Stock-based Compensation

9 Months Ended

May 01, 2022

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 2022, we issued time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and EPS performance restricted stock units. We last issued stock options and FCF performance restricted stock units in 2019.

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				Nine Months Ended
(Millions)	May 1, 2022		May 2, 2021		May 1, 2022		May 2, 2021
Total pre-tax stock-based compensation expense	$	15	$	17	$	46	$	51
Tax-related benefits	$	3	$	3	$	8	$	9

The following table summarizes stock option activity as of May 1, 2022:


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(Options in thousands)			(In years)	(Millions)
Outstanding at August 1, 2021	1,372	$	45.61
Granted	—	$	—
Exercised	(32)	$	36.60
Terminated	—	$	—
Outstanding at May 1, 2022	1,340	$	45.83	5.1	$	5
Exercisable at May 1, 2022	1,340	$	45.83	5.1	$	5

The total intrinsic value of options exercised during the nine-month periods ended May 1, 2022 and May 2, 2021 was not material. We measured the fair value of stock options using the Black-Scholes option pricing model.

We expensed stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expensed on an accelerated basis. As of January 2022, compensation related to stock options was fully expensed.

The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units as of May 1, 2022:


	Units	Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at August 1, 2021	1,814	$	45.63
Granted	1,538	$	41.94
Vested	(1,173)	$	43.96
Forfeited	(194)	$	44.60
Nonvested at May 1, 2022	1,985	$	43.86

We determine the fair value of time-lapse 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.

In 2022, we granted EPS performance restricted stock units that will be earned upon the achievement of our adjusted EPS compound annual growth rate goal, measured over a three-year period. The actual number of EPS 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 EPS performance restricted stock units is based upon the quoted price of our stock at the date of grant. We expense EPS performance restricted stock units on a straight-line basis over the service period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. We estimate expense based on the number of awards expected to vest. There were 309 thousand EPS performance target grants outstanding at May 1, 2022, with a weighted-average grant-date fair value of $41.50.

In 2019, we issued approximately 388 thousand FCF performance restricted stock units for which vesting was 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 was established each fiscal year for three consecutive years. Performance against these objectives was averaged at the end of the three-year period to determine the number of underlying units that would 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 was based upon the quoted price of our stock at the date of grant. We expensed FCF performance restricted stock units over the requisite service period of each objective. We estimated expense based on the number of awards expected to vest. In the first quarter of 2022, recipients of FCF performance restricted stock units earned 167% of the initial grants based upon the average of actual performance achieved during a three-year period ended August 1, 2021. As a result, approximately 158 thousand additional shares were awarded. As of October 31, 2021, there were no FCF performance target grants outstanding.

As of May 1, 2022, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS performance restricted stock units was $45 million, 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 nine-month periods ended May 1, 2022, and May 2, 2021, was $50 million, and $38 million, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the nine-month period ended May 2, 2021 was $48.43.

The following table summarizes TSR performance restricted stock units as of May 1, 2022:


	Units	Weighted-Average Grant-Date Fair Value
	(Restricted stock units in thousands)
Nonvested at August 1, 2021	1,222	$	53.60
Granted	331	$	45.54
Vested	(178)	$	31.35
Forfeited	(188)	$	48.00
Nonvested at May 1, 2022	1,187	$	55.58

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:


	2022	2021
Risk-free interest rate	0.46%	0.15%
Expected dividend yield	3.50%	2.85%
Expected volatility	27.42%	29.99%
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 May 1, 2022, total remaining unearned compensation related to TSR performance restricted stock units was $20 million, which will be amortized over the weighted-average remaining service period of 1.6 years. In the first quarter of 2022, recipients of TSR performance restricted stock units earned 75% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 30, 2021. In the first quarter of 2021, recipients of TSR performance restricted stock units earned 50% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 31, 2020. The fair value of TSR performance restricted stock units vested during the nine-month periods ended May 1, 2022 and May 2, 2021 was $8 million and $11 million, respectively. The grant-date fair value of the TSR performance restricted stock units granted during 2021 was $54.93.

The excess tax benefits of $1 million in the nine-month periods ended May 1, 2022, and May 2, 2021, 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 $1 million and $2 million for the nine-month periods ended May 1, 2022, and May 2, 2021, respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.