Share-based Compensation

12 Months Ended

Jan. 29, 2022

Share-based Payment Arrangement, Noncash Expense [Abstract]

Plan Summary

Prior to the Separation, certain Company employees participated in the stock option and performance incentive plan of the Former Parent ("Former Parent's Plan"). In connection with the Separation, the Company's Board of Directors approved the 2021 Stock Option and Performance Incentive Plan ("2021 Plan"). The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted shares, restricted share units, performance units, unrestricted shares, converted awards, replacement awards and substitute awards.

Under the Company’s 2021 Plan, 11 million options, restricted and unrestricted shares have been authorized to be granted to employees and directors, in addition to the converted awards from the Separation. There were 10 million options and shares available for grant as of January 29, 2022.

Conversion at Separation

Under the terms of the Employee Matters Agreement between the Company and the Former Parent, in connection with the Separation, restricted stock and stock option equity awards granted to Company employees under the Former Parent's Plan were converted to awards representing approximately 6.0 million shares of the Company's common stock (the "Converted Awards") under the Company's 2021 Plan. Adjustments to the underlying shares and terms of outstanding restricted stock and stock options were made to preserve the intrinsic value of the awards immediately before the Separation. The adjustment of the underlying shares and exercise prices, as applicable, was determined using a conversion ratio of 1.665 based on the relative values of the Former Parent's pre-Separation stock price and the Company's post-Separation stock price. The outstanding awards continue to vest over their original vesting periods. The Company did not recognize any incremental compensation cost related to the adjustment of outstanding awards.

Income Statement Impact

For the period prior to the Separation, the following disclosures of share-based compensation expense recognized by the Company are based on grants related directly to Company employees, and exclude amounts related to the allocation of the Former Parent's corporate and shared employee share-based compensation expenses.

The following table provides share-based compensation expense included in the Consolidated and Combined Statements of Income (Loss) for 2021, 2020 and 2019:


	2021		2020		2019
	(in millions)
Costs of Goods Sold, Buying and Occupancy	$	12	$	9	$	15
General, Administrative and Store Operating Expenses	21		16		23
Total Share-based Compensation Expense	$	33	$	25	$	38

The tax benefit associated with recognized share-based compensation expense was $6 million for 2021, $6 million for 2020 and $8 million for 2019.

Restricted Stock

Restricted stock generally vests (the restrictions lapse) at the end of a three-year period or on a graded basis over a three-year period. The fair value of restricted stock awards is based on the market value of an unrestricted share on the grant date adjusted for anticipated dividend yields, if applicable.

As discussed above, restricted stock granted to Company employees under the Former Parent's Plan prior to the Separation were converted to shares of the Company's common stock. The Converted Awards have the same terms and conditions as the original awards, including the original vesting periods. The number of shares and weighted-average grant date fair value of the unvested Converted Awards are included in the following table.

The following table provides the Company’s restricted stock activity from the Separation date to the fiscal year ended January 29, 2022:


	Number of Shares	Weighted-Average Grant Date Fair Value
	(in thousands)
Unvested Converted Awards as of August 2, 2021	4,223	$	21.13
Granted	175	56.63
Vested	(200)	12.89
Cancelled	(66)	21.01
Unvested as of January 29, 2022	4,132	$	23.04

The Company’s total intrinsic value of restricted stock vested since Separation was $11 million for 2021. The Company’s total fair value at grant date of awards vested since Separation was $3 million for 2021.

As of January 29, 2022, there was $38 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock. That cost is expected to be recognized over a weighted-average period of 1.6 years.

The tax benefit realized from tax deductions associated with restricted stock vested since Separation was $2 million for 2021.

Stock Options

Stock options granted to Company employees under the Former Parent's Plan were converted to awards representing approximately 1.7 million shares of the Company's common stock. No stock options have been granted by the Company subsequent to the Separation.

Stock options granted under the Former Parent's Plan have a maximum term of 10 years and generally vest ratably over three to five years. The fair value of stock options was determined using the Black-Scholes option-pricing model. Stock options were granted with an exercise price equal to the fair market value of the stock on the date of grant. The determination of the fair value of the options was affected by the Former Parent's stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards and projected employee stock option exercise behaviors. Intrinsic value for stock options is the difference between the current market value of the Company’s stock and the option strike price. The Company's stock option activity, including stock options granted, exercised or cancelled, for Company employees for the fiscal year ended January 29, 2022 was not significant.

As of January 29, 2022, there was $2 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 2.0 years. As of January 29, 2022, there were 1.6 million outstanding stock options, the majority of which were fully vested, with a total intrinsic value of $35 million.