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Share-Based Compensation

12 Months Ended

Jan. 28, 2023

22. 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 28, 2023, there were 3,651,807 shares available for issuance under this plan.

On August 24, 2022, the Company granted options and other awards to its new President and Chief Executive Officer, Mary N. Dillon. These awards were granted outside of the 2007 Stock Incentive Plan as employment inducement awards and do not require shareholder approval under the rules of the New York Stock Exchange or otherwise. Shares available for future grant under this plan of 545,660 are reserved for the sole purpose to issue shares pursuant to her employment inducement awards.

Employees Stock Purchase Plan

Under our 2013 Foot Locker Employees Stock Purchase Plan (“ESPP”), participating employees are able to contribute up to 10% 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% 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 1,854,858 shares available for purchase as of January 28, 2023. During 2022 and 2021, participating employees purchased 119,518 shares and 300,788 shares, respectively.

22. Share-Based Compensation (continued)

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)	2022		2021		2020
Options and employee stock purchase plan	$	5	$	6	$	6
Restricted stock units and performance stock units		26		23		9
Total share-based compensation expense	$	31	$	29	$	15

Tax benefit recognized	$	3	$	3	$	2

Valuation Model and Assumptions

The Black-Scholes option-pricing model is used to estimate the fair value of options and the stock purchase plan. The Black-Scholes option-pricing model incorporates various and subjective assumptions, including expected term and expected volatility.

We estimate the expected term of options 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
	2022			2021			2020			2022			2021			2020
Weighted-average risk free rate of interest		1.8	%		0.9	%		0.5	%		1.0	%		0.1	%		1.8	%
Expected volatility		35	%		47	%		37	%		40.0	%		45	%		48	%
Weighted-average expected award life (in years)		3.9			5.5			4.9			1.0			1.0			1.0
Dividend yield		2.7	%		1.5	%		4.3	%		2.6	%		4.0	%		4.2	%
Weighted-average fair value	$	10.80		$	20.22		$	5.03		$	18.46		$	9.61		$	13.97

22. Share-Based Compensation (continued)

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	3,211			$	48.84
Granted	590				31.71
Exercised	(207)				28.15
Expired or cancelled	(338)				41.22
Options outstanding at January 28, 2023	3,256		4.5	$	47.85
Options exercisable at January 28, 2023	2,535		3.3	$	52.36

The total fair value of options vested was $4 million during 2022 and 2021. During the years ended January 28, 2023, and January 29, 2022, we received $6 million and $10 million in cash from option exercises and recognized a related tax benefit of an insignificant amount and $2 million, respectively.

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)	2022		2021		2020
Exercised	$	1	$	8	$	3

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)	2022
Outstanding	$	20
Outstanding and exercisable	$	11

As of January 28, 2023, 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 1.5 years.

The following table summarizes information about stock options outstanding and exercisable at January 28, 2023:


	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)
$21.60 - $36.51	1,123	7.0	$	25.91	514	$	23.09
$39.17 - $48.98	459	2.9		44.84	445		45.02
$53.61 - $58.94	493	5.1		56.75	395		57.46
$62.02 - $72.83	1,181	2.4		66.14	1,181		66.14
	3,256	4.5	$	47.85	2,535	$	52.36

22. Share-Based Compensation (continued)

Restricted Stock Units and Performance Stock Units

Restricted stock units (“RSU”) may be awarded to certain officers, key employees of the Company, and nonemployee directors. Additionally, performance stock units (“PSU”) are awarded to officers and certain key employees in connection with our long-term incentive program. Each RSU and PSU represents the right to receive one share of our common stock provided that the applicable performance and vesting conditions are satisfied. PSU awards granted in 2022 also include a performance objective based on our relative total shareholder return over the performance period to a pre-determined peer group, assuming the reinvestment of dividends. The fair value of these awards is determined using a Monte Carlo simulation as of the date of the grant and share-based compensation expense will not be adjusted should the target awards vary from actual awards.

Generally, RSU awards fully vest after the passage of time, typically three years for employees and one year for nonemployee directors, provided there is continued service with the Company until the vesting date, subject to the terms of the award. PSU awards are earned only after the attainment of performance goals in connection with the relevant performance period and vest after an additional one-year period. No dividends are paid or accumulated on any RSU or PSU awards. Compensation expense is recognized using the market value at the date of grant and is amortized over the vesting period.

RSU and PSU 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		1,391			$	43.95
Granted		1,242				31.42
Vested		(117)				54.29
Performance adjustment ⁽¹⁾		15
Forfeited		(539)				35.56
Nonvested at January 28, 2023		1,992		1.3	$	37.58

Aggregate value ($ in millions)	$	75

(1)	This represents adjustments made to PSU awards reflecting changes in estimates based upon our current performance against predefined financial targets.

The total fair value of awards vested was $6 million, $23 million, and $6 million, for 2022, 2021, and 2020, respectively. At January 28, 2023, there was $27 million of total unrecognized compensation cost related to nonvested awards.