Common Stock, Stock Option Plans and Stock Compensation Agreements

At January 3, 2016, the Company had 2 stock-based compensation plans. The shares outstanding are for contracts under the Company's 2005 Long-Term Incentive Plan and the 2012 Long-Term Incentive Plan. The 2005 Long-Term Incentive Plan expired April 26, 2012. All options and restricted shares granted subsequent to that date were under the 2012 Long-Term Incentive Plan. Under the 2012 Long-Term Incentive Plan, the Company may issue up to 650 million shares of common stock, plus any shares canceled, expired, forfeited, or not issued from the 2005 Long-Term Incentive Plan subsequent to April 26, 2012. Shares available for future grants under the 2012 Long-Term Incentive Plan were 486 million at the end of 2015.

The compensation cost that has been charged against income for these plans was $874 million, $792 million and $728 million for 2015, 2014 and 2013, respectively. The total income tax benefit recognized in the income statement for share-based compensation costs was $253 million, $259 million and $243 million for 2015, 2014 and 2013, respectively. The total unrecognized compensation cost was $744 million, $722 million and $636 million for 2015, 2014 and 2013, respectively. The weighted average period for this cost to be recognized was 0.98 years, 1.18 years and 1.26 years for 2015, 2014, and 2013, respectively. Share-based compensation costs capitalized as part of inventory were insignificant in all periods.

The Company settles employee benefit equity issuances with treasury shares. Treasury shares are replenished throughout the year for the number of shares used to settle employee benefit equity issuances.

Stock Options

Stock options expire 10 years from the date of grant and vest over service periods that range from 6 months to 4 years. All options are granted at the average of the high and low prices of the Company’s Common Stock on the New York Stock Exchange on the date of grant.

The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. For 2014 and 2013 grants, expected volatility represents a blended rate of 4-year daily historical average volatility rate, and a 5-week average implied volatility rate based on at-the-money traded Johnson & Johnson options with a life of 2 years. For 2015 grants, expected volatility represents a blended rate of 10-year weekly historical overall volatility rate, and a 5-week average implied volatility rate based on at-the-money traded Johnson & Johnson options with a life of 2 years. For all grants, historical data is used to determine the expected life of the option. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant.

The average fair value of options granted was $10.68, $8.42 and $4.88, in 2015, 2014 and 2013, respectively. The fair value was estimated based on the weighted average assumptions of:



	2015		2014		2013
Risk-free rate	1.77	%	1.87	%	1.01	%
Expected volatility	15.48	%	14.60	%	14.04	%
Expected life (in years)	7.0		6.0		6.0
Expected dividend yield	2.90	%	3.10	%	3.40	%

A summary of option activity under the Plan as of January 3, 2016, December 28, 2014 and December 29, 2013, and changes during the years ending on those dates is presented below:



(Shares in Thousands)	Outstanding Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (Dollars in Millions)
Shares at December 30, 2012	134,351		$	61.58	$	1,061
Options granted	29,010		72.54
Options exercised	(41,357	)	59.99
Options canceled/forfeited	(2,448	)	65.89
Shares at December 29, 2013	119,556		64.70		3,306
Options granted	24,356		90.44
Options exercised	(25,319	)	62.31
Options canceled/forfeited	(2,881	)	75.48
Shares at December 28, 2014	115,712		70.37		4,014
Options granted	20,484		100.06
Options exercised	(16,683	)	62.53
Options canceled/forfeited	(2,996	)	82.22
Shares at January 3, 2016	116,517		$	76.41	$	3,065

The total intrinsic value of options exercised was $644 million, $954 million and $941 million in 2015, 2014 and 2013, respectively.

The following table summarizes stock options outstanding and exercisable at January 3, 2016:



(Shares in Thousands)	Outstanding			Exercisable
Exercise Price Range	Options	Average Life⁽¹⁾	Average Exercise Price	Options	Average Exercise Price
$52.13-$58.33	8,694	3.1	$58.32	8,694	$58.32
$58.34-$62.20	17,644	2.6	$61.21	17,644	$61.21
$62.62-$65.62	22,139	3.4	$64.55	21,726	$64.54
$66.07-$72.54	25,617	7.0	$72.52	217	$69.77
$90.44-$100.48	42,423	8.6	$94.98	64	$90.47
	116,517	5.9	$76.41	48,345	$62.26

⁽¹⁾ Average contractual life remaining in years.

Stock options outstanding at December 28, 2014 and December 29, 2013 were 115,712 and an average life of 5.7 years and 119,556 and an average life of 5.1 years, respectively. Stock options exercisable at December 28, 2014 and December 29, 2013 were 57,846 at an average price of $61.94 and 75,210 at an average price of $62.01, respectively.

Restricted Share Units and Performance Share Units

The Company grants restricted share units which vest over service periods that range from 6 months to 3 years. The Company also grants performance share units, which are paid in shares of Johnson & Johnson Common Stock after the end of a three-year performance period. Whether any performance share units vest, and the amount that does vest, is tied to the completion of service periods that range from 6 months to 3 years and the achievement, over a three-year period, of three equally-weighted goals that directly align with or help drive long-term total shareholder return: operational sales, adjusted operational earnings per share, and relative total shareholder return. The number of shares actually earned at the end of the three-year period will vary, based only on actual performance, from 0% to 200% of the target number of performance share units granted.

A summary of the restricted share units and performance share units activity under the Plans as of January 3, 2016 is presented below:



(Shares in Thousands)	Outstanding Restricted Share Units		Outstanding Performance Share Units
Shares at December 30, 2012	31,834		285
Granted	10,582		1,290
Issued	(10,078	)	—
Canceled/forfeited	(1,721	)	(40	)
Shares at December 29, 2013	30,617		1,535
Granted	8,487		1,113
Issued	(9,685	)	(19	)
Canceled/forfeited	(1,726	)	(98	)
Shares at December 28, 2014	27,693		2,531
Granted	7,637		931
Issued	(10,164	)	(285	)
Canceled/forfeited	(1,281	)	(99	)
Shares at January 3, 2016	23,885		3,078

The average fair value of the restricted share units granted was $91.65, $83.01 and $65.90 in 2015, 2014 and 2013, respectively, using the fair market value at the date of grant. The fair value of restricted share units was discounted for dividends, which are not paid on the restricted share units during the vesting period. The fair value of restricted share units issued was $597.6 million, $541.0 million and $569.2 million in 2015, 2014 and 2013, respectively.

The weighted average fair value of the performance share units granted was $93.54, $85.94 and $73.42 in 2015, 2014 and 2013, calculated using the weighted average fair market value for each of the three component goals at the date of grant.

The fair values for the sales and earnings per share goals of each performance share unit were estimated on the date of grant using the fair market value of the shares at the time of the award discounted for dividends, which are not paid on the performance share units during the vesting period. The fair value for the relative total shareholder return goal of each performance share unit was estimated on the date of grant using the Monte Carlo valuation model. The fair value of performance share units issued was $16.7 million and $1.4 million in 2015 and 2014, respectively. No performance share units vested in 2013.