Stock-based Compensation

12 Months Ended

Aug. 02, 2020

Share-based Payment Arrangement [Abstract]

In 2003, shareholders approved the 2003 Long-Term Incentive Plan, which authorized the issuance of an aggregate of 31.2 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock/units (including performance restricted stock) and performance units. In 2005, shareholders approved the 2005 Long-Term Incentive Plan, which authorized the issuance of an additional 6 million shares to satisfy the same types of awards. In 2008, shareholders approved an amendment to the 2005 Long-Term Incentive Plan to increase the number of authorized shares to 10.5 million and in 2010, shareholders approved another amendment to the 2005 Long-Term Incentive Plan to increase the number of authorized shares to 17.5 million. In 2015, shareholders approved the 2015 Long-Term Incentive Plan, which authorized the issuance of 13 million shares. Approximately 6 million of these shares were shares that were currently available under the 2005 plan and were incorporated into the 2015 Plan upon approval by shareholders.

Awards under Long-Term Incentive Plans may be granted to employees and directors. Pursuant to the Long-Term Incentive Plan, we adopted a long-term incentive compensation program which provides for grants of total shareholder return (TSR) performance restricted stock/units, EPS performance restricted stock/units, strategic performance restricted stock/units, time-lapse restricted stock/units, special performance restricted stock/units, free cash flow (FCF) performance restricted stock/units and unrestricted stock. Under the program, awards of TSR performance restricted stock/units will be earned by comparing our total shareholder return during a three-year period to the respective total shareholder returns of companies in a performance peer group. Based upon our ranking in the performance peer group, a recipient of TSR performance restricted stock/units may earn a total award ranging from 0% to 200% of the initial grant. Awards of EPS performance restricted stock/units will be earned based upon our 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 of either 0% or 100% of the initial grant. Awards of the strategic performance restricted stock units were earned based upon the achievement of two key metrics, net sales and EPS growth, compared to strategic plan objectives during a three-year period. A recipient of strategic performance restricted stock units earned a total award ranging from 0% to 200% of the initial grant. Awards of FCF performance restricted stock units will be earned based upon the 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. A recipient of FCF 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, we may issue special grants of restricted stock/units to attract and retain executives which vest over various periods. Awards are generally granted annually in October.

Annual stock option grants were granted in 2019 and 2018. Stock options are granted on a selective basis under the Long-Term Incentive Plans. The term of a stock option granted under these plans may not exceed ten years from the date of grant. Options granted in 2019 and 2018 under these plans vest ratably over a three-year period. In 2019, we also granted options under these plans that vest at the end of a three-year period. The option price may not be less than the fair market value of a share of common stock on the date of the grant.

In 2020, we issued time-lapse restricted stock units, unrestricted stock and TSR performance restricted stock units. We did not issue stock options, FCF performance restricted stock units, EPS performance restricted stock units, strategic performance restricted stock units or special performance restricted 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:


	2020		2019		2018
Total pre-tax stock-based compensation expense	$	59	$	50	$	55
Tax-related benefits	$	11	$	8	$	9

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


	2020		2019		2018
Total pre-tax stock-based compensation expense	$	2	$	8	$	6
Tax-related benefits	$	—	$	2	$	2

The following table summarizes stock option activity as of August 2, 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	(481)	$	47.33
Terminated	(155)	$	49.46
Outstanding at August 2, 2020	1,423	$	45.42	6.9	$	8
Exercisable at August 2, 2020	833	$	50.23	6.1	$	1

The total intrinsic value of options exercised during 2020 was $2. No options were exercised during 2019 or 2018. 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 values for grants in 2019 and 2018 were as follows:


	2019	2018
Risk-free interest rate	2.79%	2.06%
Expected dividend yield	3.84%	2.95%
Expected volatility	25.28%	19.60%
Expected term	6.1 years	6.0 years
Grant-date fair value	$6.27	$6.67

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 August 2, 2020, total remaining unearned compensation related to nonvested stock options was $1, which will be amortized over the weighted-average remaining service period of 1.4 years.

The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units as of August 2, 2020:


	Units	Weighted- Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at July 28, 2019	1,960	$	40.57
Granted	1,157	$	46.82
Vested	(871)	$	42.80
Forfeited	(380)	$	41.64
Nonvested at August 2, 2020	1,866	$	43.18

We determine the fair value of time-lapse restricted stock units, EPS performance restricted stock units, strategic performance restricted stock units, special performance restricted stock units and FCF 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 August 2, 2020, with a grant-date fair value of $46.82. We will expense FCF performance restricted stock units over the requisite service period of each objective. In 2019, we issued approximately 388 thousand FCF performance restricted stock units. As of August 2, 2020, we have granted 258 thousand of the issued FCF performance restricted stock units, which are included in the table above. There were 166 thousand FCF performance target grants outstanding at August 2, 2020, with a weighted-average grant date fair value of $42.16. The actual number of EPS performance restricted stock units, strategic performance restricted stock units, and FCF performance restricted stock units that vest will depend on actual performance achieved. We estimate expense based on the number of awards expected to vest.

As of August 2, 2020, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted units was $35, which will be amortized over the weighted-average remaining service period of 1.7 years. The fair value of restricted stock units vested during 2020, 2019 and 2018 was $41, $26 and $30, respectively. The weighted-average grant-date fair value of the restricted stock units granted during 2019 and 2018 was $36.51 and $44.18, respectively.

The following table summarizes TSR performance restricted stock units as of August 2, 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	(673)	$	41.43
Nonvested at August 2, 2020	1,254	$	47.83

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	2018
Risk-free interest rate	1.48%	2.80%	1.58%
Expected dividend yield	2.95%	3.79%	2.95%
Expected volatility	27.01%	24.50%	19.07%
Expected term	3 years	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 August 2, 2020, total remaining unearned compensation related to TSR performance restricted stock units was $22, which will be amortized over the weighted-average remaining service period of 1.8 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. In the first quarter of 2018, recipients of TSR performance restricted stock units earned 125% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 28, 2017. As a result, approximately 160 thousand additional shares were awarded. The fair value of TSR performance restricted stock units vested during 2018 was $38. The weighted-average grant-date fair value of the TSR performance restricted stock units granted during 2019 and 2018 was $31.29 and $39.39, respectively. In the first quarter of 2021, recipients of TSR performance restricted stock units will receive a 50% payout based upon our TSR ranking in a performance peer group during a three-year period ended July 31, 2020.

The excess tax benefits of $1 in 2020, and the excess tax deficiencies of $6 in 2019 and $3 in 2018, 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 $23 for 2020, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.