Stock-based Compensation

9 Months Ended

Apr. 30, 2023

Share-Based Payment Arrangement [Abstract]

We provide compensation benefits by issuing stock options, unrestricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareholder return (TSR) performance restricted stock units and free cash flow (FCF) performance restricted stock units). In 2023, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS performance restricted stock units. We last issued stock options and FCF performance restricted stock units in 2019.

In determining stock-based compensation expense, we estimate forfeitures expected to occur. Total pre-tax stock-based compensation expense and tax-related benefits recognized in the Consolidated Statements of Earnings were as follows:


	Three Months Ended				Nine Months Ended
(Millions)	April 30, 2023		May 1, 2022		April 30, 2023		May 1, 2022
Total pre-tax stock-based compensation expense	$	17	$	15	$	48	$	46
Tax-related benefits	$	3	$	3	$	9	$	8

The following table summarizes stock option activity as of April 30, 2023:


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Options in thousands)			(In years)	(Millions)
Outstanding at July 31, 2022	1,297	$	46.04
Granted	—	$	—
Exercised	(464)	$	48.33
Terminated	—	$	—
Outstanding at April 30, 2023	833	$	44.77	4.5	$	8
Exercisable at April 30, 2023	833	$	44.77	4.5	$	8

The total intrinsic value of options exercised during the nine-month period ended April 30, 2023 was $3 million. The total intrinsic value of options exercised during the nine-month period ended May 1, 2022 was not material. We measured the fair value of stock options using the Black-Scholes option pricing model.

We expensed stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expensed on an accelerated basis. As of January 2022, compensation related to stock options was fully expensed.

The following table summarizes time-lapse restricted stock units and EPS performance restricted stock units as of April 30, 2023:


	Units	Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 31, 2022	1,946	$	43.88
Granted	1,198	$	47.55
Vested	(763)	$	45.22
Forfeited	(111)	$	44.91
Nonvested at April 30, 2023	2,270	$	45.31

We determine the fair value of time-lapse restricted stock units based on the quoted price of our stock at the date of grant. We expense time-lapse restricted stock units on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis.

In 2023 and 2022, we granted EPS performance restricted stock units that will be earned upon the achievement of our adjusted EPS compound annual growth rate goal, measured over a three-year period. The actual number of EPS performance restricted stock units issued at the vesting date could range from 0% to 200% of the initial grant depending on actual performance achieved. The fair value of EPS performance restricted stock units is based upon the quoted price of our stock at the date of grant. We expense EPS performance restricted stock units on a straight-line basis over the service period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. We estimate expense based on the number of awards expected to vest. There were 563 thousand EPS performance target grants outstanding at April 30, 2023, with a weighted-average grant-date fair value of $44.33.

In 2019, we issued approximately 388 thousand FCF performance restricted stock units for which vesting was contingent upon achievement of free cash flow (defined as Net cash provided by operating activities less capital expenditures and certain investing and financing activities) compared to annual operating plan objectives over a three-year period. An annual objective was established each fiscal year for three consecutive years. Performance against these objectives was averaged at the end of the three-year period to determine the number of underlying units that would vest at the end of the three years. The actual number of FCF performance restricted stock units issued at the vesting date could have ranged from 0% to 200% of the initial grant depending on actual performance achieved. The fair value of FCF performance restricted stock units was based upon the quoted price of our stock at the date of grant. We expensed FCF performance restricted stock units over the requisite service period of each objective. We estimated expense based on the number of awards expected to vest. In the first quarter of 2022, recipients of FCF performance restricted stock units earned 167% of the initial grants based upon the average of actual performance achieved during a three-year period ended August 1, 2021. As a result, approximately 158 thousand additional shares were awarded. As of October 31, 2021, there were no FCF performance target grants outstanding.

As of April 30, 2023, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS performance restricted stock units was $51 million, which will be amortized over the weighted-average remaining service period of 1.8 years. The fair value of restricted stock units vested during the nine-month periods ended April 30, 2023, and May 1, 2022, was $36 million and $50 million, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the nine-month period ended May 1, 2022 was $41.94.

The following table summarizes TSR performance restricted stock units as of April 30, 2023:


	Units	Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 31, 2022	1,153	$	55.63
Granted	296	$	53.74
Vested	(443)	$	63.06
Forfeited	(54)	$	51.69
Nonvested at April 30, 2023	952	$	51.81

We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation.

Weighted-average assumptions used in the Monte Carlo simulation were as follows:


	2023	2022
Risk-free interest rate	4.29%	0.46%
Expected dividend yield	3.09%	3.50%
Expected volatility	26.40%	27.42%
Expected term	3 years	3 years

We recognize compensation expense on a straight-line basis over the service period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of April 30, 2023, total remaining unearned compensation related to TSR performance restricted stock units was $16 million, which will be amortized over the weighted-average remaining service period of 1.7 years. In the first quarter of 2023, recipients of TSR performance restricted stock units earned 100% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 29, 2022. In the first quarter of 2022, recipients of TSR performance restricted stock units earned 75% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 30, 2021. The fair value of TSR performance restricted stock units vested during the nine-month periods ended April 30, 2023, and May 1, 2022, was $21 million and $8 million, respectively. The weighted-average grant-date fair value of the TSR performance restricted stock units granted during the nine-month period ended May 1, 2022, was $45.54.

The tax benefits on the exercise of stock options in the nine-month period ended April 30, 2023 were $1 million. The tax benefits on the exercise of stock options in the nine-month period ended May 1, 2022 were not material. Cash received from the exercise of stock options was $22 million and $1 million for the nine-month periods ended April 30, 2023, and May 1, 2022, respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.