Stock-based Compensation

In 2003, shareowners 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, shareowners 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 the 2003 and 2005 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 shareowner 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 shareowner return during a three-year period to the respective total shareowner 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 ranging from 0% to 100% of the initial grant. Awards of the strategic performance restricted stock units are earned based upon the achievement of 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. 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 2011, 2012 or 2013. However, stock options may still be granted on a selective basis under the Long-Term Incentive Plans.

In 2013, 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 $109 for 2013, $76 for 2012, and $84 for 2011. The pre-tax stock-based compensation expense recognized in Earnings from discontinued operations was $4 for 2013, and $3 for 2012 and 2011. Tax-related benefits of $42 were recognized for 2013, $29 were recognized for 2012, and $32 were recognized for 2011.

The following table summarizes stock option activity as of July 28, 2013:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Options in thousands)				(In years)
Outstanding at July 29, 2012	4,254		$	26.73
Granted	—		$	—
Exercised	(3,146	)	$	26.54
Terminated	(7	)	$	26.36
Outstanding at July 28, 2013	1,101		$	27.25	1.2	$	22
Exercisable at July 28, 2013	1,101		$	27.25	1.2	$	22

The total intrinsic value of options exercised during 2013, 2012, and 2011, was $36, $31, and $29, 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 July 28, 2013:



	Units		Weighted- Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 29, 2012	3,951		$	33.19
Granted	1,990		$	35.44
Vested	(1,510	)	$	33.74
Forfeited	(223	)	$	33.70
Nonvested at July 28, 2013	4,208		$	34.05

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 269 thousand EPS performance target grants outstanding at July 28, 2013 with a weighted-average grant-date fair value of $34.29. Strategic performance restricted stock units are expensed on a straight-line basis over the service period. 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. There were approximately 1.8 million strategic performance target grants outstanding at July 28, 2013 with a weighted-average grant-date fair value of $33.21. 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 vested over a period of two years and are included in the table above. The grant-date fair value was $34.65.

As of July 28, 2013, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and strategic performance restricted stock units was $50, which will be amortized over the weighted-average remaining service period of 1.4 years. The fair value of restricted stock units vested during 2013, 2012, and 2011 was $57 and $38, and $40, respectively. The weighted-average grant-date fair value of the restricted stock units granted during 2012 and 2011 was $32.38 and $35.64, respectively.

The following table summarizes TSR performance restricted stock units as of July 28, 2013:



	Units		Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 29, 2012	2,143		$	37.94
Granted	582		$	39.76
Vested	—		$	—
Forfeited/Expired	(1,267	)	$	34.25
Nonvested at July 28, 2013	1,458		$	41.88

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:



	2013		2011
Risk-free interest rate	0.30	%	0.59%
Expected dividend yield	3.26	%	3.00%
Expected volatility	15.07	%	23.71%
Expected term	3 years		3 years

Compensation expense is recognized on a straight-line basis over the service period. As of July 28, 2013, total remaining unearned compensation related to TSR performance restricted stock units was $17, which will be amortized over the weighted-average remaining service period of 1.9 years. In the first quarter of 2013 and 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 27, 2012 and three-year period ended July 29, 2011, respectively. In the first quarter of 2014, recipients of TSR performance restricted stock units will receive 0% of the initial grants based upon the company’s TSR ranking in a performance peer group during a three-year period ended July 28, 2013. 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 $12 in 2013, $8 in 2012, and $11 in 2011. Cash received from the exercise of stock options was $83, $112, and $96 for 2013, 2012, and 2011, respectively, and are reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.