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Note 11 - Share-based Compensation

9 Months Ended

Oct. 28, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

11. Share-Based Compensation

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

		*Thirteen weeks ended*								*Thirty-nine weeks ended*
		*October 28,*				*October 29,*				*October 28,*				*October 29,*
($ in millions)		*2023*				*2022*				*2023*				*2022*
Options and employee stock purchase plan		$	1			$	1			$	3			$	4
Restricted stock units and performance stock units			4				8				6				21
Total share-based compensation expense		$	5			$	9			$	9			$	25

Tax benefit recognized		$	—			$	—			$	1			$	2

Valuation Model and Assumptions

We use the Black-Scholes option-pricing model 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.

The table below shows assumptions used to compute share-based compensation expense for awards granted during the thirty-nine weeks ended October 28, 2023 and October 29, 2022.

		*Stock Option Plans*								*Stock Purchase Plan*
		*October 28,*				*October 29,*				*October 28,*				*October 29,*
		*2023*				*2022*				*2023*				*2022*
Weighted-average risk free rate of interest			3.3	%			1.7	%			3.8	%			0.7	%
Expected volatility			46	%			35	%			40	%			40	%
Weighted-average expected award life (in years)			5.1				3.8				1.0				1.0
Dividend yield			3.4	%			2.7	%			4.7	%			2.3	%
Weighted-average fair value		$	13.53			$	10.71			$	6.28			$	20.51

The table below provides activity under our stock option plans for the thirty-nine weeks ended October 28, 2023.

						*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			3,256							$	47.85
Granted			341								37.72
Exercised			(188	)							24.02
Expired or cancelled			(603	)							47.50
Options outstanding at October 28, 2023			2,806				3.5			$	48.28
Options exercisable at October 28, 2023			2,384				2.5			$	50.28
Shares available for future grant at October 28, 2023 under the 2007 Stock Incentive Plan (1)			11,342
Shares available for future grant at October 28, 2023 under the employment inducement award plan (2)			409

⁽¹⁾

On May 17, 2023, the Company's shareholders approved the amended and restated 2007 Stock Incentive Plan, which increased shares available for grant by 10,300,000. There were no other material modifications to the plan.

⁽²⁾

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 did not require shareholder approval under the rules of the New York Stock Exchange or otherwise. Shares available for future grant under this plan are reserved for the sole purpose to issue shares pursuant to her employment inducement awards.

The total fair value of options vested for the thirty-nine weeks ended October 28, 2023 and October 29, 2022 was $5 million and $4 million, respectively. There were no option exercises during the thirteen weeks ended October 28, 2023. The cash received from option exercises during the thirty-nine weeks ended October 28, 2023 was $5 million, and the related tax benefits realized from option exercises were not significant. The cash received from option exercises during the thirteen and thirty-nine weeks ended October 29, 2022 were $1 million and $4 million, respectively, and the related tax benefits realized from option exercises were not significant.

The total intrinsic value of options exercised (the difference between the market price of our 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*
		*October 28,*				*October 29,*				*October 28,*				*October 29,*
($ in millions)		*2023*				*2022*				*2023*				*2022*
Exercised		$	—			$	—			$	3			$	1

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

		*October 28,*				*October 29,*
($ in millions)		*2023*				*2022*
Outstanding		$	—			$	7
Outstanding and exercisable		$	—			$	5

As of October 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 1.6 years.

The table below summarizes information about stock options outstanding and exercisable at October 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 - $30.98			703				4.3			$	24.70				609			$	24.01
$36.49 - $46.64			695				5.4				41.77				377				44.27
$53.61 - $58.94			412				2.7				56.61				403				56.68
$62.02 - $72.83			996				1.9				66.05				995				66.05
			2,806				3.5			$	48.28				2,384			$	50.28

Restricted Stock Units and Performance Stock Units

Restricted stock units (“RSU”) are awarded to certain officers, key employees of the Company, and nonemployee directors. Additionally, performance stock units (“PSU”) are awarded to certain officers and 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 and 2023 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 over the vesting period.

RSU and PSU activity for the thirty-nine weeks ended October 28, 2023 is summarized as follows:

						*Weighted-*
						*Average*				*Weighted-*
		*Number*				*Remaining*				*Average*
		of				*Contractual*				*Grant Date*
		*Shares*				*Life*				*Fair Value*
		(in thousands)				(in years)				(per share)
Nonvested at beginning of year			1,992							$	37.58
Granted			1,195								35.84
Vested			(677	)							34.01
Performance adjustment ⁽¹⁾			(757	)
Forfeited			(233	)							39.29
Nonvested at October 28, 2023			1,520				1.5			$	38.88

Aggregate value ($ in millions)		$	59

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

The total value of RSU and PSU awards that vested during the thirty-nine weeks ended October 28, 2023 and October 29, 2022 was $23 million and $6 million, respectively. As of October 28, 2023, there was $28 million of total unrecognized compensation cost related to nonvested awards.