Stock-based Compensation

3 Months Ended

Oct. 29, 2023

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 2024, 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 the Consolidated Statements of Earnings were as follows:


	Three Months Ended
(Millions)	October 29, 2023		October 30, 2022
Total pre-tax stock-based compensation expense	$	17	$	15
Tax-related benefits	$	2	$	3

The following table summarizes stock option activity as of October 29, 2023:


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
	(In thousands)			(In years)	(Millions)
Outstanding at July 30, 2023	833	$	44.77
Granted	—	$	—
Exercised	—	$	—
Terminated	—	$	—
Outstanding at October 29, 2023	833	$	44.77	4.0	$	2
Exercisable at October 29, 2023	833	$	44.77	4.0	$	2

The total intrinsic value of options exercised during the three-month period ended October 30, 2022 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 and EPS performance restricted stock units as of October 29, 2023:


	Units	Weighted-Average Grant-Date Fair Value
	(In thousands)
Nonvested at July 30, 2023	2,274	$	45.39
Granted	1,492	$	41.09
Vested	(714)	$	45.39
Forfeited	(44)	$	44.77
Nonvested at October 29, 2023	3,008	$	43.26

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.

Since 2022, we have 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 936 thousand EPS performance target grants outstanding at October 29, 2023, with a weighted-average grant-date fair value of $42.99.

As of October 29, 2023, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS performance restricted stock units was $83 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 three-month periods ended October 29, 2023, and October 30, 2022, was $30 million and $34 million, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the three-month period ended October 30, 2022 was $47.12.

The following table summarizes TSR performance restricted stock units as of October 29, 2023:


	Units	Weighted-Average Grant-Date Fair Value
	(In thousands)
Nonvested at July 30, 2023	948	$	51.81
Granted	387	$	44.18
Vested	(289)	$	54.93
Forfeited	(110)	$	54.35
Nonvested at October 29, 2023	936	$	47.40

We 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:


	2024	2023
Risk-free interest rate	4.84%	4.29%
Expected dividend yield	3.54%	3.09%
Expected volatility	22.16%	26.40%
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 October 29, 2023, total remaining unearned compensation related to TSR performance restricted stock units was $24 million, which will be amortized over the weighted-average remaining service period of 2.0 years. In the first quarter of 2024, 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 28, 2023. In the first quarter of 2023, recipients of TSR performance restricted stock units earned 100% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 29, 2022. The fair value of TSR performance restricted stock units vested during the three-month periods ended October 29, 2023, and October 30, 2022, was $12 million and $21 million, respectively. The weighted-average grant-date fair value of the TSR performance restricted stock units granted during the three-month period ended October 30, 2022, was $53.74.

The tax benefits on the exercise of stock options in the three-month period ended October 30, 2022 were not material. Cash received from the exercise of stock options was $2 million for the three-month period ended October 30, 2022, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.