STOCK OPTION PLANS

12 Months Ended

Jan. 28, 2023

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

11. STOCK-BASED COMPENSATION

The Company recognizes compensation expense for all share-based payments granted. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award based on the fair value at the date of the grant.

The Company grants options for common shares (“stock options”) to employees under various plans at an option price equal to the fair market value of the stock option at the date of grant. The Company accounts for stock options under the fair value recognition provisions. Stock options typically expire 10 years from the date of grant. Stock options vest between one and four years from the date of grant.

In addition to the stock options described above, the Company awards restricted stock to employees and incentive shares to nonemployee directors under various plans. The restrictions on the restricted share awards generally lapse between one and four years from the date of the awards. The Company determines the fair value for restricted stock awards in an amount equal to the fair market value of the underlying shares on the grant date of the award.

At January 28, 2023, approximately 53 million common shares were available for future options or restricted stock grants under the 2019 Amended and Restated Long-Term Incentive Plan. Options granted reduce the shares available under the Plans at a ratio of one to one. Restricted stock grants reduce the shares available under the Plans at a ratio of 2.83 to one.

Equity awards granted are based on the aggregate value of the award on the grant date. This can affect the number of shares granted in a given year as equity awards. Excess tax benefits related to equity awards are recognized in the provision for income taxes. Equity awards may be approved at one of four meetings of its Board of Directors occurring shortly after the Company’s release of quarterly earnings. The 2022 primary grants were made in conjunction with the March and June meetings of the Company’s Board of Directors.

All awards become immediately exercisable upon certain changes of control of the Company.

Stock Options

Changes in options outstanding under the stock option plans are summarized below:

	Shares	Weighted-
	subject	average
	to option	exercise
	(in millions)	price
Outstanding, year-end 2019	32.2	$	24.52
Granted	2.9	$	29.31
Exercised	(7.3)	$	17.72
Canceled or Forfeited	(1.0)	$	30.53
Outstanding, year-end 2020	26.8	$	26.65
Granted	2.1	$	35.45
Exercised	(7.1)	$	24.70
Canceled or Forfeited	(0.7)	$	28.88
Outstanding, year-end 2021	21.1	$	28.15
Granted	1.2	$	56.13
Exercised	(5.4)	$	26.02
Canceled or Forfeited	(0.3)	$	31.54
Outstanding, year-end 2022	16.6	$	30.81

A summary of options outstanding, exercisable and expected to vest at January 28, 2023 follows:

		Weighted-average			Aggregate
		remaining	Weighted-average		intrinsic
	Number of shares	contractual life	exercise price		value
	(in millions)	(in years)			(in millions)
Options Outstanding	16.6	5.08	$	30.81	$	250
Options Exercisable	12.3	4.07	$	28.29	$	205
Options Expected to Vest	4.3	7.89	$	37.77	$	44

Restricted stock

Changes in restricted stock outstanding under the restricted stock plans are summarized below:

	Restricted
	shares	Weighted-average
	outstanding	grant-date
	(in millions)	fair value
Outstanding, year-end 2019	9.3	$	24.85
Granted	4.0	$	31.99
Lapsed	(4.9)	$	24.69
Canceled or Forfeited	(0.6)	$	26.71
Outstanding, year-end 2020	7.8	$	28.46
Granted	3.9	$	37.29
Lapsed	(4.0)	$	29.58
Canceled or Forfeited	(0.5)	$	31.31
Outstanding, year-end 2021	7.2	$	32.52
Granted	3.0	$	50.50
Lapsed	(4.0)	$	32.16
Canceled or Forfeited	(0.4)	$	38.32
Outstanding, year-end 2022	5.8	$	41.76

The weighted-average grant date fair value of stock options granted during 2022, 2021 and 2020 was $15.91, $8.54 and $6.43, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model, based on the assumptions shown in the table below. The Black-Scholes model utilizes accounting judgment and financial estimates, including the term option holders are expected to retain their stock options before exercising them, the volatility of the Company’s share price over that expected term, the dividend yield over the term and the number of awards expected to be forfeited before they vest. Using alternative assumptions in the calculation of fair value would produce fair values for stock option grants that could be different than those used to record stock-based compensation expense in the Consolidated Statements of Operations. The increase in the fair value of the stock options granted during 2022, compared to 2021, resulted primarily from increases in the Company’s share price, the weighted-average expected volatility, and an increase in the weighted-average risk-free interest rate. The increase in the fair value of the stock options granted during 2021, compared to 2020, resulted primarily from increases in the Company’s share price and the weighted-average expected volatility.

The following table reflects the weighted-average assumptions used for grants awarded to option holders:

	2022		2021		2020
Weighted average expected volatility	30.47	%	28.52	%	26.96	%
Weighted average risk-free interest rate	2.09	%	1.21	%	0.82	%
Expected dividend yield	1.82	%	2.00	%	2.00	%
Expected term (based on historical results)	7.2	years	7.2	years	7.2	years

The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant date, continuously compounded, which matures at a date that approximates the expected term of the options. The dividend yield was based on our history and expectation of dividend payouts. Expected volatility was determined based upon historical stock volatilities; however, implied volatility was also considered. Expected term was determined based upon historical exercise and cancellation experience.

Total stock compensation recognized in 2022, 2021 and 2020 was $190, $203 and $185, respectively. Stock option compensation recognized in 2022, 2021 and 2020 was $19, $20 and $22, respectively. Restricted shares compensation recognized in 2022, 2021 and 2020 was $171, $183 and $163, respectively.

The total intrinsic value of stock options exercised was $159, $121 and $115 in 2022, 2021 and 2020, respectively. The total amount of cash received in 2022 by the Company from the exercise of stock options granted under share-based payment arrangements was $134. As of January 28, 2023, there was $206 of total unrecognized compensation expense remaining related to non-vested share-based compensation arrangements granted under the Plans. This cost is expected to be recognized over a weighted-average period of approximately two years. The total fair value of options that vested was $19, $20 and $23 in 2022, 2021 and 2020, respectively.

Shares issued as a result of stock option exercises may be newly issued shares or reissued treasury shares. Proceeds received from the exercise of options, and the related tax benefit, may be utilized to repurchase the Company’s common shares under a stock repurchase program adopted by the Company’s Board of Directors. During 2022, the Company repurchased approximately three million common shares in such a manner.