Stock-Based Compensation (Tables)

6 Months Ended

Jul. 02, 2023

Share-Based Payment Arrangement [Abstract]

Share-Based Payment Arrangement, Expensed and Capitalized, Amount

The components and classification of stock-based compensation expense related to stock options, Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”) directly attributable to those employees specifically

identified as employees of the Company and allocations from the Parent for fiscal years 2022, 2021 and 2020 were as follows:

(Dollars in Millions)	2022		2021		2020
Stock options	$	43	$	41	$	37
RSUs	74		73		67
PSUs	20		27		11
Stock-based compensation expense	137		141		115
Cost of sales	30		33		29
Selling, general and administrative expenses	107		108		86
Stock-based compensation expense	$	137	$	141	$	115

The components and classification of stock-based compensation expense related to stock options, RSUs, and PSUs directly attributable to those employees specifically identified as employees of the Company and allocations from the Parent for the fiscal three and six months ended July 2, 2023 and July 3, 2022, were as follows:

	Fiscal Three Months Ended				Fiscal Six Months Ended
(Dollars in Millions)	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Cost of sales	$	12	$	10	$	16	$	18
Selling, general, and administrative expenses	26		31		57		58
Stock-based compensation expense	$	38	$	41	$	73	$	76

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions

The fair value was estimated based on the weighted average assumptions of:

	2022		2021		2020
Risk-free rate	2.0	%	0.8	%	1.5	%
Expected volatility	18.0	%	18.6	%	15.3	%
Expected life (in years)	7		7		7
Expected dividend yield	2.7	%	2.5	%	2.6	%

Share-Based Payment Arrangement, Option, Activity

A summary of option activity under the Plans as of January 1, 2023, and changes during the year is presented below:

				Aggregate Intrinsic Value
(Shares in Thousands)	Outstanding Shares	Weighted Average Exercise Price		(Dollars in Millions)
Shares at January 2, 2022	8,657	132.58		$	333
Options granted	1,783	165.89
Options exercised	(1,018)	112.53
Options canceled/forfeited/adjusted (1)	(1,201)	114.19
Shares at January 1, 2023	8,221	$	144.03	$	268
Options vested and expected to vest at January 1, 2023	8,017	$	143.55	$	265

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(1)Includes employee transfers in and out.

Share-Based Payment Arrangement, Option, Exercise Price Range

The following table summarizes stock options outstanding and exercisable at January 1, 2023:

(Shares in Thousands)	Outstanding				Exercisable
Exercise Price Range	Options	Average Life(1)	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
$72.54-$100.48	475	1.6	$	94.95	476	$	94.95
$101.87-$115.67	1,062	3.7	109.51		1,062	109.51
$129.51-$141.06	1,766	5.7	130.94		1,753	130.93
$151.41-$164.62	3,139	7.6	158.11		—	—
$164.63-$165.89	1,779	7.6	165.89		—	—
	8,221	6.7	$	144.03	3,291	$	118.83

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(1)Average contractual life remaining in years

Share-Based Payment Arrangement, Activity

A summary of the unvested restricted share units and performance share units activity under the Plans as of January 1, 2023 is presented below:

(Shares in Thousands)	Outstanding Restricted Share Units	Outstanding Performance Share Units
Shares at January 2, 2022	1,206	198
Granted	475	85
Issued	(364)	(28)
Canceled/forfeited/adjusted(1)	(87)	(34)
Shares at January 1, 2023	1,230	221

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(1)Includes employee transfers in and out.