Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.20.1
Stock-Based Compensation
12 Months Ended
Feb. 01, 2020
Share-based Payment Arrangement, Noncash Expense [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 24, 2019, our stockholders approved the J. C. Penney Company, Inc. 2019 Long-Term Incentive Plan (2019 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 1.49 shares issued, except for stock awards issued from February 2, 2019 to May 24, 2019, the effective date of the 2019 Plan, in which each stock award counted as 1.63 shares issued. The 2019 Plan reserved 17.9 million shares of common stock or 26.7 million options for future grants and will terminate on May 31, 2024.  In addition, shares underlying any outstanding stock award or stock option grant canceled prior to vesting or exercise become available for use under the 2019 Plan. Under the terms of the 2019 Plan, all grants made after February 2, 2019 reduce the shares available for grant under the 2019 Plan. As of February 1, 2020, a maximum of 21.2 million options were available for future grant under the 2019 Plan.

Our stock option and restricted stock award grants have averaged about 3.5% 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)
2019
 
2018
 
2017
 
Stock awards
$
10

 
$
7

 
$
18

 
Stock options
1

 
3

 
7

 
Total stock-based compensation
$
11

 
$
10

 
$
25

(1) 
 
 
 
 
 
 
 
Total income tax benefit recognized for stock-based compensation arrangements
$

 
$

 
$

 

(1)
Excludes $2 million of stock-based compensation costs reported in restructuring and management transition charges (Note 18).

Stock Options 
 
The Company has granted limited stock options in recent years. As of February 1, 2020, we had 6,234,000 stock options exercisable and $0.4 million of unrecognized 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 2 years.
 
Our weighted-average fair value of stock options at grant date was $0.86 in 2019, $0.86 in 2018 and $2.91 in 2017. We used the Black-Scholes option pricing model in 2019 and 2018 and primarily used the binomial lattice valuation model in 2017 to determine the fair value of the stock options granted.

Stock Awards
The following table summarizes our non-vested stock awards activity during the year ended February 1, 2020:
 
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 February 2, 2019
11,070

 
$
3

 
1,407

 
$
5

Granted
10,601

 
1

 

 

Vested
(5,073
)
 
2

 

 

Forfeited/canceled
(1,672
)
 
3

 
(1,237
)
 
5

Non-vested at February 1, 2020
14,926

 
2

 
170

 
4

 

As of February 1, 2020, we had $14 million of unrecognized compensation expense related to unearned employee stock awards, which will be recognized over the remaining weighted-average vesting period of approximately one year. The aggregate market value of shares vested during 2019, 2018 and 2017 was $5 million, $11 million and $17 million, respectively, compared to an aggregate grant date fair value of $13 million, $25 million and $27 million, respectively. Stock awards granted include approximately 1.7 million fully vested RSUs to directors during 2019 with a fair value of $0.90 per RSU award.

In addition to the grants above, on March 5, 2019, we granted approximately 8.0 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 $5.03 per phantom unit. The fair value of the awards is remeasured at each reporting period and was $0.75 per share as of February 1, 2020. Compensation expense, which is variable, is recognized over the vesting period with a corresponding liability, which is recorded in Other accounts payable and accrued expenses and Other liabilities in our Consolidated Balance Sheets. The phantom units have a liability of $4 million as of February 1, 2020. Cash of $1.5 million was paid during 2019 for previously granted phantom units.