Share-based payments

12 Months Ended

Jan. 31, 2020

Share-based payments

Share-based payments

9.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. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The fair value of the Company’s other share-based awards discussed below are estimated using the Company’s closing stock price on the grant date. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period.

On July 6, 2007, the Company’s Board of Directors adopted the 2007 Stock Incentive Plan, which plan was subsequently amended and restated on several occasions (as so amended and restated, 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.

Generally, share-based awards issued by the Company are in the form of stock options, restricted stock units and performance share units, and unless noted otherwise, the disclosures that follow refer to such awards. With limited exceptions, stock options and restricted stock units granted to employees generally vest ratably on an annual basis over four-year and three-year periods, respectively. Awards granted to board members generally vest over a one-year period. The number of performance share units earned are based on performance criteria measured over a period of one to three years, and such awards generally vest over a three-year period. With limited exceptions, the performance share unit and restricted stock unit awards are payable in 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, 2020, February 1, 2019, and February 2, 2018, and a summary of the methodology applied to develop each assumption, are as follows:

	January 31,		February 1,		February 2,
	2020		2019		2018
Expected dividend yield	1.1	%	1.2	%	1.3	%
Expected stock price volatility	25.3	%	25.0	%	25.5	%
Weighted average risk-free interest rate	2.3	%	2.7	%	2.1	%
Expected term of options (years)	6.2		6.3		6.3

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. 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. An increase in the expected term will increase compensation expense.

A summary of the Company’s stock option activity during the year ended January 31, 2020 is as follows:

		Average		Remaining
	Options	Exercise		Contractual	Intrinsic
(Intrinsic value amounts reflected in thousands)	Issued	Price		Term in Years	Value
Balance, February 1, 2019	3,257,250	$	76.76
Granted	649,139		119.05
Exercised	(470,777)		71.33
Canceled	(115,893)		90.13
Balance, January 31, 2020	3,319,719	$	85.34	6.9	$	225,983
Exercisable at January 31, 2020	1,533,231	$	72.81	5.6	$	123,582

The weighted average grant date fair value per share of options granted was $30.67, $24.37 and $17.66 during 2019, 2018 and 2017, respectively. The intrinsic value of options exercised during 2019, 2018 and 2017, was $26.6 million, $15.4 million and $7.3 million, respectively.

The number of performance share unit awards earned is based upon the Company’s financial performance as specified in the award agreement. A summary of performance share unit award activity during the year ended January 31, 2020 is as follows:

	Units	Intrinsic
(Intrinsic value amounts reflected in thousands)	Issued	Value
Balance, February 1, 2019	210,989
Granted	108,584
Converted to common stock	(89,562)
Canceled	(12,563)
Balance, January 31, 2020	217,448	$	33,359

All performance share unit awards at January 31, 2020 are unvested, and the number of such awards which will ultimately vest will be based in part on the Company’s financial performance in future years. The weighted average grant date fair value per share of performance share units granted was $117.13, $92.98 and $70.68 during 2019, 2018 and 2017, respectively.

A summary of restricted stock unit award activity during the year ended January 31, 2020 is as follows:

	Units	Intrinsic
(Intrinsic value amounts reflected in thousands)	Issued	Value
Balance, February 1, 2019	450,039
Granted	230,577
Converted to common stock	(211,511)
Canceled	(50,436)
Balance, January 31, 2020	418,669	$	64,228

The weighted average grant date fair value per share of restricted stock units granted was $117.20, $93.16 and $70.90 during 2019, 2018 and 2017, respectively.

At January 31, 2020, the total unrecognized compensation cost related to unvested stock-based awards was $76.1 million with an expected weighted average expense recognition period of 2.1 years.

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 income before and net of income taxes as follows:

	Stock		Performance		Restricted
(In thousands)	Options		Share Units		Stock Units		Total
Year ended January 31, 2020
Pre-tax	$	16,128	$	13,343	$	19,118	$	48,589
Net of tax	$	12,080	$	9,994	$	14,319	$	36,393
Year ended February 1, 2019
Pre-tax	$	14,556	$	8,597	$	17,726	$	40,879
Net of tax	$	10,902	$	6,439	$	13,277	$	30,618
Year ended February 2, 2018
Pre-tax	$	11,599	$	6,159	$	16,565	$	34,323
Net of tax	$	7,223	$	3,835	$	10,315	$	21,373