Share-Based Compensation

3 Months Ended

Mar. 30, 2013

Share-Based Compensation

Share-Based Compensation

Note 3.  Share-Based Compensation

Share-based compensation expense includes restricted stock, restricted stock units, stock options, stock appreciation rights, performance stock awards and deferred income plan stock unit awards. Compensation expense recorded in net income for our share-based compensation plans is as follows:

	Three Months Ended
(In millions)	March 30, 2013			March 31, 2012
Compensation expense	$	30		$	46
Income tax benefit	(11		)	(17		)
Total net compensation cost included in net income	$	19		$	29

Stock Options

The stock option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options.  We estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model.  Expected volatilities are based on implied volatilities from traded options on our common stock, historical volatilities and other factors.  The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

The weighted-average fair value of options granted during the respective periods and the assumptions used in our option-pricing model for such grants are as follows:

	Three Months Ended
	March 30, 2013			March 31, 2012
Fair value of options at grant date	$	9.69		$	10.19
Dividend yield	0.3		%	0.3		%
Expected volatility	37.0		%	40.0		%
Risk-free interest rate	0.9		%	0.8		%
Expected term (in years)	5.5			5.5

The stock option activity during the first quarter of 2013 is provided below:

(Options in thousands)	Number of Options		Weighted- Average Exercise Price
Outstanding at beginning of period	9,484		$	27.98
Granted	2,133		28.47
Exercised	(504	)	(21.90		)
Canceled, expired or forfeited	(842	)	(40.07		)
Outstanding at end of period	10,271		$	27.39
Exercisable at end of period	5,302		$	26.86

At March 30, 2013, our outstanding options had an aggregate intrinsic value of $38 million and a weighted-average remaining contractual life of 8 years.  Our exercisable options had an aggregate intrinsic value of $28 million and a weighted-average remaining contractual life of 6 years at March 30, 2013.  The total intrinsic value of options exercised during the first quarter of 2013 and 2012 was $4 million and $2 million, respectively.

Restricted Stock Units

The activity for restricted stock units payable in stock and for restricted stock units payable in cash during the first quarter of 2013 is provided below:

	Units Payable in Stock					Units Payable in Cash
(Shares/Units in thousands)	Number of Shares		Weighted- Average Grant Date Fair Value			Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of year, nonvested	710		$	29.94		2,540		$	20.79
Granted	257		28.47			583		28.43
Vested	(107	)	(42.53		)	(595	)	(15.99		)
Forfeited	(30	)	(27.94		)	(148	)	(23.91		)
Outstanding at end of period, nonvested	830		$	27.93		2,380		$	23.67

The fair value of the restricted stock awards that vested and/or amounts paid under these awards during the respective periods is as follows:

	Three Months Ended
(In millions)	March 30, 2013		March 31, 2012
Fair value of awards vested	$	21	$	30
Cash paid	18		21

Performance Share Units

The fair value of share-based compensation awards accounted for as liabilities includes performance share units.  The fair value of these awards is based on the trading price of our common stock and is remeasured at each reporting period date.  The activity for our performance share units during the first quarter of 2013 is as follows:

(Units in thousands)	Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of year, nonvested	875		$	27.14
Granted	418		28.47
Forfeited	(41	)	(27.42		)
Outstanding at end of period, nonvested	1,252		$	27.57

Cash paid under these awards totaled $11 million and $51 million during the first quarter of 2013 and 2012, respectively.