Share-Based Payments

Share-based payment expense before income taxes recognized during fiscal years 2014, 2013 and 2012 totaled approximately $68 million, $57 million and $42 million, respectively. Share-based payment expense was included in the following line items on the Consolidated Statements of Operations for the fiscal years indicated (in millions):



	2014			2013			2012
Cost of goods sold and occupancy costs	$	2		$	2		$	2
Direct store expenses	34			32			22
General and administrative expenses	32			23			18
Share-based payment expense before income taxes	68			57			42
Income tax benefit	(26		)	(22		)	(16		)
Net share-based payment expense	$	42		$	35		$	26

At September 28, 2014, September 29, 2013 and September 30, 2012 approximately 37.6 million shares, 42.3 millionshares and 16.8 million shares of the Company’s common stock, respectively, were available for future stock incentive grants.

Stock Options

The following table summarizes stock option activity (in millions, except per share amounts and contractual lives in years):



	Number of options outstanding		Weighted average exercise price		Weighted average remaining contractual life	Aggregate intrinsic value
Outstanding options at September 25, 2011	27.3		$	24.50
Options granted	7.2		44.23
Options exercised	(13.7	)	26.44
Options expired	(0.1	)	25.10
Options forfeited	(0.7	)	28.32
Outstanding options at September 30, 2012	20.0		$	30.17
Options granted	4.3		51.33
Options exercised	(4.1	)	20.52
Options expired	(0.1	)	18.86
Options forfeited	(0.9	)	37.20
Outstanding options at September 29, 2013	19.2		$	36.90
Options granted	5.3		40.25
Options exercised	(1.5	)	24.13
Options expired	(0.1	)	36.10
Options forfeited	(0.6	)	42.32
Outstanding options at September 28, 2014	22.3		$	38.37	4.81	$	93
Vested/expected to vest at September 28, 2014	21.2		$	38.15	4.53	$	92
Exercisable options at September 28, 2014	9.3		$	32.70	3.75	$	78

The weighted average grant date fair value of options granted during fiscal years 2014, 2013 and 2012 was $9.67, $12.36 and $13.68, respectively. The aggregate intrinsic value of stock options at exercise, represented in the table above, was approximately $36 million, $125 million and $201 million during fiscal years 2014, 2013 and 2012, respectively. The Company realized a tax benefit from stock options exercised during fiscal years 2014, 2013 and 2012 totaling approximately $36 million, $123 million and $198 million, respectively. The total fair value of shares vested during fiscal years 2014, 2013 and 2012 was approximately $192 million, $246 million and $186 million, respectively, including the value of vested options exercised during those same periods. As of the end of fiscal years 2014 and 2013, there was approximately $108 million and $130 million of unrecognized share-based payment expense, respectively, related to unvested stock options, net of estimated forfeitures, related to approximately 11.9 million shares and 12.4 million shares, respectively. The Company anticipates this expense to be recognized over a weighted average period of 2.9 years.

A summary of stock options outstanding and exercisable at September 28, 2014 follows (share amounts in millions):



Range of Exercise Prices				Options Outstanding				Options Exercisable
From		To		Number of options outstanding	Weighted average exercise price		Weighted average remaining life (in years)	Number of options exercisable	Weighted average exercise price
$	9.45	$	18.49	1.0	$	9.59	1.65	1.0	$	9.56
20.42		28.50		2.4	20.43		3.30	2.1	20.42
31.25		38.50		8.1	34.81		5.22	2.4	31.25
40.81		46.28		6.2	44.29		4.62	2.8	44.26
51.25		59.15		4.6	51.93		5.79	1.0	51.86
				22.3	$	38.37	4.81	9.3	$	32.70

Share-based payment expense related to vesting stock options recognized during fiscal years 2014, 2013 and 2012 totaled approximately $63 million, $56 million and $42 million, respectively.

The fair value of stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



	2014		2013		2012
Expected dividend yield	0.950	%	0.880	%	0.800	%
Risk-free interest rate	1.18	%	0.77	%	0.58	%
Expected volatility	30.96	%	31.25	%	40.89	%
Expected life, in years	4.04		3.96		4.14

Risk-free interest rate is based on the U.S. Treasury yield curve on the date of the grant for the time period equal to the expected term of the grant. Expected volatility is calculated using a ratio of implied volatility based on the Newton-Raphson method of bisection, and four or six year historical volatilities based on the expected life of each tranche of options. The Company determined the use of both implied volatility and historical volatility represents a more accurate calculation of option fair value. Expected life is calculated in two tranches based on weighted average percentage of unexpired options and exercise-after-vesting information over the last five or seven years. Unvested options are included in the term calculation using the “mid-point scenario” which assumes that unvested options will be exercised halfway between vest and expiration date. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and experience. In addition to the above valuation assumptions, the Company estimates an annual forfeiture rate for unvested options and adjusts fair value expense accordingly. The Company monitors actual forfeiture experience and adjusts the rate from time to time as necessary.

Restricted Stock

During fiscal years 2014 and 2013, the Company awarded approximately 0.2 million shares and 0.1 million shares of restricted common stock, respectively, pursuant to the Whole Foods Market 2009 Stock Incentive Plan. Fair value of the restricted share issuances on grant date for fiscal years 2014 and 2013 totaled approximately $11 million and $4 million, respectively.

Total share-based payment expense related to restricted shares during fiscal year 2014 totaled approximately $5 million and is included in the “General and administrative expenses” line item on the Consolidated Statements of Operations. Share-based payment expense related to restricted shares was not material during fiscal year 2013. At September 28, 2014 and September 29, 2013, there was approximately $10 million and $3 million of unrecognized share-based payment expense, respectively, related to unvested restricted stock. The Company anticipates this expense to be recognized over a weighted average period of 3.9 years. The number of shares, grant date fair value, and share-based payment expense related to the issuance of restricted common stock were not material during fiscal year 2012.

Team Member Stock Purchase Plan

Under the Team Member Stock Purchase Plan, the Company issued approximately 135,000 shares, 80,000 shares and 120,000 shares of common stock in fiscal years 2014, 2013 and 2012, respectively. At September 28, 2014, September 29, 2013 and September 30, 2012, approximately 405,000 shares, 540,000 shares and 620,000 shares of our common stock, respectively, were available for future issuance.