Stock-Based Compensation

In March 2006, the Board of Directors of the Company approved the Steven Madden, Ltd. 2006 Stock Incentive Plan (the “Plan”) under which nonqualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based awards and performance-based cash awards may be granted to employees, consultants and non-employee directors. The stockholders approved the Plan on May 26, 2006. On May 25, 2007, the stockholders approved an amendment to the Plan to increase the maximum number of shares that may be issued under the Plan from 4,050,000 to 5,231,250. On May 22, 2009, the stockholders approved a second amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to 13,716,000. On May 25, 2012, the stockholders approved a third amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to 23,466,000. The following table summarizes the number of shares of common stock authorized for use under the Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the Plan and the number of shares of common stock available for the grant of stock-based awards under the Plan:



Common stock authorized	23,466,000
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled	(17,986,000	)

Common stock available for grant of stock-based awards as of December 31, 2013	5,480,000

In accordance with accounting guidance relating to stock-based compensation, the Company records compensation for all awards based on the fair value of options and restricted stock on the date of grant. Equity-based compensation is included in operating expenses on the Company's Consolidated Statements of Income. For the years ended December 31, 2013, 2012 and 2011, total equity-based compensation was as follows:



	Years Ended December 31,
	2013		2012		2011
Restricted stock	$	15,097	$	11,622	$	5,787
Stock options	5,044		5,812		5,617
Total	$	20,141	$	17,434	$	11,404

The Company classifies cash flows resulting from the tax benefits from tax deductions in excess of the compensation costs recognized for those options (tax benefits) as financing cash flows. For the years ended December 31, 2013, 2012 and 2011, the Company realized a tax benefit from stock-based compensation of $4,277, $4,608 and $4,154, respectively.

Note I – Stock-Based Compensation (continued)

Stock Options

The total intrinsic value of options exercised during 2013, 2012 and 2011 amounted to $8,016, $15,386 and $10,768 respectively. During the years ended December 31, 2013, 2012 and 2011, 1,061,513 options with a weighted average exercise price of $12.91, 1,243,500 options with a weighted average exercise price of $12.77 and 1,290,000 options with a weighted average exercise price of $10.61 vested, respectively. As of December 31, 2013, there were unvested options relating to 1,218,199 shares of common stock with a total of $7,620 of unrecognized compensation cost and an average vesting period of 2.5 years.

The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. With the exception of special dividends paid in November 2005 and 2006, the Company historically has not paid regular cash dividends and thus the expected dividend rate is assumed to be zero. The following weighted average assumptions were used for stock options granted:



	2013	2012	2011
Volatility	31% to 45%	40% to 47%	43% to 49%
Risk-free interest rate	0.37% to 1.38%	0.47% to 0.87%	0.61% to 1.78%
Expected life in years	4 to 5	3 to 5	2 to 4
Dividend yield	0.00%	0.00%	0.00%
Weighted average fair value	$10.21	$9.43	$7.31

Activity relating to stock options granted under the Company’s plans and outside the plans during the three years ended December 31, 2013 is as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2011	4,054,500		$	9.39
Granted	927,000		19.95
Exercised	(658,500	)	7.59
Cancelled/Forfeited	(268,500	)	12.95
Outstanding at December 31, 2011	4,054,500		11.86
Granted	354,000		27.09
Exercised	(874,500	)	10.61
Cancelled/Forfeited	(130,500	)	13.40
Outstanding at December 31, 2012	3,403,500		13.71
Granted	584,000		30.03
Exercised	(563,000	)	10.28
Cancelled/Forfeited	(51,500	)	22.32
Outstanding at December 31, 2013	3,373,000		17.01		3.6 years	$	94,064
Exercisable at December 31, 2013	2,163,000		12.88		2.8 years	$	51,269

Note I – Stock-Based Compensation (continued)

The following table summarizes information about stock options at December 31, 2013:



	Options Outstanding			Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$3.65 to $8.72	1,073,000	1.8	$5.67	1,073,000	$5.67
$9.50 to $14.99	203,000	3.2	13.43	80,500	13.26
$15.29 to $20.86	924,000	3.4	17.19	552,000	16.75
$21.17 to $26.95	448,000	4.8	24.55	407,500	24.62
$27.03 to $38.96	732,000	5.7	29.77	50,000	28.75
	3,380,000	3.6	17.01	2,163,000	12.88

Restricted Stock

The following table summarizes restricted stock activity during the three years ended December 31, 2013:



	Number of Shares		Weighted Average Fair Value at Grant Date
Outstanding at January 1, 2011	843,000		$	11.47
Granted	574,500		21.10
Vested	(358,500	)	10.37
Forfeited	(52,500	)	18.96
Outstanding at December 31, 2011	1,006,500		16.96
Granted	3,670,500		24.23
Vested	(340,500	)	16.33
Forfeited	(3,000	)	25.40
Outstanding at December 31, 2012	4,333,500		23.16
Granted	434,000		29.21
Vested	(473,500	)	19.65
Forfeited	(37,000	)	18.82
Outstanding at December 31, 2013	4,257,000		24.24

As of December 31, 2013, there was $87,393 of total unrecognized compensation cost related to restricted stock awards granted under the Plan. This cost is expected to be recognized over a weighted average of 8.7 years.

The Company determines the fair value of its restricted stock awards based on the market price of its common stock on the date of grant. The fair value of the restricted stock that vested during the years ended December 31, 2013, 2012 and 2011 was $9,306, $5,553 and $3,718, respectively.

Note I – Stock-Based Compensation (continued)

On January 3, 2012, the Company and its Creative and Design Chief, Steven Madden, entered into an amendment of Mr. Madden’s existing employment agreement, pursuant to which, on February 8, 2012, Mr. Madden was granted 1,463,057 restricted shares of the Company’s common stock at the then market price of $27.34, which will vest in equal annual installments over a seven-year period commencing on December 31, 2017 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. Pursuant to the amended employment agreement, on June 30, 2012, Mr. Madden exercised his right to receive an additional restricted stock award, and on July 3, 2012 he was granted 1,893,342 restricted shares of the Company's common stock at the then market price of $21.13, which will vest in the same manner as the prior grant.