Share-Based Compensation

The Company has share-based compensation and employee stock purchase plans under which shares of the Company’s Class A common stock are available for future grants and sales.

Pre-tax share-based compensation expense recognized in the statements of operations was $9 million for the three-month periods ended April 2, 2016 and April 4, 2015, respectively. Tax related benefits of $3 million were also recognized for the three-month periods ended April 2, 2016 and April 4, 2015, respectively.

The fair value of share-based compensation is estimated on the date of grant using a binomial model. Volatility is based on an average of the implied volatility in the open market and the annualized volatility of the Company’s stock price over its entire stock history. Stock option grants in the table below include both stock options, all of which were non-qualified, and stock appreciation rights (SARs) that will be settled in the Class A common stock or cash. Restricted stock grants are valued at the market closing price on the grant date.

The following table shows the weighted-average assumptions used for grants of SARs as well as the fair value based on those assumptions:



	Three Months Ended
	April 2, 2016	April 4, 2015
Expected dividend yield	0%	0%
Forfeiture rate	10.24%	10.32%
Volatility	33.98%	34.92%
Risk free interest rate	1.53%	1.73%
Range of interest rates	0.02% - 2.14%	0.02% - 2.61%
Expected weighted-average life	5.32 years	5.36 years
Fair value of SARs granted (in millions)	$—	$—
Weighted-average grant date fair value of SARs granted (per underlying share)	$—	$—

SAR activity was as follows:



	April 2, 2016
SARs	Shares			Weighted- Average Exercise Price
Outstanding at beginning of period	1,397,611			$	56.78
Granted	—			—
Exercised	(10,800		)	37.03
Forfeited	(19,497		)	75.20
Expired	—			—
Outstanding at end of period	1,367,314			56.66
Exercisable at end of period	728,463			36.01
Intrinsic value of exercised SARs (in millions)	$	—

The following table summarizes information about SARs outstanding at April 2, 2016:



	April 2, 2016
	Outstanding	Exercisable
Aggregate intrinsic value (in millions)	$24	$20
Weighted-average remaining contractual term	6.5 years	5.1 years

Stock option activity was as follows:



	April 2, 2016
Options	Shares			Weighted- Average Exercise Price
Outstanding at beginning of period	204,434			$	36.66
Granted	—			—
Exercised	(7,590		)	42.68
Forfeited	—			—
Expired	(2,490		)	43.35
Outstanding at end of period	194,354			36.34
Exercisable at end of period	194,354			36.34
Intrinsic value of exercised options (in millions)	$	—

Restricted stock award activity was as follows:



	April 2, 2016
Restricted Stock Awards	Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	566,447		$	77.68
Granted	—		—
Released	(12,592	)	58.37
Forfeited	(7,586	)	85.80
Outstanding at end of period	546,269		77.93

Performance share award activity was as follows:



	April 2, 2016
Performance Share Awards	Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	332,630		$	73.40
Grant adjustment	(2,531	)	73.07
Released	—		—
Forfeited	(2,719	)	73.07
Outstanding at end of period	327,380		73.22

There was no restricted stock unit and performance stock unit grants for the quarter.

As of April 2, 2016, total unearned compensation costs related to the Company’s share-based compensation plans was $37 million which will be amortized over the weighted average remaining service period of 2.2 years.

The fair value of the purchase rights issued to employees under the stock purchase plan is estimated using the following weighted-average assumptions for purchase rights granted. An expected life of 3 months was used to calculate the fair value.



	Three Months Ended
	April 2, 2016			April 4, 2015
Fair market value	$	69.65		$	77.41
Option price	$	66.17		$	73.54
Expected dividend yield	—		%	—		%
Expected volatility	59		%	23		%
Risk free interest rate	0.21		%	0.04		%