Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

  NOTE 17   Stock-Based Compensation

As part of its employee and director compensation programs, the Company currently may grant certain stock awards under the provisions of its stock incentive plan. The plan provides for grants of options to purchase shares of common stock at a fixed price equal to the fair value of the underlying stock at the date of grant. Option grants are generally exercisable up to ten years from the date of grant. In addition, the plan provides for grants of shares of common stock or stock units that are subject to restriction on transfer prior to vesting. Most stock and unit awards vest over

three to five years and are subject to forfeiture if certain vesting requirements are not met. Stock incentive plans of acquired companies are generally terminated at the merger closing dates. Participants under such plans receive the Company’s common stock, or options to buy the Company’s common stock, based on the conversion terms of the various merger agreements. At December 31, 2019, there were 32 million shares (subject to adjustment for forfeitures) available for grant under the Company’s stock incentive plan.

Stock Option Awards

The following is a summary of stock options outstanding and exercised under prior and existing stock incentive plans of the Company:

Year Ended December 31	Stock Options/Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value (in millions)
2019
Number outstanding at beginning of period		9,115,010		$	34.52
Granted(a)		—			—
Exercised		(3,333,467	)		26.36
Cancelled(b)		(63,287	)		36.74
Number outstanding at end of period(c)		5,718,256		$	39.25		4.4	$	115
Exercisable at end of period		4,869,805		$	37.67		4.0	$	105
2018
Number outstanding at beginning of period		12,668,467		$	32.15
Granted(a)		—			—
Exercised		(3,443,494	)		25.41
Cancelled(b)		(109,963	)		46.72
Number outstanding at end of period(c)		9,115,010		$	34.52		4.3	$	102
Exercisable at end of period		7,372,036		$	31.61		3.5	$	104
2017
Number outstanding at beginning of period		17,059,241		$	29.95
Granted		1,066,188			54.97
Exercised		(5,389,741	)		29.58
Cancelled(b)		(67,221	)		43.31
Number outstanding at end of period(c)		12,668,467		$	32.15		4.5	$	272
Exercisable at end of period		9,647,937		$	27.87		3.3	$	248

(a) The Company did not grant any stock option awards during 2019 and 2018.

(b) Options cancelled include both non-vested (i.e., forfeitures) and vested options.

(c) Outstanding options include stock-based awards that may be forfeited in future periods. The impact of the estimated forfeitures is reflected in compensation expense.

Stock-based compensation expense is based on the estimated fair value of the award at the date of grant or modification. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, requiring the use of subjective assumptions. Because employee stock options have characteristics that differ from those of traded options, including vesting provisions and trading limitations that impact

their liquidity, the determined value used to measure compensation expense may vary from the actual fair value of the employee stock options. The following table includes the weighted-average estimated fair value of stock options granted and the assumptions utilized by the Company for newly issued grants for the year ended December 31, 2017:

Year Ended December 31	2017
Estimated fair value	$	14.66
Risk-free interest rates		2.0	%
Dividend yield		2.6	%
Stock volatility factor		.35
Expected life of options (in years)		5.5

Expected stock volatility is based on several factors including the historical volatility of the Company’s common stock, implied volatility determined from traded options and other factors. The Company uses historical data to estimate option exercises and employee terminations to estimate the expected life of options.

The risk-free interest rate for the expected life of the options is based on the U.S. Treasury yield curve in effect on the date of grant. The expected dividend yield is based on the Company’s expected dividend yield over the life of the options.    

The following summarizes certain stock option activity of the Company:

Year Ended December 31 (Dollars in Millions)	2019		2018		2017
Fair value of options vested	$	10	$	14	$	13
Intrinsic value of options exercised		95		97		127
Cash received from options exercised		88		87		159
Tax benefit realized from options exercised		24		24		49

To satisfy option exercises, the Company predominantly uses treasury stock.

Additional information regarding stock options outstanding as of December 31, 2019, is as follows:

	Outstanding Options						Exercisable Options
Range of Exercise Prices	Shares		Weighted- Average Remaining Contractual Life (Years)		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
$23.36—$25.00		236,661		.2	$	23.82		236,661	$	23.82
$25.01—$30.00		1,277,726		1.8		28.65		1,277,726		28.65
$30.01—$35.00		537,881		3.1		33.98		537,881		33.98
$35.01—$40.00		1,251,397		6.1		39.49		885,968		39.49
$40.01—$45.00		1,454,651		4.7		42.42		1,454,068		42.43
$45.01—$50.00		—		—		—		—		—
$50.01—$55.01		959,940		7.1		54.97		477,501		54.97
		5,718,256		4.4	$	39.25		4,869,805	$	37.67

Restricted Stock and Unit Awards

A summary of the status of the Company’s restricted shares of stock and unit awards is presented below:

	2019					2018					2017
Year Ended December 31	Shares			Weighted- Average Grant- Date Fair Value		Shares			Weighted- Average Grant- Date Fair Value		Shares			Weighted- Average Grant- Date Fair Value
Outstanding at beginning of period		6,719,298		$	48.17		7,446,955		$	44.49		8,265,507		$	39.50
Granted		3,519,474			50.45		3,213,023			55.03		2,850,927			54.45
Vested		(3,270,778	)		48.69		(3,373,323	)		46.42		(3,295,376	)		40.66
Cancelled		(361,161	)		50.55		(567,357	)		49.07		(374,103	)		43.91
Outstanding at end of period		6,606,833		$	48.99		6,719,298		$	48.17		7,446,955		$	44.49

The total fair value of shares vested was $175 million, $182 million and $180 million for the years ended December 31, 2019, 2018 and 2017, respectively. Stock-based compensation expense was $178 million, $174 million and $163 million for the years ended December 31, 2019, 2018 and 2017, respectively. On an after-tax basis, stock-based compensation was $133 million, $130 million and $101 million for the years ended

December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, there was $143 million of total unrecognized compensation cost related to nonvested share-based arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.7 years as compensation expense.