STOCK COMPENSATION PLANS

Share-based grants for compensation and incentive purposes are made pursuant to the Equity and Incentive Compensation Plan (“EICP”). The EICP provides for grants of one or more of the following stock-based compensation awards to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is dependent:



l	Non-qualified stock options (“stock options”);
l	Performance stock units (“PSUs”) and performance stock;
l	Stock appreciation rights;
l	Restricted stock units (“RSUs”) and restricted stock; and
l	Other stock-based awards.

As of December 31, 2014, 68.5 million shares were authorized and approved by our stockholders for grants under the EICP. The EICP also provides for the deferral of stock-based compensation awards by participants if approved by the Compensation and Executive Organization Committee of our Board and if in accordance with an applicable deferred compensation plan of the Company. Currently, the Compensation and Executive Organization Committee has authorized the deferral of PSU and RSU awards by certain eligible employees under the Company’s Deferred Compensation Plan. Our Board has authorized our non-employee directors to defer any portion of their cash retainer, committee chair fees and RSUs awarded after 2007 that they elect to convert into deferred stock units under our Directors’ Compensation Plan.

The following table summarizes our compensation costs:



For the years ended December 31,	2014		2013		2012
Total compensation amount charged against income for stock compensation plans, including stock options, PSUs and RSUs	$	54,068	$	53,984	$	50,482
Total income tax benefit recognized in Consolidated Statements of Income for share-based compensation	18,653		18,517		17,517

Compensation costs for stock compensation plans are primarily included in selling, marketing and administrative expense.

Stock Options

The exercise price of each stock option awarded under the EICP equals the closing price of our Common Stock on the New York Stock Exchange on the date of grant. Each stock option has a maximum term of 10 years. Grants of stock options provide for pro-rated vesting, typically over a four year period. We recognize expense for stock options based on the straight-line method as of the grant date fair value.

The following table summarizes our compensation costs for stock options:



For the years ended December 31,	2014		2013		2012
Compensation amount charged against income for stock options	$	25,074	$	21,390	$	19,272

A summary of the status of our Company’s stock options and changes during the last three years follows:



	2014				2013				2012
Stock Options	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	8,660,336		$	55.47	10,553,914		$	48.08	14,540,442		$	44.86
Granted	1,387,580		$	105.75	1,779,109		$	81.95	2,110,945		$	60.89
Exercised	(2,537,581	)	$	48.61	(3,315,990	)	$	45.25	(5,870,607	)	$	44.55
Forfeited	(190,958	)	$	82.80	(356,697	)	$	64.38	(226,866	)	$	52.02
Outstanding at end of year	7,319,377		$	66.69	8,660,336		$	55.47	10,553,914		$	48.08
Options exercisable at year-end	3,673,726		$	51.01	4,290,416		$	46.45	5,320,775		$	45.74
Weighted-average fair value of options granted during the year (per share)	$21.50				$14.51				$10.60

We use the the Black-Scholes option-pricing model to determine the fair value of stock options granted to employees. The following table sets forth the weighted-average assumptions used for such grants during the year:



For the years ended December 31,	2014		2013		2012
Dividend yields	2.0	%	2.2	%	2.4	%
Expected volatility	22.3	%	22.2	%	22.4	%
Risk-free interest rates	2.1	%	1.4	%	1.5	%
Expected lives in years	6.7		6.6		6.6



l	“Dividend yields” means the sum of dividends declared for the four most recent quarterly periods, divided by the average price of our Common Stock for the comparable periods;
l	“Expected volatility” means the historical volatility of our Common Stock over the expected term of each grant;
l	“Risk-free interest rates” means the U.S. Treasury yield curve rate in effect at the time of grant for periods within the contractual life of the stock option; and
l	“Expected lives” means the period of time that stock options granted are expected to be outstanding based primarily on historical data.

The following table summarizes the intrinsic value of our stock options:

The aggregate intrinsic value of stock options outstanding as of December 31, 2014 was $258,809. The aggregate intrinsic value of exercisable stock options as of December 31, 2014 was $184,477.

As of December 31, 2014, there was $22,193 of total unrecognized compensation cost related to non-vested stock option compensation arrangements granted under the EICP, which we expect to recognize over a weighted-average period of 2.4 years.

The following table summarizes information about stock options outstanding as of December 31, 2014:



	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding as of 12/31/14	Weighted- Average Remaining Contractual Life in Years	Weighted- Average Exercise Price	Number Exercisable as of 12/31/14	Weighted- Average Exercise Price
$33.40 - $51.42	2,484,189	4.6	$42.84	2,092,239	$41.23
$51.65 - $72.44	2,031,766	5.5	$59.25	1,211,277	$58.21
$81.73 - $106.65	2,803,422	8.4	$93.22	370,210	$82.69
$33.40 - $106.65	7,319,377	6.3	$66.69	3,673,726	$51.01

Performance Stock Units and Restricted Stock Units

Under the EICP, we grant PSUs to selected executives and other key employees. Vesting is contingent upon the achievement of certain performance objectives. We grant PSUs over 3-year performance cycles. If we meet targets for financial measures at the end of the applicable 3-year performance cycle, we award a resulting number of shares of our Common Stock to the participants. For each PSU granted from 2012 through 2014, 50% of the target award was comprised of a market-based total shareholder return component and 50% of the target award was comprised of performance-based components. The performance scores for 2012 through 2014 grants of PSUs can range from 0% to 250% of the targeted amounts.

We recognize the compensation cost associated with PSUs ratably over the 3-year term. Compensation cost is based on the grant date fair value because the grants can only be settled in shares of our Common Stock. The grant date fair value of PSUs is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the closing market price of the Company’s Common Stock on the date of grant for performance-based components.

In 2014, 2013 and 2012, we awarded RSUs to certain executive officers and other key employees under the EICP. We also awarded RSUs quarterly to non-employee directors.

We recognize the compensation cost associated with employee RSUs over a specified restriction period based on the grant date fair value or year-end market value of our Common Stock. We recognize expense for employee RSUs based on the straight-line method. We recognize the compensation cost associated with non-employee director RSUs ratably over the vesting period.



For the years ended December 31,	2014		2013		2012
Compensation amount charged against income for PSUs and RSUs	$	28,994	$	32,594	$	31,210

The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future distribution to employees and non-employee directors. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant.



For the years ended December 31,	2014			2013			2012
Units granted	331,788			395,862			503,761
Weighted-average fair value at date of grant	$	115.57		$	88.49		$	64.99
Monte Carlo simulation assumptions:
Estimated values	$	80.95		$	55.49		$	35.62
Dividend yields	1.8		%	2.0		%	2.5		%
Expected volatility	15.5		%	17.1		%	20.0		%



l	“Estimated values” means the fair value for the market-based total shareholder return component of each PSU at the date of grant using a Monte Carlo simulation model;
l	“Dividend yields” means the sum of dividends declared for the four most recent quarterly periods, divided by the average price of our Common Stock for the comparable periods;
l	“Expected volatility” means the historical volatility of our Common Stock over the expected term of each grant.

A summary of the status of our Company’s PSUs and RSUs as of December 31, 2014 and the change during 2014 follows:



Performance Stock Units and Restricted Stock Units	2014		Weighted-average grant date fair value for equity awards or market value for liability awards
Outstanding at beginning of year	1,411,399		$72.43
Granted	331,788		$115.57
Performance assumption change	(214,145	)	$91.85
Vested	(565,520	)	$63.93
Forfeited	(59,216	)	$95.86
Outstanding at end of year	904,306		$94.48

The table above excludes PSU awards for 25,462 units as of December 31, 2014 and 29,596 units as of December 31, 2013 for which the measurement date has not yet occurred for accounting purposes.

As of December 31, 2014, there was $37,341 of unrecognized compensation cost relating to non-vested PSUs and RSUs. We expect to recognize that cost over a weighted-average period of 2.0 years.



For the years ended December 31,	2014		2013		2012
Intrinsic value of share-based liabilities paid, combined with the fair value of shares vested	$	57,360	$	62,582	37,329

Deferred PSUs, deferred RSUs, deferred directors’ fees and accumulated dividend amounts totaled 524,195 units as of December 31, 2014.

For the years ended December 31,

Intrinsic value of options exercised