Share-Based Compensation

3 Months Ended

Apr. 04, 2015

Note 4. Share-Based Compensation

Our share-based compensation plans provide stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock awards and other awards. Compensation expense included in net income for these plans is as follows:

	Three Months Ended
(In millions)	April 4, 2015		March 29, 2014
Compensation expense	$	31	$	34
Income tax benefit	(11)		(12)
Total net compensation expense included in net income	$	20	$	22

Stock Options

Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. 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
	April 4, 2015		March 29, 2014
Fair value of options at grant date	$	14.03	$	12.72
Dividend yield	0.2%		0.2%
Expected volatility	34.9%		34.5%
Risk-free interest rate	1.5%		1.5%
Expected term (in years)	4.8		5.0

The stock option activity during the first quarter of 2015 is provided below:

(Options in thousands)	Number of Options	Weighted- Average Exercise Price
Outstanding at beginning of period	8,637	$	29.99
Granted	1,492	44.31
Exercised	(452)	(27.20)
Forfeited or expired	(137)	(45.95)
Outstanding at end of period	9,540	$	32.13
Exercisable at end of period	6,213	$	28.16

At April 4, 2015, our outstanding options had an aggregate intrinsic value of $123 million and a weighted-average remaining contractual life of seven years. Our exercisable options had an aggregate intrinsic value of $105 million and a weighted-average remaining contractual life of six years at April 4, 2015. The total intrinsic value of options exercised was $8 million in both the first quarter of 2015 and 2014.

Restricted Stock Units

The activity for restricted stock units payable in both stock and cash during the first quarter of 2015 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	906	$	30.59	1,666	$	29.84
Granted	167	44.31		364	44.31
Vested	(139)	(27.02)		(405)	(24.42)
Forfeited	—	—		(21)	(32.27)
Outstanding at end of period, nonvested	934	$	33.53	1,604	$	34.47

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)	April 4, 2015		March 29, 2014
Fair value of awards vested	$	22	$	20
Cash paid	18		19

Performance Share Units

The activity for our performance share units during the first quarter of 2015 is provided below:

(Units in thousands)	Number of Units	Weighted- Average Grant Date Fair Value
Outstanding at beginning of year, nonvested	677	$	33.38
Granted	257	44.31
Outstanding at end of period, nonvested	934	$	36.39

Cash paid under these awards totaled $17 million and $12 million during the first quarter of 2015 and 2014, respectively.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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