Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.6.0.2
Stock-Based Compensation
12 Months Ended
Jan. 28, 2017
Share-based Compensation [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
We grant stock-based compensation awards to employees and non-employee directors under our equity compensation plan. On May 20, 2016, our stockholders approved the J. C. Penney Company, Inc. 2016 Long-Term Incentive Plan (2016 Plan), which has a fungible share design in which each stock option will count as one share issued and each stock award will count as 1.6 shares issued, except for stock awards issued from January 30, 2016 to May 20, 2016, the effective date of the 2016 Plan, in which each stock award counted as two shares issued. The 2016 Plan reserved 12.25 million shares of common stock or 19.6 million options for future grants and will terminate on May 30, 2021.  In addition, shares underlying any outstanding stock award or stock option grant canceled prior to vesting or exercise become available for use under the 2016 Plan. Under the terms of the 2016 Plan, all grants made after January 30, 2016 reduce the shares available for grant under the 2016 Plan. As of January 28, 2017, a maximum of 18.4 million shares of stock were available for future grant under the 2016 Plan.

Our stock option and restricted stock award grants have averaged about 2.7% of outstanding stock over the past three years. Authorized shares of the Company's common stock are used to settle the exercise of stock options, granting of restricted shares and vesting of restricted stock units.
 
Stock-based Compensation Cost
The components of total stock-based compensation costs are as follows:
($ in millions)
2016
 
2015
 
2014
Stock awards
$
27

 
$
32

 
$
20

Stock options
8

 
12

 
13

Total stock-based compensation(1)
$
35

 
$
44

 
$
33

 
 
 
 
 
 
Total income tax benefit recognized for stock-based compensation arrangements
$

 
$

 
$


(1)
Excludes $0 million, $9 million and $3 million for 2016, 2015 and 2014, respectively, of stock-based compensation costs reported in restructuring and management transition charges (Note 16).


Stock Options 
The following table summarizes stock option activity during the year ended January 28, 2017:
 
 
Shares (in thousands)
 
Weighted - Average Exercise Price Per Share
 
Weighted - Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value ($ in millions)(1) 
Outstanding at January 30, 2016
 
16,096

 
$
24

 
 
 
 
Granted
 
2,072

 
11

 
 
 
 
Exercised
 
(223
)
 
8

 
 
 
 
Forfeited/canceled
 
(3,527
)
 
43

 
 
 
 
Outstanding at January 28, 2017
 
14,418

 
18

 
5.6
 
$

Exercisable at January 28, 2017
 
8,169

 
25

 
3.6
 
$

 
(1)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option at year end.

Cash proceeds, tax benefits and intrinsic value related to total stock options exercised are provided in the following table:
($ in millions)
 
2016
 
2015
 
2014
Proceeds from stock options exercised
 
$
2

 
$

 
$

Intrinsic value of stock options exercised
 

 

 

Tax benefit related to stock-based compensation
 

 

 

Excess tax benefits realized on stock-based compensation
 

 

 


 
As of January 28, 2017, we had $12 million of unrecognized and unearned compensation expense, net of estimated forfeitures, for stock options not yet vested, which will be recognized as expense over the remaining weighted-average vesting period of approximately two years.
 
Our weighted-average fair value of stock options at grant date was $4.89 in 2016, $3.48 in 2015 and $3.78 in 2014. We primarily used the binomial lattice valuation model in 2016 and 2015 and the Monte Carlo simulation model in 2014 to determine the fair value of the stock options granted using the following assumptions:
 
 
2016
 
2015
 
2014
Weighted-average expected option term
 
4.7 years
 
4.6 years
 
4.1 years
Weighted-average expected volatility
 
54.22%
 
51.46%
 
60.00%
Weighted-average risk-free interest rate
 
1.38%
 
1.50%
 
1.60%
Weighted-average expected dividend yield (1)
 
—%
 
—%
 
—%
Expected dividend yield range (1)
 
—%
 
—%
 
—%


(1) Following the May 1, 2012 payment, we discontinued the quarterly $0.20 per share dividend.














Stock Awards
The following table summarizes our non-vested stock awards activity during the year ended January 28, 2017:  
 
Time-Based Stock Awards
 
Performance-Based Stock Awards
(shares in thousands)
Number of Units
 
Weighted-Average Grant Date Fair Value
 
Number of Units
 
Weighted-Average Grant Date Fair Value
Non-vested at January 30, 2016
7,698

 
$
9

 
2,557

 
$
7

Granted
1,501

 
10

 
1,071

 
11

Vested
(2,793
)
 
9

 
(418
)
 
7

Forfeited/canceled
(588
)
 
9

 
(82
)
 
8

Non-vested at January 28, 2017
5,818

 
9

 
3,128

 
8


 
As of January 28, 2017, we had $38 million of unrecognized compensation expense related to unearned employee stock awards, which will be recognized over the remaining weighted-average vesting period of approximately two years. The aggregate market value of shares vested during 2016, 2015 and 2014 was $30 million, $16 million and $4 million, respectively, compared to an aggregate grant date fair value of $28 million, $27 million and $9 million, respectively.

In addition to the grants above, on March 3, 2016, we granted approximately 1.8 million phantom units as part of our management incentive compensation plan, which are similar to RSUs in that the number of units granted was based on the price of our stock, but the units will be settled in cash based on the value of our stock on the vesting date, limited to $21.68 per phantom unit. The fair value of the awards is remeasured at each reporting period and was $6.45 per share as of January 28, 2017. Compensation expense, which is variable, is recognized over the vesting period with a corresponding liability, which is recorded in Other liabilities in our Consolidated Balance Sheets. The phantom units have a liability of $10 million as of January 28, 2017, and $22 million in cash was paid during 2016 for previously granted phantom units.