Share-Based Compensation

3 Months Ended

Apr. 01, 2017

Share-Based Compensation

Share-Based Compensation

Note 4.  Share-Based Compensation

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

	Three Months Ended
(In millions)		April 1, 2017		April 2, 2016
Compensation expense	$	20	$	7
Income tax benefit		(7)		(3)
Total net compensation expense included in net income	$	13	$	4

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 and the assumptions used in our option-pricing model for such grants are as follows:

	Three Months Ended
		April 1, 2017		April 2, 2016
Fair value of options at grant date	$	13.80	$	10.33
Dividend yield		0.2%		0.2%
Expected volatility		29.2%		33.6%
Risk-free interest rate		1.9%		1.2%
Expected term (in years)		4.7		4.8

The stock option activity during the first quarter of 2017 is provided below:

(Options in thousands)	Number of Options		Weighted- Average Exercise Price
Outstanding at beginning of period	9,264	$	33.61
Granted	1,536		49.58
Exercised	(850)		(29.08)
Forfeited or expired	(112)		(39.02)
Outstanding at end of period	9,838	$	36.43
Exercisable at end of period	6,518	$	32.88

At April 1, 2017, our outstanding options had an aggregate intrinsic value of $113 million and a weighted-average remaining contractual life of 6.7 years.  Our exercisable options had an aggregate intrinsic value of $96 million and a weighted-average remaining contractual life of 5.5 years at April 1, 2017.  The total intrinsic value of options exercised was $17 million and $1 million during the first quarter of 2017 and 2016, respectively.

Restricted Stock Units

The activity for restricted stock units payable in both stock and cash during the first quarter of 2017 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 period, nonvested		797	$	35.94	1,444	$	36.33
Granted		150		49.58	304		49.58
Vested		(214)		(31.28)	(346)		(31.83)
Forfeited		(30)		(35.53)	(40)		(37.18)
Outstanding at end of period, nonvested		703	$	40.26	1,362	$	40.40

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

	Three Months Ended
(In millions)		April 1, 2017		April 2, 2016
Fair value of awards vested	$	24	$	17
Cash paid		17		12

Performance Share Units

The activity for our performance share units during the first quarter of 2017 is provided below:

(Units in thousands)	Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of period, nonvested	535	$	39.13
Granted	231		49.58
Forfeited	(19)		(39.18)
Outstanding at end of period, nonvested	747	$	42.36

Cash paid under these awards totaled $14 million and $13 million during the first quarter of 2017 and 2016, respectively.