Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation Plans

v3.20.1
Stock-Based Compensation Plans
 12 Months Ended
Feb. 01, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Plans Stock-Based Compensation Plans
Fixed Stock-Based Compensation Plans
Under the Company’s 2011 Omnibus Incentive Plan (“Omnibus Plan”), the Company may grant to the Company’s employees, including executive officers and independent contractors, up to 4.0 million shares of its Common Stock plus any shares available under former plans which were previously approved by the shareholders. The Omnibus Plan permits the Company to grant equity awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance bonuses, performance share units (“PSUs”), non-employee director stock options and other equity-related awards. These awards generally vest over a three-year period with a maximum term of 10 years.
Stock appreciation rights may be awarded alone or in tandem with stock options. When the stock appreciation rights are exercisable, the holder may surrender all or a portion of the unexercised stock appreciation right and receive in exchange an amount equal to the excess of the fair market value at the date of exercise over the fair market value at the date of the grant. No stock appreciation rights have been granted to date.
Any restricted stock, RSUs or PSUs awarded are subject to certain general restrictions. The restricted stock shares or units may not be sold, transferred, pledged or disposed of until the restrictions on the shares or units have lapsed or have been removed under the provisions of the plan. In addition, if a holder of restricted shares or units ceases to be employed by the Company, any shares or units in which the restrictions have not lapsed will be forfeited.
The 2013 Director Deferred Compensation Plan permits any of the Company’s directors who receive a retainer or other fees for Board or Board committee service to defer all or a portion of such fees until a future date, at which time they may be paid in cash or shares of the Company’s common stock, or receive all or a portion of such fees in non-statutory stock options. Deferred fees that are paid out in cash will earn interest at the 30-year Treasury Bond Rate. If a director elects to be paid in common stock,
the number of shares will be determined by dividing the deferred fee amount by the closing market price of a share of the Company’s common stock on the date of deferral. The number of options issued to a director will equal the deferred fee amount divided by 33% of the price of a share of the Company’s common stock. The exercise price will equal the fair market value of the Company’s common stock at the date the option is issued. The options are fully vested when issued and have a term of 10 years.
In conjunction with the acquisition of Family Dollar in 2015, the Company assumed the Family Dollar Stores, Inc. 2006 Incentive Plan (the “2006 Plan”). The 2006 Plan permitted the granting of a variety of compensatory award types, including stock options and performance share rights.
The 2003 Non-Employee Director Stock Option Plan (NEDP) provided non-qualified stock options to non-employee members of the Company’s Board of Directors. The exercise price of each stock option granted equaled the closing market price of the Company’s stock on the date of grant. The options generally vested immediately. This plan was terminated on June 16, 2011 and replaced with the Omnibus Plan.
Total stock-based compensation expense was recorded in the accompanying consolidated statements of operations as follows:
 
 
Year Ended
 
 
February 1,
 
February 2,
 
February 3,
(in millions)
 
2020
 
2019
 
2018
Cost of sales
 
$
12.9

 
$
12.1

 
$
12.8

Selling, general and administrative expenses
 
48.5

 
51.2

 
53.0

Total stock-based compensation expense
 
$
61.4

 
$
63.3

 
$
65.8

Excess tax benefit (deficit) on stock-based compensation
    recognized in the Provision for income taxes
 
$
3.8

 
$
(1.3
)
 
$
13.6


Restricted Stock
The Company issues service-based RSUs to employees and officers and issues PSUs to certain officers of the Company. The Company recognizes expense based on the estimated fair value of the RSUs or PSUs granted over the requisite service period, which is generally three years, on a straight-line basis or a shorter period based on the retirement eligibility of the grantee. The fair value of RSUs and PSUs is determined using the Company’s closing stock price on the date of grant.
Service-Based RSUs
The following table summarizes the status of service-based RSUs as of February 1, 2020 and changes during the year then ended: 
 
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Nonvested at February 2, 2019
 
1,364,689

 
$
87.23

Granted
 
490,930

 
103.55

Vested
 
(651,611
)
 
85.17

Forfeited
 
(154,927
)
 
89.72

Nonvested at February 1, 2020
 
1,049,081

 
$
95.17


The total fair value of the service-based restricted shares vested during the years ended February 1, 2020, February 2, 2019 and February 3, 2018 was $55.5 million, $50.2 million and $58.2 million, respectively. The weighted average grant date fair value of the RSUs granted in 2019, 2018 and 2017 was $103.55, $94.30 and $78.66, respectively. As of February 1, 2020, there was approximately $47.1 million of total unrecognized compensation expense related to these RSUs which is expected to be recognized over a weighted-average period of 1.2 years.
PSUs
The following table summarizes the status of PSUs as of February 1, 2020 and changes during the year then ended: 
 
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Nonvested at February 2, 2019
 
81,411

 
$
82.46

Granted
 
281,303

 
103.71

Vested
 
(38,502
)
 
86.43

Forfeited
 
(3,712
)
 
80.02

Nonvested at February 1, 2020
 
320,500

 
$
99.29


The total fair value of the PSUs vested during the years ended February 1, 2020, February 2, 2019 and February 3, 2018 was $3.3 million, $4.2 million and $2.1 million, respectively. The weighted average grant date fair value of the PSUs granted in 2019, 2018 and 2017 was $103.71, $94.90 and $78.23, respectively. As of February 1, 2020, there was approximately $5.9 million of total unrecognized compensation expense related to these RSUs which is expected to be recognized over a weighted-average period of 0.7 years.
Stock Options
Stock options are valued using the Black-Scholes option-pricing model and compensation expense is recognized on a straight-line basis, net of estimated forfeitures, over the requisite service period. Options granted in 2019, 2018 and 2017 are immaterial.
Certain of the Company’s directors elected to defer their compensation into stock options under the 2013 Director Deferred Compensation Plan. These options vest immediately and are expensed on the grant date.
The following tables summarize information about options outstanding at February 1, 2020 and changes during the year then ended:
 
 
Number of Shares
 
Weighted Average Per Share Exercise Price
 
Weighted Average Remaining Term
 
Aggregate Intrinsic Value
(in millions)
Outstanding, beginning of period
 
367,196

 
$
76.17

 
 
 
 
Granted
 
6,537

 
105.45

 
 
 
 
Exercised
 
(73,383
)
 
79.23

 
 
 
 
Forfeited
 
(94,457
)
 
74.05

 
 
 
 
Outstanding, end of period
 
205,893

 
$
76.87

 
2.94
 
$
2.3

Options vested and exercisable at February 1,
2020
 
205,893

 
$
76.87

 
2.94
 
$
2.3


The intrinsic value of options exercised during 2019, 2018 and 2017 was approximately $1.6 million, $12.3 million and $18.3 million, respectively.