STOCK-BASED COMPENSATION

3 Months Ended

May 03, 2020

Share-based Payment Arrangement [Abstract]

The Company grants stock-based awards under its Stock Incentive Plan (the “Plan”). Shares issued as a result of stock-based compensation transactions generally have been funded with the issuance of new shares of the Company’s common stock.

The Company may grant the following types of incentive awards under the Plan: (i) non-qualified stock options (“stock options”); (ii) incentive stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) performance shares; (vii) performance share units (“PSUs”); and (viii) other stock-based awards. Each award granted under the Plan is subject to an award agreement that incorporates, as applicable, the exercise price, the term of the award, the periods of restriction, the number of shares to which the award pertains, performance periods and performance measures, and such other terms and conditions as the plan committee determines. Awards granted under the Plan are classified as equity awards, which are recorded in stockholders’ equity in the Company’s Consolidated Balance Sheets.

Through May 3, 2020, the Company has granted under the Plan (i) service-based stock options, RSUs and restricted stock; and (ii) contingently issuable PSUs and RSUs. There was no restricted stock outstanding as of May 3, 2020.

According to the terms of the Plan, for purposes of determining the number of shares available for grant, each share underlying a stock option award reduces the number available by one share and each share underlying an RSU or PSU award reduces the number available by two shares.

Net (loss) income for the thirteen weeks ended May 3, 2020 and May 5, 2019 included $10.0 million and $13.9 million, respectively, of pre-tax expense related to stock-based compensation, with related recognized income tax benefits of $1.4 million and $1.9 million, respectively.

The Company receives a tax deduction for certain transactions associated with its stock-based awards. The actual income tax benefits realized from these transactions during the thirteen weeks ended May 3, 2020 and May 5, 2019 were $1.7 million and $7.8 million, respectively. The tax benefits realized included discrete net excess tax (deficiencies) benefits of $(4.5) million and $1.3 million recognized in the Company’s provision for income taxes during the thirteen weeks ended May 3, 2020 and May 5, 2019, respectively.

Stock Options

Stock options granted to employees are generally exercisable in four equal annual installments commencing one year after the date of grant. The underlying stock option award agreements generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the Plan). Such stock options are granted with a 10-year term and the per share exercise price cannot be less than the closing price of the common stock on the date of grant.

The Company estimates the fair value of stock options at the date of grant using the Black-Scholes-Merton model. The estimated fair value of the stock options granted is expensed over the stock options’ vesting periods.

The following summarizes the assumptions used to estimate the fair value of stock options granted during the thirteen weeks ended May 3, 2020 and May 5, 2019 and the resulting weighted average grant date fair value per stock option:


	5/3/20			5/5/19
Weighted average risk-free interest rate	0.53		%	2.34		%
Weighted average expected stock option term (in years)	6.25			6.25
Weighted average Company volatility	44.77		%	28.03		%
Expected annual dividends per share	$	0.15		$	0.15
Weighted average grant date fair value per stock option	$	20.14		$	41.15

The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the contractual term of the stock options. Company volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term. Expected dividends are based on the Company’s anticipated common stock cash dividend rate; the dividend assumption for the stock options granted during the first quarter of 2020 was not affected by the Company's suspension of its cash dividend beginning with the second quarter of 2020 in response to the impacts of the COVID-19 pandemic on its business, as such suspension was viewed as temporary.

The Company has continued to utilize the simplified method to estimate the expected term for its “plain vanilla” stock options granted due to a lack of relevant historical data resulting, in part, from changes in the pool of employees receiving stock option grants. The Company will continue to evaluate the appropriateness of utilizing such method.

Stock option activity for the thirteen weeks ended May 3, 2020 was as follows:


(In thousands, except per stock option data)	Stock Options	Weighted Average Exercise Price Per Stock Option
Outstanding at February 2, 2020	902	$	109.25
Granted	158	47.96
Exercised	—	—
Cancelled	17	77.65
Outstanding at May 3, 2020	1,043	$	100.47
Exercisable at May 3, 2020	685	$	108.20

RSUs

RSUs granted to employees generally vest in four equal annual installments commencing one year after the date of grant. Service-based RSUs granted to non-employee directors vest in full one year after the date of grant. The underlying RSU award agreements (excluding agreements for non-employee director awards) generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the Plan). The fair value of RSUs is equal to the closing price of the Company’s common stock on the date of grant and is expensed over the RSUs’ vesting periods.

RSU activity for the thirteen weeks ended May 3, 2020 was as follows:


(In thousands, except per RSU data)	RSUs	Weighted Average Grant Date Fair Value Per RSU
Non-vested at February 2, 2020	996	$	117.28
Granted	347	47.96
Vested	248	120.80
Cancelled	19	123.26
Non-vested at May 3, 2020	1,076	$	94.00

PSUs

Contingently issuable PSUs granted to certain of the Company’s senior executives since 2015 are subject to a three-year performance period. For such awards, the final number of shares to be earned, if any, is contingent upon the Company’s achievement of goals for the applicable performance period, of which 50% is based upon the Company’s absolute stock price growth during the applicable performance period and 50% is based upon the Company’s total shareholder return during the applicable performance period relative to other companies included in the S&P 500 as of the date of grant. For awards granted in 2017, the three-year performance period ended during the first quarter of 2020 and holders of the awards did not earn any shares since the market condition was not satisfied. The Company records expense ratably over the applicable vesting period regardless of whether the market condition is satisfied because the awards are subject to market conditions. The fair value of the awards granted was established for each grant on the grant date using the Monte Carlo simulation model.

The following summarizes the assumptions used to estimate the fair value of PSUs granted during the thirteen weeks ended May 3, 2020 and May 5, 2019 and the resulting weighted average grant date fair value per PSU:


	5/3/20			5/5/19
Risk-free interest rate	0.20		%	2.26		%
Expected Company volatility	48.91		%	29.88		%
Expected annual dividends per share	$	0.15		$	0.15
Weighted average grant date fair value per PSU	$	58.82		$	129.46

The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for the term corresponding to the three-year performance-period. Company volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the three-year performance-period. Expected dividends are based on the Company’s anticipated common stock cash dividend rate; the dividend assumption for the PSUs granted during the first quarter of 2020 was not affected by the Company's suspension of its cash dividend beginning with the second quarter of 2020 in response to the impacts of the COVID-19 pandemic on its business, as such suspension was viewed as temporary.

For certain of the awards granted, the after-tax portion of the award is subject to a holding period of one year after the vesting date. For such awards, the grant date fair value was discounted 15.05% in 2020 and 6.20% in 2019 for the restriction of liquidity, which was calculated using the Chaffe model.

PSU activity for the thirteen weeks ended May 3, 2020 was as follows:


(In thousands, except per PSU data)	PSUs	Weighted Average Grant Date Fair Value Per PSU
Non-vested at February 2, 2020	181	$	119.63
Granted at target	74	58.82
Reduction due to market condition not satisfied	70	96.47
Vested	—	—
Cancelled	—	—
Non-vested at May 3, 2020	185	$	104.29