Share-Based Compensation

6 Months Ended

Jun. 15, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

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 $19 million and $22 million for the twelve weeks ended June 15, 2012 and June 17, 2011, respectively, and $38 million and $43 million for the twenty-four weeks ended June 15, 2012 and June 17, 2011, respectively. Deferred compensation costs related to unvested awards totaled $163 million and$101 million at June 15, 2012 and December 30, 2011, respectively.

RSUs

We granted 2.8 million RSUs during the first half of 2012 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 half of 2012 had a weighted average grant-date fair value of $35.

SARs and Stock Options

We granted 1.1 million SARs to officers, key employees, and directors during the first half of 2012. These SARs generally expire ten years after the date of grant and both vest and may be exercised in cumulative installments of one quarter at the end of each of the first four years following the date of grant. The weighted average grant-date fair value of SARs granted in the 2012 first half was $12 and the weighted average exercise price was $35.

We granted 0.3 million stock options to officers and key employees during the first half of 2012. These stock options expire ten years after the date of grant and generally vest and may be exercised in cumulative installments of one quarter at the end of each of the first four years following the date of grant. The weighted average grant-date fair value of stock options granted in the 2012 first half was $12 and the weighted average exercise price was $35.

On the grant date, we use a binomial lattice-based valuation model to estimate the fair value of each SAR and option granted. This valuation model uses a range of possible stock price outcomes over the term of the SAR and option, discounted back to a present value using a risk-free rate. Because of the limitations with closed-form valuation models, such as the Black-Scholes model, we have determined that a more flexible binomial model provides a better estimate of the fair value of our options and SARs because it takes into account employee exercise behavior based on changes in the price of our stock and allows for the use of other dynamic assumptions.

We used the following assumptions to determine the fair value of the SARs and stock options granted during the first half of 2012.

Expected volatility	31	%
Dividend yield	1.01	%
Risk-free rate	1.9 - 2.0%
Expected term (in years)	8 - 10

In making these assumptions, we base expected volatility on the weighted-average historical stock volatility. We base risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. The dividend yield assumption takes into consideration both historical levels and expectations of future payout. The weighted average expected terms for SARs and options are an output of our valuation model which utilizes historical data in estimating the period of time that the SARs and options are expected to remain unexercised. We calculate the expected terms for SARs and options for separate groups of retirement eligible and non-retirement eligible employees. Our valuation model also uses historical data to estimate exercise behaviors, which includes determining the likelihood that employees will exercise their SARs and options before expiration at a certain multiple of stock price to exercise price.

Other Information

At the end of the 2012second quarter, we reserved 44 million shares under the Comprehensive Plan, including 21 million shares under the Stock Option Program and the SAR Program.