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Share-Based Compensation

12 Months Ended

Jan. 30, 2021

20. Share-Based Compensation

Stock Awards

Under our 2007 Stock Incentive Plan (the “2007 Stock Plan”), stock options, restricted stock, restricted stock units, stock appreciation rights, or other share-based awards may be granted to nonemployee directors, officers and other employees, including our subsidiaries and operating divisions worldwide. Options for employees become exercisable in substantially equal annual installments over a three-year period, beginning with the first anniversary of the date of grant of the option, unless a shorter or longer duration is established at the time of the option grant. The options terminate ten years from the date of grant. On May 21, 2014, the 2007 Stock Plan was amended to increase the number of shares of common stock reserved for all awards to 14 million shares. As of January 30, 2021, there were 7,053,613 shares available for issuance under this plan.

Employees Stock Purchase Plan

Under our 2013 Foot Locker Employees Stock Purchase Plan (“ESPP”), participating employees are able to contribute up to 10 percent of their annual compensation, not to exceed $25,000 in any plan year, through payroll deductions to acquire shares of our common stock at 85 percent of the lower market price on one of two specified dates in each plan year. Of the 3,000,000 shares of common stock authorized under this plan, there were 2,275,164 shares available for purchase as of January 30, 2021. During 2020 and 2019, participating employees purchased 104,054 shares and 96,451 shares, respectively.

Share-Based Compensation Expense

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


($ in millions)	2020		2019		2018
Options and shares purchased under the ESPP	$	6	$	6	$	7
Restricted stock and restricted stock units		9		12		15
Total share-based compensation expense	$	15	$	18	$	22

Tax benefit recognized	$	2	$	2	$	3

Valuation Model and Assumptions

The Black-Scholes option-pricing model is used 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.

We estimate the expected term of share-based awards using our historical exercise and post-vesting employment termination patterns, which we believe are representative of future behavior. The expected term for the employee stock purchase plan valuation is based on the length of each purchase period as measured at the beginning of the offering period, which is one year.

We estimate the expected volatility of our common stock at the grant date using a weighted-average of our historical volatility and implied volatility from traded options on our common stock. We believe that this combination of historical volatility and implied volatility provides a better estimate of future stock price volatility.

The risk-free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The expected dividend yield is derived from our historical experience.

The following table shows the assumptions used to compute the share-based compensation expense:



	Stock Option Plans									Stock Purchase Plan
	2020			2019			2018			2020			2019			2018
Weighted-average risk free rate of interest		0.5	%		2.2	%		2.7	%		1.8	%		2.2	%		2.0	%
Expected volatility		37	%		38	%		37	%		48	%		54	%		50	%
Weighted-average expected award life (in years)		4.9			5.5			5.5			1.0			1.0			1.0
Dividend yield		4.3	%		2.6	%		3.1	%		4.2	%		3.1	%		2.0	%
Weighted-average fair value	$	5.03		$	17.07		$	12.42		$	13.97		$	16.68		$	15.29

The information set forth in the following table covers options granted under our stock option plans:


		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	2,881			$	54.21
Granted	1,069				21.61
Exercised	(165)				23.36
Expired or cancelled	(245)				34.47
Options outstanding at January 30, 2021	3,540		5.7	$	47.17

Options exercisable at January 30, 2021	2,403		4.2	$	55.81

The total fair value of options vested was $6 million during both 2020 and 2019. During the year ended January 30, 2021, we received $4 million in cash from option exercises and recognized a related tax benefit of $1 million.

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:


($ in millions)	2020		2019		2018
Exercised	$	3	$	5	$	4

The aggregate intrinsic value for stock options outstanding, and those outstanding and exercisable (the difference between the 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:


($ in millions)	2020
Outstanding	$	24
Outstanding and exercisable	$	5

As of January 30, 2021, there was $3 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 January 30, 2021:


	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)
$18.84 to $23.09	937	8.7	$	21.55	60	$	20.72
$24.75 to $36.51	329	2.3		33.01	326		32.98
$44.78 to $45.75	537	4.9		44.91	447		44.94
$46.64 to $62.11	869	5.0		60.12	703		60.50
$63.33 to $73.21	868	4.8		68.60	867		68.60
	3,540	5.7	$	47.17	2,403	$	55.81

Restricted Stock Units

Restricted stock units (“RSU”) may be awarded to certain officers and key employees. Additionally, RSU awards are made to employees in connection with our long-term incentive program, and to nonemployee directors. Each RSU award represents the right to receive one share of our 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 our 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. RSU activity 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		936			$	49.25
Granted ⁽¹⁾		639				28.69
Vested		(121)				53.27
Performance adjustment ⁽²⁾		51
Forfeited		(157)				38.41
Nonvested at January 30, 2021		1,348		1.3	$	38.48

Aggregate value ($ in millions)	$	52

(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 predefined financial performance targets.

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

The total fair value of awards vested was $6 million, $5 million, and $7 million, for 2020, 2019, and 2018, respectively. At January 30, 2021, there was $23 million of total unrecognized compensation cost related to nonvested RSU awards.