Stock-based Compensation

6 Months Ended

Jan. 26, 2020

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 2020, we issued time-lapse restricted stock units and TSR performance restricted stock units. We have not issued stock options, FCF performance restricted stock units, or EPS performance restricted stock units in 2020.

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 Earnings from continuing operations were as follows:


	Three Months Ended						Six Months Ended
	January 26, 2020		January 27, 2019		January 26, 2020		January 27, 2019
Total pre-tax stock-based compensation expense	$	18	$	15	$	31	$	28
Tax-related benefits	$	3	$	3	$	6	$	5

Total pre-tax stock-based compensation expense and tax-related benefits recognized in Earnings (loss) from discontinued operations were as follows:


	Three Months Ended						Six Months Ended
	January 26, 2020		January 27, 2019		January 26, 2020		January 27, 2019
Total pre-tax stock-based compensation expense	$	1	$	2	$	2	$	3
Tax-related benefits	$	—	$	—	$	—	$	1

The following table summarizes stock option activity as of January 26, 2020:


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Options in thousands)			(In years)
Outstanding at July 28, 2019	2,059	$	46.17
Granted	—	$	—
Exercised	(92)	$	41.58
Terminated	(155)	$	49.46
Outstanding at January 26, 2020	1,812	$	46.12	7.3	$	8
Exercisable at January 26, 2020	1,223	$	49.74	6.7	$	2

The total intrinsic value of options exercised during the six-month period ended January 26, 2020 was $1. No options were exercised during the six-month period ended January 27, 2019. We measure the fair value of stock options using the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

The weighted-average assumptions and grant-date fair value for grants in 2019 were as follows:


									2019
Risk-free interest rate									2.79%
Expected dividend yield									3.84%
Expected volatility									25.28%
Expected term									6.1 years
Grant-date fair value									$6.27

We expense stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of January 26, 2020, total remaining unearned compensation related to nonvested stock options was $2, which will be amortized over the weighted-average remaining service period of 1.8 years.

The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units as of January 26, 2020:


	Units	Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 28, 2019	1,960	$	40.57
Granted	1,088	$	46.81
Vested	(680)	$	43.17
Forfeited	(249)	$	41.14
Nonvested at January 26, 2020	2,119	$	42.87

We determine the fair value of time-lapse restricted stock units and EPS performance 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. We expense EPS performance restricted stock units on a graded-vesting basis, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. There were 23 thousand EPS performance target grants outstanding at January 26, 2020, with a grant-date fair value of $46.82. The actual number of EPS performance restricted stock units issued at the vesting date could be either 0% or 100% of the initial grant, depending on actual performance achieved. We estimate expense based on the number of awards expected to vest.

In 2019, we issued approximately 388 thousand FCF performance restricted stock units for which vesting is 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 will be established each fiscal year for three consecutive years. Performance against these objectives will be averaged at the end

of the three-year period to determine the number of underlying units that will vest at the end of the three years. The actual number of FCF 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 FCF performance restricted stock units will be based upon the quoted price of our stock at the date of grant. We will expense FCF performance restricted stock units over the requisite service period of each objective. As of January 26, 2020, we have granted 258 thousand of the issued FCF performance restricted stock units, which are included in the table above. There were 182 thousand FCF performance target grants outstanding at January 26, 2020, with a weighted-average grant-date fair value of $42.16.

As of January 26, 2020, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted units was $53, which will be amortized over the weighted-average remaining service period of 1.9 years. The fair value of restricted stock units vested during the six-month periods ended January 26, 2020, and January 27, 2019, was $32, and $24, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the six-month period ended January 27, 2019 was $36.35.

The following table summarizes TSR performance restricted stock units as of January 26, 2020:


	Units	Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 28, 2019	1,308	$	37.33
Granted	619	$	63.06
Vested	—	$	—
Forfeited	(564)	$	39.36
Nonvested at January 26, 2020	1,363	$	48.17

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:


	2020	2019
Risk-free interest rate	1.48%	2.80%
Expected dividend yield	2.95%	3.79%
Expected volatility	27.01%	24.50%
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 January 26, 2020, total remaining unearned compensation related to TSR performance restricted stock units was $34, which will be amortized over the weighted-average remaining service period of 2.2 years. In the first quarter of 2020, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 26, 2019. In the first quarter of 2019, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 27, 2018. The weighted-average grant-date fair value of the TSR performance restricted stock units granted during 2019 was $31.29.

The excess tax benefits of $1 in the six-month period ended January 26, 2020, and the excess tax deficiencies of $2 in the six-month period ended January 27, 2019, on the exercise of stock options and vested restricted stock were presented as cash flows from operating activities. Cash received from the exercise of stock options was $4 for the six-month period ended January 26, 2020, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.