STOCK-BASED COMPENSATION

12 Months Ended

Jan. 30, 2022

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 January 30, 2022, the Company has granted under the Plan (i) service-based stock options, RSUs and restricted stock; and (ii) contingently issuable PSUs and RSUs. There were no shares of restricted stock or contingently issuable RSUs outstanding as of January 30, 2022.

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. Total shares available for grant at January 30, 2022 amounted to 4.3 million shares.

Net income (loss) for 2021, 2020 and 2019 included $46.8 million, $50.5 million and $56.1 million, respectively, of pre-tax expense related to stock-based compensation, with related recognized income tax benefits of $6.2 million, $5.9 million and $6.9 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 in 2021, 2020 and 2019 were $7.6 million, $3.0 million and $8.8 million, respectively. The tax benefits realized included discrete net excess tax (deficiencies) benefits of $(5.4) million and $0.9 million recognized in the Company’s provision for income taxes during 2020 and 2019, respectively. Discrete net excess tax benefits recognized in the Company’s provision for income taxes during 2021 were immaterial.

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’ requisite service periods.

The following summarizes the assumptions used to estimate the fair value of stock options granted during 2021, 2020 and 2019 and the resulting weighted average grant date fair value per stock option:


	2021			2020			2019
Weighted average risk-free interest rate	1.24		%	0.48		%	2.15		%
Weighted average expected stock option term (in years)	6.25			6.25			6.25
Weighted average Company volatility	47.58		%	45.08		%	29.88		%
Expected annual dividends per share	$	0.15		$	0.15		$	0.15
Weighted average grant date fair value per stock option	$	48.28		$	23.05		$	37.14

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 anticipated common stock cash dividend rate for the Company at the time of grant; the dividend assumption for the stock options granted during 2021 and 2020, respectively, 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 and as a condition of the June 2020 Amendment that was in effect through June 10, 2021, as such suspension was viewed as temporary. Please see Note 14, “Stockholders' Equity,” for further discussion of dividends on the Company’s common stock.

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 year was as follows:


(In thousands, except years and per stock option data)	Stock Options	Weighted Average Exercise Price Per Stock Option		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at January 31, 2021	1,028	$	98.23	6.0	$	7,139
Granted	96	104.30
Exercised	316	84.68
Forfeited / Expired	120	109.12
Outstanding at January 30, 2022	688	$	103.40	5.0	$	4,576
Exercisable at January 30, 2022	466	$	113.51	3.7	$	1,053

The aggregate grant date fair value of stock options granted during 2021, 2020 and 2019 was $4.6 million, $5.8 million and $6.3 million, respectively.

The aggregate grant date fair value of stock options that vested during 2021, 2020 and 2019 was $7.2 million, $5.0 million and $6.5 million, respectively.

The aggregate intrinsic value of stock options exercised during 2021, 2020 and 2019 was $9.7 million, $0.7 million and $1.3 million, respectively.

At January 30, 2022, there was $5.3 million of unrecognized pre-tax compensation expense related to non-vested stock options, which is expected to be recognized over a weighted average period of 1.8 years.

RSUs

RSUs granted to employees generally vest in four equal annual installments commencing one year after the date of grant, although the Company does make from time to time, and currently has outstanding, RSUs with different vesting schedules. Service-based RSUs granted to non-employee directors vest in full the earlier of one year after the date of grant or the date of the Annual Meeting of Stockholders following the year of grant. The underlying RSU award agreements for employees 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’ requisite service periods.

RSU activity for the year was as follows:


(In thousands, except per RSU data)	RSUs	Weighted Average Grant Date Fair Value Per RSU
Non-vested at January 31, 2021	1,470	$	78.80
Granted	562	108.96
Vested	575	87.31
Forfeited	281	82.84
Non-vested at January 30, 2022	1,176	$	88.09

The aggregate grant date fair value of RSUs granted during 2021, 2020 and 2019 was $61.2 million, $59.2 million and $67.3 million, respectively. The aggregate grant date fair value of RSUs vested during 2021, 2020 and 2019 was $50.2 million, $41.2 million and $40.7 million, respectively.

At January 30, 2022, there was $71.5 million of unrecognized pre-tax compensation expense related to non-vested RSUs, which is expected to be recognized over a weighted average period of 1.7 years.

PSUs

Contingently issuable PSUs granted to employees generally vest three years after the date of grant, subject to the satisfaction of performance conditions. The Company granted contingently issuable PSUs to certain of the Company’s senior executives during the second quarter of 2021. For these 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 consolidated earnings before interest and taxes (“EBIT”) amount for the 2021 fiscal year, and 50% is based upon the Company’s total shareholder return (“TSR”) during a three-year performance period from the grant date relative to a pre-established group of industry peers. The Company records expense ratably over the three-year service period, with expense determined as follows: (i) EBIT-based portion of the awards – based on the grant date fair value per share and the Company’s current expectations of the probable number of shares that will ultimately be issued and (ii) TSR-based portion of the awards – based on the grant date fair value regardless of whether the market condition is satisfied because the awards are subject to market conditions. The grant date fair value of the awards granted was established as follows: (i) EBIT-based portion of the awards – based on the closing price of the Company’s common stock reduced for the present value of any dividends expected to be paid on the Company’s common stock during the three-year service period, as these contingently issuable PSUs do not accrue dividends and (ii) TSR-based portion of the awards – using the Monte Carlo simulation model. For the EBIT-based portion of the awards, the applicable performance period ended in the fourth quarter of 2021 and the maximum level of performance was achieved. These shares will vest and be paid out subject to and following the completion of the three-year service period.

The Company also granted contingently issuable PSUs to certain of the Company’s senior executives during 2018, 2019 and 2020, subject to a three-year performance period from the applicable grant date. For these 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 TSR during the applicable performance period relative to other companies included in the S&P 500 as of the date of grant. For these awards, the Company records expense ratably over the three-year service period based on the grant date fair value of the awards regardless of whether the market condition is satisfied because the awards are subject to market conditions. The grant date fair value of the awards granted was established for each grant using the Monte Carlo simulation model. For awards granted in 2018, the three-year performance period ended during the first quarter of 2021 and holders of the awards did not earn any shares since the market conditions were not satisfied.

The following summarizes the assumptions used to estimate the fair value of PSUs subject to market conditions that were granted during 2021, 2020 and 2019 and the resulting weighted average grant date fair value:


	2021			2020			2019
Weighted average risk-free interest rate	0.33		%	0.19		%	2.13		%
Weighted average Company volatility	60.69		%	51.86		%	30.25		%
Expected annual dividends per share	$	0.15		$	0.15		$	0.15
Weighted average grant date fair value per PSU	$	159.29		$	64.89		$	119.46

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 anticipated common stock cash dividend rate for the Company at the time of grant; the dividend assumption for the PSUs granted during 2021 and 2020, respectively, 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 and as a condition of the June 2020 Amendment that was in effect through June 10, 2021, as such suspension was viewed as temporary. Please see Note 14, “Stockholders' Equity,” for further discussion of dividends on the Company’s common stock.

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 these awards, the weighted average grant date fair value was discounted 8.40% in 2021 for the restriction of liquidity, which was calculated using the Finnerty model, and 15.94% in 2020 and 6.20% in 2019 for the restriction of liquidity, which was calculated using the Chaffe model. The Company uses the model that is deemed more appropriate after an evaluation of current market conditions.

Total PSU activity for the year was as follows:


(In thousands, except per PSU data)	PSUs	Weighted Average Grant Date Fair Value Per PSU
Non-vested at January 31, 2021	237	$	96.48
Granted	43	134.31
Reduction due to market conditions not satisfied	41	158.97
Increase due to performance conditions achieved above target	19	108.58
Vested	—	—
Forfeited	10	108.61
Non-vested at January 30, 2022	248	$	93.15

The aggregate grant date fair value of PSUs granted during 2021, 2020 and 2019 was $5.8 million, $8.6 million and $8.6 million, respectively. The aggregate grant date fair value of PSUs that vested during 2019 was $6.7 million. No PSUs vested in 2020 and 2021. PSUs in the above table that remain subject to market conditions are reflected at the target level, which is consistent with how expense will be recorded, regardless of the numbers of shares that will actually be earned.

At January 30, 2022, there was $6.7 million of unrecognized pre-tax compensation expense related to non-vested PSUs, which is expected to be recognized over a weighted average period of 2.1 years.