Stock-based Compensation

In 2003, shareholders approved the 2003 Long-Term Incentive Plan, which authorized the issuance of 28 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock/units (including performance restricted stock) and performance units. Approximately 3.2 million shares available under a previous long-term plan were rolled into the 2003 Long-Term Incentive Plan, making the total number of available shares approximately 31.2 million. In November 2005, shareholders approved the 2005 Long-Term Incentive Plan, which authorized the issuance of an additional 6 million shares to satisfy the same types of awards.

Awards under Long-Term Incentive Plans may be granted to employees and directors. The term of a stock option granted under these plans may not exceed ten years from the date of grant. Options granted under these plans vest cumulatively over a three-year period at a rate of 30%, 60% and 100%, respectively. The option price may not be less than the fair market value of a share of common stock on the date of the grant.

Pursuant to the Long-Term Incentive Plan, the company adopted a long-term incentive compensation program which provides for grants of total shareholder return (TSR) performance restricted stock/units, EPS performance restricted stock/units, strategic performance restricted stock/units and time-lapse restricted stock/units. Under the program, awards of TSR performance restricted stock/units will be earned by comparing the company’s total shareholder return during a three-year period to the respective total shareholder returns of companies in a performance peer group. Based upon the company’s ranking in the performance peer group, a recipient of TSR performance restricted stock/units may earn a total award ranging from 0% to 225% of the initial grant. Awards of EPS performance restricted stock/units will be earned based upon the company’s achievement of annual earnings per share goals. During the three-year vesting period, a recipient of EPS performance restricted stock/units may earn a total award of either 0% or 100% of the initial grant. Awards of the strategic performance restricted stock units are earned based upon the achievement of two key metrics, net sales and EPS growth, compared to strategic plan objectives during a two- or three-year period. A recipient of strategic performance restricted stock units may earn a total award ranging from 0% to 200% of the initial grant. Awards of time-lapse restricted stock/units will vest ratably over the three-year period. In addition, the company may issue special grants of time-lapse restricted stock/units to attract and retain executives which vest ratably over various periods. Awards are generally granted annually in October. Annual stock option grants were not part of the long-term incentive compensation program for 2012 , 2013, or 2014. However, stock options may still be granted on a selective basis under the Long-Term Incentive Plans.

In 2014, the company issued time-lapse restricted stock units, EPS performance restricted stock units, strategic performance restricted stock units and TSR performance restricted stock units.

Total pre-tax stock-based compensation expense recognized in Earnings from continuing operations was $56 for 2014, $109 for 2013 and $76 for 2012. The pre-tax stock-based compensation expense recognized in Earnings (loss) from discontinued operations was $1 for 2014, $4 for 2013 and $3 for 2012. Tax-related benefits of $21 were recognized for 2014, $42 were recognized for 2013 and $29 were recognized for 2012.

The following table summarizes stock option activity as of August 3, 2014:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Options in thousands)				(In years)
Outstanding at July 28, 2013	1,101		$	27.25
Granted	—		$	—
Exercised	(693	)	$	26.64
Terminated	—		$	—
Outstanding at August 3, 2014	408		$	28.33	0.6	$	6
Exercisable at August 3, 2014	408		$	28.33	0.6	$	6

The total intrinsic value of options exercised during 2014, 2013 and 2012, was $12, $36 and $31, respectively. As of January 2009, compensation related to stock options was fully expensed. The company measured the fair value of stock options using the Black-Scholes option pricing model.

The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and strategic performance restricted stock units as of August 3, 2014:



	Units		Weighted- Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 28, 2013	4,208		$	34.05
Granted	1,742		$	39.97
Vested	(2,595	)	$	33.26
Forfeited	(361	)	$	37.93
Nonvested at August 3, 2014	2,994		$	37.69

The fair value of time-lapse restricted stock units, EPS performance restricted stock units, and strategic performance restricted stock units is determined based on the quoted price of the company’s stock at the date of grant. Time-lapse restricted stock units are expensed on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. EPS performance restricted stock units are expensed on a graded-vesting basis, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. There were 251 thousand EPS performance target grants outstanding at August 3, 2014 with a weighted-average grant-date fair value of $37.49. Strategic performance restricted stock units are expensed on a straight-line basis over the service period. There were 887 thousand strategic performance target grants outstanding at August 3, 2014 with a weighted-average grant-date fair value of $37.80. The actual number of EPS performance restricted stock units and strategic performance restricted stock units that vest will depend on actual performance achieved. Expense is estimated based on the number of awards expected to vest.

On July 1, 2011, the company issued approximately 400 thousand special retention time-lapse restricted stock units to certain executives to support successful execution of the company’s shift in strategic direction and leadership transition. These awards vested over a period of 2 years. The grant-date fair value was $34.65.

As of August 3, 2014, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and strategic performance restricted stock units was $34, which will be amortized over the weighted-average remaining service period of 1.7 years. The fair value of restricted stock units vested during 2014, 2013 and 2012 was $106, $57 and $38, respectively. The weighted-average grant-date fair value of the restricted stock units granted during 2013 and 2012 was $35.44 and $32.38, respectively.

The following table summarizes TSR performance restricted stock units as of August 3, 2014:



	Units		Weighted- Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 28, 2013	1,458		$	41.88
Granted	458		$	36.26
Vested	—		$	—
Forfeited	(1,055	)	$	42.54
Nonvested at August 3, 2014	861		$	38.15

The company estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation. Assumptions used in the Monte Carlo simulation were as follows:



	2014	2013
Risk-free interest rate	0.60%	0.30%
Expected dividend yield	2.98%	3.26%
Expected volatility	15.76%	15.07%
Expected term	3 years	3 years

Compensation expense is recognized on a straight-line basis over the service period. As of August 3, 2014, total remaining unearned compensation related to TSR performance restricted stock units was $15, which will be amortized over the weighted-average remaining service period of 1.8 years. In the first quarter of 2014 and 2013, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon the company’s TSR ranking in a performance peer group during a three-year period ended July 26, 2013 and July 27, 2012, respectively. The grant-date fair value of the TSR performance restricted stock units granted during 2013 was $39.76. There were no TSR performance restricted stock units granted during 2012.

The excess tax benefits on the exercise of stock options and vested restricted stock presented as cash flows from financing activities were $13 in 2014, $12 in 2013 and $8 in 2012. Cash received from the exercise of stock options was $18, $83 and $112 for 2014, 2013 and 2012, respectively, and are reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.