Note 21 - Share-based Compensation

12 Months Ended

Feb. 03, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

21. Share-Based Compensation

Stock Awards

Under our amended and restated 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. Effective May 17, 2023, the 2007 Stock Plan was amended and restated to increase the number of shares of common stock reserved for all awards to 14 million shares. As of February 3, 2024, there were 12,598,147 shares available for issuance under this plan.

During 2022, the Company granted options and other awards to its 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 of 408,636 are reserved for the sole purpose to issue shares pursuant to her employment inducement awards.

Employees Stock Purchase Plan

On May 17, 2023, the Company adopted the 2023 Foot Locker Employee Stock Purchase Plan ("2023 ESPP"), whose terms are substantially the same as the 2013 Foot Locker Employee Stock Purchase Plan ("2013 ESPP"). Under our 2023 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 specified dates in each plan year. Under the 2023 ESPP, participating employees are now permitted to purchase shares in June and December of each year. Of the 3,000,000 shares of common stock authorized under the 2023 ESPP, there were 2,785,161 shares available for purchase as of February 3, 2024. No further shares may be issued under the 2013 ESPP.

Share-Based Compensation Expense

($ in millions)	2023		2022		2021
Options and employee stock purchase plan	$	4	$	5	$	6
Restricted stock units and performance stock units		9		26		23
Total share-based compensation expense	$	13	$	31	$	29
Tax benefit recognized	$	2	$	3	$	3

Option and Employee Stock Purchase Plan 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. Effective with the adoption of the 2023 ESPP, we provide two offering periods.

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 compensation expense for our options and stock purchase plan:

	Stock Option Plans									Stock Purchase Plan
	2023			2022			2021			2023			2022			2021
Weighted-average risk free rate of interest		3.6	%		2.5	%		0.9	%		3.8	%		1.0	%		0.1	%
Expected volatility		50	%		50	%		47	%		40	%		40	%		45	%
Weighted-average expected award life (in years)		5.5			5.5			5.5			0.5			1.0			1.0
Dividend yield		3.7	%		3.8	%		1.5	%		3.7	%		2.6	%		4.0	%
Weighted-average fair value	$	13.53		$	10.80		$	20.22		$	5.32		$	18.46		$	9.61

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

	Number of Shares			Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price
	(in thousands)			(in years)		(per share)
Options outstanding at the beginning of the year		3,256				$	47.85
Granted		341					37.72
Exercised		(194	)				23.93
Expired or cancelled		(665	)				48.08
Options outstanding at February 3, 2024		2,738			3.3	$	48.23
Options exercisable at February 3, 2024		2,321			2.3	$	50.25

The total fair value of options vested was $5 million, $4 million, and $4 million, during 2023, 2022, and 2021, respectively. During the years ended February 3, 2024,  January 28, 2023, and  January 29, 2022, we received $5 million, $6 million, and $10 million, respectively, in cash from option exercises and recognized a related tax benefit of an insignificant amount in 2023 and 2022, and $2 million in 2021.

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)	2023		2022		2021
Exercised	$	3	$	1	$	8

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)	2023
Outstanding	$	4
Outstanding and exercisable	$	3

As of February 3, 2024, there was $2 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 February 3, 2024:

	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		688		4.1	$	24.77		593	$	24.07
$36.49 - $46.64		682		5.2		41.71		369		44.19
$53.61 - $58.94		400		2.6		56.58		391		56.65
$62.02 - $72.83		968		1.6		66.02		968		66.02
		2,738		3.3	$	48.23		2,321	$	50.25

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 2023 and 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.

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 during 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:

	Number of Shares			Weighted-Average Remaining Contractual Life		Weighted-Average Grant Date Fair Value
	(in thousands)			(in years)		(per share)
Nonvested at beginning of year		1,992				$	37.58
Granted		1,204					35.75
Vested		(689	)				34.08
Performance adjustment (1)		(866	)
Forfeited		(263	)				39.02
Nonvested at February 3, 2024		1,378			1.2	$	38.81
Aggregate value ($ in millions)	$	53

(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 $23 million, $6 million, and $23 million, for 2023, 2022, and 2021, respectively. At February 3, 2024, there was $19 million of total unrecognized compensation cost related to nonvested awards.