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Share-Based Compensation

9 Months Ended

Nov. 02, 2019

12. Share-Based Compensation

Total compensation expense included in SG&A, and the associated tax benefits recognized related to the Company’s share-based compensation plans, were as follows:


	Thirteen weeks ended				Thirty-nine weeks ended
	November 2,		November 3,		November 2,		November 3,
	2019		2018		2019		2018
		($ in millions)
Options and shares purchased under the employee stock purchase plan	$	1	$	2	$	5	$	5
Restricted stock and restricted stock units		5		5		14		11
Total share-based compensation expense	$	6	$	7	$	19	$	16

Tax benefit recognized	$	1	$	1	$	2	$	2

Valuation Model and Assumptions

The Company uses the Black-Scholes option-pricing model to estimate the fair value of share-based awards. The Black-Scholes option-pricing model incorporates various and subjective assumptions, including expected term and expected volatility.

The following table shows the Company’s assumptions used to compute share-based compensation expense for awards granted during the thirty-nine weeks ended November 2, 2019 and November 3, 2018:


		Stock Option Plans						Stock Purchase Plan
	November 2,			November 3,			November 2,			November 3,
	2019			2018			2019			2018
Weighted-average risk free rate of interest		2.2	%		2.7	%		2.3	%		1.8	%
Expected volatility		38	%		37	%		55	%		47	%
Weighted-average expected award life (in years)		5.5			5.5			1.0			1.0
Dividend yield		2.6	%		3.1	%		3.0	%		2.4	%
Weighted-average fair value	$	17.07		$	12.42		$	18.12		$	15.16

The information in the following table covers option activity under the Company’s stock option plans for the thirty-nine weeks ended November 2, 2019:


			Weighted-		Weighted-
	Number		Average		Average
	of		Remaining		Exercise
	Shares		Contractual Life		Price
	(in thousands)		(in years)		(per share)
Options outstanding at the beginning of the year		2,861			$	52.34
Granted		321				58.65
Exercised		(168)				27.12
Expired or cancelled		(101)				60.80
Options outstanding at November 2, 2019		2,913		6.0	$	54.19
Options exercisable at November 2, 2019		2,168		5.1	$	53.66
Options available for future grant at November 2, 2019		7,392

The total fair value of options vested during the thirty-nine weeks ended November 2, 2019 and November 3, 2018 was $6 million and $8 million, respectively. The cash received from option exercises was not significant for the thirteen weeks ended November 2, 2019 and $5 million for the thirty-nine weeks ended November 2, 2019. The total tax benefit realized from option exercises was not significant for the thirteen weeks ended November 2, 2019 and $1 million for the thirty-nine weeks ended November 2, 2019.

The total intrinsic value of options exercised (the difference between the market price of the Company’s common stock on the exercise date and the price paid by the optionee to exercise the option) is presented below:


	Thirteen weeks ended				Thirty-nine weeks ended
	November 2,		November 3,		November 2,		November 3,
	2019		2018		2019		2018
		($ in millions)
Exercised	$	—	$	—	$	5	$	3

The aggregate intrinsic value for stock options outstanding, and outstanding and exercisable (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:

As of November 2, 2019 there was $5 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a remaining weighted-average period of 1.4 years.

The following table summarizes information about stock options outstanding and exercisable at November 2, 2019:


	Options Outstanding				Options Exercisable
		Weighted-
		Average	Weighted-			Weighted-
		Remaining	Average			Average
Range of Exercise	Number	Contractual	Exercise		Number	Exercise
Prices	Outstanding	Life	Price		Exercisable	Price
	(in thousands, except prices per share and contractual life)
$9.85 to $18.84	128	1.3	$	18.54	128	$	18.54
$24.75 to $36.51	378	3.4		32.13	335		31.77
$44.78 to $45.75	577	6.6		44.91	349		44.99
$46.64 to $62.11	942	6.6		59.98	616		60.82
$63.33 to $73.21	888	6.7		68.58	740		67.75
	2,913	6.0	$	54.19	2,168	$	53.66

Restricted Stock Units

Restricted stock units (“RSU”) of the Company’s common stock may be awarded to certain officers and key employees of the Company. Additionally, RSU awards are made to employees in connection with the Company’s long-term incentive program, and to nonemployee directors. Each RSU award represents the right to receive one share of the Company’s common stock provided that the performance and vesting conditions are satisfied.

Generally, awards fully vest after the passage of time, typically three years. However, RSU awards made in connection with the Company’s performance-based long-term incentive program are earned after the attainment of certain performance metrics and, with regards to certain awards, vest after an additional one-year period.

No dividends are paid or accumulated on any RSU awards.

Compensation expense is recognized using the market value at the date of grant and is amortized over the vesting period, provided the recipient continues to be employed by the Company.

RSU activity for the thirty-nine weeks ended November 2, 2019 is summarized as follows:


			Weighted-Average
	Number		Remaining		Weighted-Average
	of		Contractual		Grant Date
	Shares		Life		Fair Value
		(in thousands)		(in years)		(per share)
Nonvested at beginning of year		1,022			$	47.47
Granted ⁽¹⁾		306				58.48
Vested		(88)				60.40
Performance adjustment ⁽²⁾		(27)
Expired or cancelled		(23)				53.15
Nonvested at November 2, 2019		1,190		1.5	$	49.18

Aggregate value ($ in millions)	$	59

(1)	Included in the units granted are approximately 0.2 million performance-based RSUs. The number of performance-based RSUs that are ultimately earned may vary from 0% to 200% of target depending on the achievement relative to the Company’s predefined financial performance targets.

(2)	This represents adjustments made to performance-based RSU awards and reflect changes in estimates based upon the Company’s current performance against predefined financial targets.

The total value of awards that vested during the thirty-nine weeks ended November 2, 2019 and November 3, 2018 was $5 million and $7 million, respectively. As of November 2, 2019, there was $30 million of total unrecognized compensation cost related to nonvested awards.

Thirty-nine weeks ended

November 2, 2019

November 3, 2018

($ in millions)

Outstanding

Outstanding and exercisable