Share-Based Compensation

Share-based compensation expense is as follows:



	Fiscal Year
($ in millions)	2016			2015			2014
Stock units	$	61		$	61		$	86
Stock options	11			10			9
Employee stock purchase plan	4			5			5
Share-based compensation expense	76			76			100
Less: Income tax benefit	(30		)	(28		)	(37		)
Share-based compensation expense, net of tax	$	46		$	48		$	63

No material share-based compensation expense was capitalized in fiscal 2016, 2015, or 2014.

There were no material modifications made to our outstanding stock options and other stock awards in fiscal 2016, 2015, or 2014.

General Description of Stock Option and Other Stock Award Plans

The 1996 Stock Option and Award Plan (the “1996 Plan”) was established on March 26, 1996 and amended and restated on January 28, 2003. The 1996 Plan was further amended and restated on January 24, 2006 and renamed the 2006 Long-Term Incentive Plan (the “2006 Plan”). The 2006 Plan was amended and restated on August 20, 2008. The 2006 Plan was further amended and restated on May 17, 2011 and renamed the 2011 Long-Term Incentive Plan (the “2011 Plan”). The 2011 Plan was amended and restated in February 2014. The 2011 Plan was further amended and restated on May 17, 2016, and renamed the 2016 Long-Term Incentive Plan, and was further amended and restated in February 2017 (the “2016 Plan”). Under the 2016 Plan, nonqualified stock options and other stock awards are granted to officers, directors, eligible employees, and consultants at exercise prices or initial values equal to the fair market value of the Company’s common stock at the date of grant or as determined by the Compensation and Management Development Committee of the Board of Directors (the “Committee”).

As of January 28, 2017, there were 216,586,781 shares that have been authorized for issuance under the 2016 Plan.

Stock Units

Under the 2016 Plan, Stock Units are granted to employees and members of the Board of Directors. Vesting generally occurs over a period of three to four years of continued service by the employee in equal annual installments. Vesting is immediate in the case of members of the Board of Directors. In some cases, Stock Unit vesting is subject to the attainment of a pre-determined financial target (“Performance Shares”). Performance Shares generally vest over a period of three to four years.

At the end of each reporting period, we evaluate the probability that the Performance Shares will vest. We record share-based compensation expense on an accelerated basis based on the grant-date fair value and the probability that the pre-determined financial target will be achieved.

A summary of Stock Unit activity under the 2016 Plan for fiscal 2016 is as follows:



	Shares		Weighted-Average Grant-Date Fair Value Per Share
Balance as of January 30, 2016	4,353,962		$	36.74
Granted	3,300,654		$	26.42
Granted, with vesting subject to performance conditions	896,469		$	26.68
Vested	(1,701,985	)	$	34.38
Forfeited	(1,666,702	)	$	30.70
Balance as of January 28, 2017	5,182,398		$	31.14

A summary of additional information about Stock Units is as follows:



	Fiscal Year
	2016		2015		2014
Weighted-average fair value per share of Stock Units granted	$	26.47	$	37.80	$	40.20
Fair value of Stock Units vested (in millions)	$	59	$	77	$	114

The aggregate intrinsic value of unvested Stock Units as of January 28, 2017 was $117 million.

As of January 28, 2017, there was $84 million (before any related tax benefit) of unrecognized share-based compensation expense, adjusted for estimated forfeitures, related to unvested Stock Units, which is expected to be recognized over a weighted-average period of 2.21 years. Total unrecognized share-based compensation may be adjusted for future forfeitures.

Stock Units Granted Based on Performance Metrics

Under the 2016 Plan, some Stock Units are granted to certain employees only after the achievement of pre-determined performance metrics. Once the Stock Unit is granted, vesting is then subject to continued service by the employee, and expense is recognized over a period of three years on an accelerated basis.

At the end of each reporting period, we evaluate the probability that Stock Units will be granted. We record share-based compensation expense based on the probability that the performance metrics will be achieved, with an offsetting increase to current liabilities. We revalue the liability at the end of each reporting period and record an adjustment to share-based compensation expense as required, based on the probability that the performance metrics will be achieved. Upon achievement of the performance metrics, a Stock Unit is granted. At that time, the associated liability is reclassified to stockholders’ equity.

Out of 3,300,654 Stock Units granted in fiscal 2016, 51,806 Stock Units were granted based on satisfaction of performance metrics.

The liability related to potential Stock Units based on performance metrics, which is recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets, was $1 million as of January 28, 2017 and was not material as of January 30, 2016.

Stock Options

We have stock options outstanding under the 2016 Plan. Stock options generally expire the earlier of 10 years from the grant date, three months after employee termination, or one year after the date of an employee’s retirement or death. Vesting generally occurs over a period of four years of continued service by the employee, with 25 percent vesting on each of the four anniversary dates.

The fair value of stock options issued during fiscal 2016, 2015, and 2014 was estimated on the date of grant using the following assumptions:



	Fiscal Year
	2016		2015		2014
Expected term (in years)	3.7		3.8		4.4
Expected volatility	33.5	%	25.9	%	27.3	%
Dividend yield	3.5	%	2.2	%	2.1	%
Risk-free interest rate	1.2	%	1.2	%	1.3	%

A summary of stock option activity under the 2016 Plan for fiscal 2016 is as follows:



	Shares		Weighted- Average Exercise Price Per Share
Balance as of January 30, 2016	4,251,555		$	36.29
Granted	4,555,200		$	28.63
Exercised	(208,879	)	$	23.06
Forfeited/Expired	(1,073,840	)	$	36.10
Balance as of January 28, 2017	7,524,036		$	32.05

A summary of additional information about stock options is as follows:



	Fiscal Year
	2016		2015		2014
Weighted-average fair value per share of stock options granted	$	5.60	$	6.84	$	8.20
Aggregate intrinsic value of stock options exercised (in millions)	$	1	$	29	$	63
Fair value of stock options vested (in millions)	$	9	$	10	$	10

Information about stock options outstanding, vested or expected to vest, and exercisable as of January 28, 2017 is as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares as of January 28, 2017	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price Per Share		Number of Shares as of January 28, 2017	Weighted- Average Exercise Price Per Share
$11.77 - $23.18	799,993	6.51	$	19.70	370,193	$	20.73
$23.93 - $29.52	780,655	7.39	$	24.96	360,905	$	25.15
$30.18 - $30.18	3,366,560	8.53	$	30.18	—	n/a
$35.10 - $41.27	1,850,165	6.71	$	39.74	738,732	$	38.61
$41.67 - $46.41	726,663	5.92	$	42.32	382,590	$	42.32
	7,524,036	7.50	$	32.05	1,852,420	$	33.18
Vested or expected to vest as of January 28, 2017	7,043,018	7.40	$	32.10

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of January 28, 2017 was $2 million, $2 million, and $1 million, respectively. Stock options exercisable as of January 28, 2017 had a weighted-average remaining contractual life of 5.09 years.

Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock Exchange on the last day of the three-month purchase periods. Accordingly, compensation expense is recognized for an amount equal to the 15 percent discount. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1,260,361, 949,751, and 785,794 shares issued under the ESPP in fiscal 2016, 2015, and 2014, respectively. As of January 28, 2017, there were 1,257,830 shares reserved for future issuances under the ESPP. The ESPP was amended and restated in February 2017, subject to shareholder approval.