Share-Based Compensation

3 Months Ended

Apr. 02, 2016

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 2, 2016		April 4, 2015
Compensation expense	$	7	$		31
Income tax benefit	(3)		(11)

Total net compensation expense included in net income	$	4	$		20


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 2, 2016		April 4, 2015
Fair value of options at grant date	$	10.33	$	14.03
Dividend yield	0.2%		0.2%
Expected volatility	33.6%		34.9%
Risk-free interest rate	1.2%		1.5%
Expected term (in years)	4.8		4.8

The stock option activity during the first quarter of 2016 is provided below:

(Options in thousands)				Number of Options		Weighted- Average Exercise Price
Outstanding at beginning of period				8,808		$	32.91
Granted				1,792		34.50
Exercised				(114)		(25.97)
Forfeited or expired				(48)		(41.94)

Outstanding at end of period				10,438		$	33.21

Exercisable at end of period				6,780		$	30.24


At April 2, 2016, our outstanding options had an aggregate intrinsic value of $57 million and a weighted-average remaining contractual life of seven years. Our exercisable options had an aggregate intrinsic value of $53 million and a weighted-average remaining contractual life of six years at April 2, 2016. The total intrinsic value of options exercised was $1 million and $8 million during the first quarter of 2016 and 2015, respectively. Restricted Stock Units The activity for restricted stock units payable in both stock and cash during the first quarter of 2016 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	880	$	33.97	1,492		$	34.84
Granted	189	34.50		397		34.50
Vested	(196)	(27.53)		(334)		(27.73)
Forfeited	—	—		(36)		(38.99)

Outstanding at end of period, nonvested	873	$	35.54	1,519		$	36.21


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 2, 2016		April 4, 2015
Fair value of awards vested				$	17	$	22
Cash paid				12		18


Performance Share Units The activity for our performance share units during the first quarter of 2016 is provided below:

(Units in thousands)				Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of period, nonvested				549		$	41.84
Granted				284		34.50
Forfeited				(9)		(39.56)

Outstanding at end of period, nonvested				824		$	39.33

Cash paid under these awards totaled $13 million and $17 million during the first quarter of 2016 and 2015, respectively.