Therefore, there was no cash received or tax benefit derived from the exercise of stock options during 2008.
Restricted Stock and Performance Share Awards
The Company has issued restricted stock awards to eligible key employees and directors. All restricted stock awards have restriction
periods tied primarily to employment, and all performance share awards have vesting tied to service and performance. Shares awarded
under the plan entitle the shareholder to all rights of common stock ownership except that the shares may not be sold, transferred, pledged,
exchanged or otherwise disposed of during the restriction period. For most awards, vesting is based on the service period and vesting
occurs (1) 100% at the end of seven years following the date of grant, (2) at the rate of 33%, 33% and 34%, respectively, at the end of each
of the first three years, (3) 100% at the end of the third year, or (4) at the rate of 33%, 33% and 34%, respectively, at the end of the third,
fourth and fifth years. For awards that fully vest at the end of seven years following the date of grant, vesting is accelerated to the end of
the second fiscal year if certain defined Company performance goals are achieved. Unvested shares are forfeited upon termination of
employment. The total value of share-based compensation expense for restricted stock is based on the closing price of the Company’s
stock on the date of grant.
The Company’s Management Incentive Compensation Plan (the “Compensation Plan”), as amended in June 2006, provides for long-term
incentive compensation, payable as performance shares (60%) and stock options (40%) to certain qualified key employees. Long-term
incentive compensation will be awarded only if EPS goals are met, and aggregate compensation value is based on each key employee’s
position. These performance shares (“EPS Performance Shares”) are earned based on aggregate EPS goals for a three year rolling period