Share-Based Compensation

6 Months Ended

Jul. 02, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

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 $12 million and $18 million for the six-month periods ended July 2, 2016 and July 4, 2015, respectively. Tax related benefits of $4 million and $6 million were also recognized for the six-month periods ended July 2, 2016 and July 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 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:



	Six Months Ended
	July 2, 2016		July 4, 2015
Expected dividend yield	0%		0%
Forfeiture rate	9.01%		10.24%
Volatility	43.14%		33.98%
Risk free interest rate	1.29%		1.53%
Range of interest rates	0.25% - 1.75%		0.02% - 2.14%
Expected weighted-average life	5.33 years		5.32 years
Fair value of SARs granted (in millions)	$	12	$	11
Weighted-average grant date fair value of SARs granted (per underlying share)	$	19.95	$	35.25

SARs activity was as follows:



	Six Months Ended July 2, 2016
SARs	Shares			Weighted- Average Exercise Price
Outstanding at beginning of period	1,397,611			$	56.78
Granted	607,846			51.55
Exercised	(39,830		)	40.06
Forfeited	(40,539		)	64.66
Expired	(1,417		)	74.72
Outstanding at end of period	1,923,671			55.14
Exercisable at end of period	946,826			43.73
Intrinsic value of exercised SARs (in millions)	$	1

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



	July 2, 2016
	Outstanding		Exercisable
Aggregate intrinsic value (in millions)	$	26	$	20
Weighted-average remaining contractual term	7.4 years		5.4 years

Restricted stock award activity was as follows:



	Six Months Ended July 2, 2016
Restricted Stock Awards	Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	566,447		$	77.68
Granted	377,017		51.38
Released	(223,318	)	55.74
Forfeited	(18,520	)	73.58
Outstanding at end of period	701,626		70.47

Performance stock award activity was as follows:



	Six Months Ended July 2, 2016
Performance Stock Awards	Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	332,630		$	73.40
Granted	179,385		50.36
Released	(108,371	)	46.07
Forfeited	(6,363	)	71.33
Outstanding at end of period	397,281		70.18

Restricted stock unit activity was as follows:



	Six Months Ended July 2, 2016
Restricted Stock Units	Shares
Outstanding at beginning of period	38,746
Granted	31,194
Exercised	(7,585	)
Forfeited	(1,485	)
Outstanding at end of period	60,870

There were no stock options and performance stock unit grants issued during the six months ended July 2, 2016.

As of July 2, 2016, total unearned compensation costs related to the Company’s share-based compensation plans was $61 million which will be amortized over the weighted average remaining service period of 3.3 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.



	Six Months Ended
	July 2, 2016			July 4, 2015
Fair market value	$	60.28		$	82.68
Option price	$	57.26		$	78.55
Expected dividend yield	0		%	0		%
Expected volatility	58		%	27		%
Risk free interest rate	0.21		%	0.04		%