Share-Based Compensation

9 Months Ended

Sep. 09, 2011

Share-Based Compensation

4. Share-Based Compensation

Under our 2002 Comprehensive Stock and Cash Incentive Plan (the “Comprehensive Plan”), we award: (1) stock options to purchase our Class A Common Stock (“Stock Option Program”); (2) stock appreciation rights (“SARs”) for our Class A Common Stock (“SAR Program”); (3) restricted stock units (“RSUs”) of our Class A Common Stock; and (4) deferred stock units. We grant awards at exercise prices or strike prices equal to the market price of our Class A Common Stock on the date of grant.

We recorded share-based compensation expense related to award grants of $22 million and $21 million for the twelve weeks ended September 9, 2011 and September 10, 2010, respectively, and $65 million and $62 million for the thirty-six weeks ended September 9, 2011 and September 10, 2010, respectively. Deferred compensation costs related to unvested awards totaled $146 million and $113 million at September 9, 2011 and December 31, 2010, respectively.

RSUs

We granted 2.6 million RSUs during the first three quarters of 2011 to certain officers and key employees, and those units vest generally over four years in equal annual installments commencing one year after the date of grant. RSUs granted in the first three quarters of 2011 had a weighted average grant-date fair value of $40.

SARs

We granted 0.7 million SARs to officers and key employees during the first three quarters of 2011. These SARs expire 10 years after the date of grant and both vest and are exercisable in cumulative installments of one quarter at the end of each of the first four years following the date of grant. These SARs had a weighted average grant-date fair value of $16 and a weighted average exercise price of $41.

We use a binomial method to estimate the fair value of each SAR granted, under which we calculate the weighted average expected SARs terms as the product of a lattice-based binomial valuation model that uses suboptimal exercise factors. We use historical data to estimate exercise behaviors and terms to retirement for separate groups of retirement eligible and non-retirement eligible employees.

We used the following assumptions to determine the fair value of the Employee SARs granted during the first three quarters of 2011.

Expected volatility	32	%
Dividend yield	0.73	%
Risk-free rate	3.4	%
Expected term (in years)	8

In making these assumptions, we based risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we converted to a continuously compounded rate. We based expected volatility on the weighted-average historical volatility, with periods with atypical stock movement given a lower weight to reflect stabilized long-term mean volatility.

Other Information

At the end of the 2011third quarter, 52 million shares were reserved under the Comprehensive Plan, including 26 million shares under the Stock Option Program and the SAR Program.