Share-Based Compensation

3 Months Ended

May 02, 2015

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

Share-Based Compensation

10. Share-Based Compensation

Total compensation expense included in SG&A, and the associated tax benefits recognized related to the Company’s share-based compensation plans were as follows:

	Thirteen weeks ended
	May 2,		May 3,
	2015		2014
	(in millions)
Options and shares purchased under the employee stock purchase plan	$	3	$	3
Restricted stock and units		3		3
Total share-based compensation expense	$	6	$	6
Tax benefit recognized	$	2	$	2
Excess income tax benefit from settled equity-classified share-based awards reported as a cash flow from financing activities	$	14	$	7

Valuation Model and Assumptions

The Company uses a Black-Scholes option-pricing model to estimate the fair value of share-based awards. The Black-Scholes option-pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility. The following table shows the Company’s assumptions used to compute the share-based compensation expense:

	Stock Option Plans						Stock Purchase Plan
	May 2,			May 3,			May 2,			May 3,
	2015			2014			2015			2014
Weighted-average risk free rate of interest		1.51	%		2.12	%		0.13	%		0.17	%
Expected volatility		30	%		39	%		23	%		25	%
Weighted-average expected award life		6.0 years			6.1 years			1.0 year			1.0 year
Dividend yield		1.6	%		2.0	%		1.82	%		2.3	%
Weighted-average fair value	$	16.01		$	14.91		$	8.03		$	5.79

The information in the following table covers options granted under the Company’s stock option plans for the thirteen weeks ended May 2, 2015:

			Weighted-		Weighted-Average
			Average		Exercise
	Shares		Term		Price
	(in thousands, except price per share and weighted-average term)
Options outstanding at the beginning of the year		5,569			$	25.89
Granted		682				62.11
Exercised		(1,000)				22.84
Expired or cancelled		(49)				48.47
Options outstanding at May 2, 2015		5,202		6.68	$	31.01
Options exercisable at May 2, 2015		3,685		5.67	$	23.09
Options vested and expected to vest at May 2, 2015		5,144		6.65	$	30.73
Options available for future grant at May 2, 2015		13,041

The total intrinsic value of options exercised (the difference between the market price of the Company’s common stock on the exercise date and the price paid by the optionee to exercise the option) is presented below:

	Thirteen weeks ended
	May 2,		May 3,
	2015		2014
	(in millions)
Exercised	$	36	$	11

The aggregate intrinsic value for stock options outstanding and for stock options exercisable (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:

	Thirteen weeks ended
	May 2,		May 3,
	2015		2014
	(in millions)
Outstanding	$	153	$	128
Outstanding and exercisable	$	137	$	110
Vested and expected to vest	$	153	$	127

As of May 2, 2015, there was $14 million of total unrecognized compensation cost, related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.79 years.

The cash received from option exercises for the thirteen weeks ended May 2, 2015 and May 3, 2014 was $23 million and $10 million, respectively. The actual tax benefit realized from stock option exercises was $14 million and $4 million for the thirteen weeks ended May 2, 2015 and May 3, 2014, respectively.

The following table summarizes information about stock options outstanding and exercisable at May 2, 2015:

	Options Outstanding						Options Exercisable
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life		Price		Exercisable		Price
	(in thousands, except prices per share and contractual life)
$ 9.85 to $15.10		1,130		4.34	$	12.62		1,130	$	12.62
$18.80 to $25.19		1,201		5.09	$	19.81		1,201	$	19.81
$30.92 to $36.59		1,510		7.31	$	32.94		1,117	$	32.47
$45.08 to $62.11		1,361		9.33	$	54.05		237	$	45.46
		5,202		6.68	$	31.01		3,685	$	23.09

Restricted Stock and Units

Restricted shares of the Company’s common stock and restricted stock units may be awarded to certain officers and key employees of the Company. Awards made to executives outside of the United States and to nonemployee directors are made in the form of restricted stock units. Additionally, restricted stock unit awards are made in connection with the Company’s long-term incentive program. Each restricted stock unit represents the right to receive one share of the Company’s common stock provided that the vesting conditions are satisfied. There were 594,910 and 793,011 restricted stock units outstanding as of May 2, 2015 and May 3, 2014, respectively.

Generally, awards fully vest after the passage of time, typically three years. However, restricted stock unit grants made in connection with the Company’s long-term incentive program vest after the attainment of both certain performance metrics and the passage of time. Restricted stock is considered outstanding at the time of grant and the holders have voting rights. Dividends are paid to holders of restricted stock that vest with the passage of time; for performance-based restricted stock, dividends will be accumulated and paid after the performance criteria are met. No dividends are paid on restricted stock units.

Compensation expense is recognized using the fair market value at the date of grant and is amortized over the vesting period, provided the recipient continues to be employed by the Company.

Restricted share and unit activity for the thirteen weeks ended May 2, 2015 is summarized as follows:

			Weighted-Average
			Grant Date Fair
	Number of Shares		Value per Share
	(in thousands, except price per share)
Nonvested at the beginning of the year		1,038	$	37.96
Granted		117		61.46
Vested		(280)		31.51
Expired or cancelled		(26)		43.57
Nonvested at May 2, 2015		849	$	43.14
Aggregate value (in millions)	$	37
Weighted-average remaining contractual life (in years)		1.47 years

The weighted grant-date fair value per share was $61.46 and $45.03 for the thirteen weeks ended May 2, 2015 and May 3, 2014, respectively. The total value of awards for which restrictions lapsed for both the thirteen weeks ended May 2, 2015 and May 3, 2014 was $9 million. As of May 2, 2015, there was $14 million of total unrecognized compensation cost net of forfeitures related to nonvested restricted awards.