Stock-based Compensation

The company provides compensation benefits by issuing unrestricted stock, restricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareowner return (TSR) performance restricted stock units and strategic performance restricted stock units). In fiscal 2012, the company issued time-lapse restricted stock units, EPS performance restricted stock units and, for the first time, strategic performance restricted stock units. The company did not issue TSR performance restricted stock units in fiscal 2012. Awards of the strategic performance restricted stock units will be earned based upon the achievement of two key metrics, net sales and EPS growth, compared to strategic plan objectives during a two-year period. A recipient of strategic performance restricted stock units may earn a total award ranging from 0% to 200% of the initial grant. In previous fiscal years, the company also issued stock options and stock appreciation rights.

Total pre-tax stock-based compensation expense recognized in the Consolidated Statements of Earnings was $17 and $23 for the three-month periods ended April 29, 2012, and May 1, 2011, respectively. Tax-related benefits of $6 and $9 were also recognized for the three-month periods ended April 29, 2012, and May 1, 2011. Total pre-tax stock-based compensation expense recognized in the Consolidated Statements of Earnings was $62 and $69 for the nine-month periods ended April 29, 2012, and May 1, 2011, respectively. Tax-related benefits of $23 and $26 were also recognized for the nine-month periods ended April 29, 2012, and May 1, 2011, respectively. Cash received from the exercise of stock options was $94 and $54 for the nine-month periods ended April 29, 2012, and May 1, 2011, respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.

The following table summarizes stock option activity as of April 29, 2012:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Options in thousands)				(In years)
Outstanding at July 31, 2011	8,706		$	26.23
Granted	—		$	—
Exercised	(3,609	)	$	26.11
Terminated	(75	)	$	26.62
Outstanding at April 29, 2012	5,022		$	26.32	1.8	$	38
Exercisable at April 29, 2012	5,022		$	26.32	1.8	$	38

The total intrinsic value of options exercised during the nine-month periods ended April 29, 2012, and May 1, 2011, was $24 and $19, 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 April 29, 2012:



	Units		Weighted- Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 31, 2011	2,710		$	35.11
Granted	2,620		$	32.38
Vested	(1,154	)	$	35.74
Forfeited	(174	)	$	33.37
Nonvested at April 29, 2012	4,002		$	33.22

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 approximately 300 thousand EPS performance target grants outstanding at April 29, 2012 with a weighted-average grant-date fair value of $33.56. Strategic performance restricted stock units are expensed on a straight-line basis over the service period. There were approximately 1.31 million strategic performance target grants outstanding at April 29, 2012 with a grant-date fair value of $32.37. The actual number of EPS performance restricted stock units and strategic performance restricted stock units issued at the vesting date could range from 0% to 100% and 0% to 200%, respectively, of the initial grant, depending 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 vest over a two-year period and are included in the table above. The grant-date fair value was $34.65.

As of April 29, 2012, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and strategic performance restricted stock units was $63, which will be amortized over the weighted-average remaining service period of 1.6 years. The fair value of restricted stock units vested during the nine-month periods ended April 29, 2012, and May 1, 2011, was $37 and $40, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the nine-month period ended May 1, 2011, was $36.01.

The following table summarizes TSR performance restricted stock units as of April 29, 2012:



	Units		Weighted- Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 31, 2011	3,431		$	40.78
Granted	—		$	—
Vested	—		$	—
Forfeited	(1,266	)	$	45.58
Nonvested at April 29, 2012	2,165		$	37.97

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 2011 Monte Carlo simulation were as follows:



	2011
Risk-free interest rate	0.59	%
Expected dividend yield	3.00	%
Expected volatility	23.71	%
Expected term	3	yrs.

Compensation expense is recognized on a straight-line basis over the service period. As of April 29, 2012, total remaining unearned compensation related to TSR performance restricted stock units was $24, which will be amortized over the weighted-average remaining service period of 1.2 years. In the first quarter of 2012, 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 29, 2011. The total fair value of TSR performance restricted stock units vested during the nine-month period ended May 1, 2011, was $38. The grant-date fair value of TSR performance restricted stock units granted during the nine-month period ended May 1, 2011, was $43.18. There were no TSR performance restricted stock units granted during the nine-month period ended April 29, 2012.

Prior to fiscal 2009, employees could elect to defer all types of restricted stock awards. These awards were classified as liabilities because of the possibility that they may be settled in cash. The fair value was adjusted quarterly. As of October 2010, these awards were fully vested. Total cash paid to settle the liabilities during the nine-month period ended May 1, 2011, was not material.

The excess tax benefits on the exercise of stock options and vested restricted stock presented as cash flows from financing activities for the nine-month periods ended April 29, 2012 and May 1, 2011, were $6 and $7, respectively.