SHAREHOLDERS’ EQUITY

A. | Stock Repurchase Plans

The Company has a Non-Discretionary Stock Repurchase Plan, originally approved by the Board of Directors in November 1993, under which management is authorized to repurchase up to 40,000,000 shares of the Company’s common stock in the open market with the proceeds received from the exercise of employee and director stock options.

The Company has a Discretionary Stock Repurchase Plan, approved by the Board of Directors in November 2001, under which management is authorized to repurchase such shares as may be necessary to reduce the issued and outstanding stock to 200,000,000 shares of common stock. On February 24, 2014, the plan was amended by the Board of Directors to authorize management to reduce issued and outstanding stock to 190,000,000 shares of common stock.

The following table summarizes by repurchase plan the Company’s repurchasing activity:



	Cumulative shares repurchased	Average price per share
Non-Discretionary Plan (1994 through 2013)	25,908,150	$	24.46
Discretionary Plan (2001 through 2013)	32,556,930	$	36.76

B. | Stock Option Plans

At December 31, 2013, the Company had one stock option plan (the “2013 Plan”) under which the Board of Directors may grant officers and employees options to purchase common stock at prices equal to or greater than market value on the date of grant. On May 1, 2013, the shareholders approved the Company’s 2013 Plan, which made available a total of 3,000,000 shares of the Company’s common stock for purchase upon exercise of options granted. The 2013 Plan provides for qualified and non-qualified grants, which are limited to 100,000 shares per person. As of December 31, 2013, there are 284,150 shares available for grant under the 2013 Plan. No additional shares can be granted under the 2013 Plan after April 30, 2014. Outstanding options generally vest and become exercisable over periods up to five years from the date of grant and expire no more than ten years from the date of grant.

Upon the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options, the Company derives a tax deduction measured by the excess of the market value over the option price at the date of exercise or disqualifying disposition. The portion of the benefit from the deduction which equals the estimated fair value of the options (previously recognized as compensation expense) is recorded as a credit to the deferred tax asset for non-qualified stock options and is recorded as a credit to current tax expense for any disqualified dispositions of incentive stock options. For disqualifying dispositions, when the amount of the tax deduction is less than the cumulative amount of compensation expense recognized for the award, the amount credited to current tax expense is limited to the tax benefit associated with the tax deduction. All of the tax benefit received upon option exercise for the tax deduction in excess of the estimated fair value of the options is credited to additional paid-in capital.

C. | Stock Purchase Plan

In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (“2002 Plan”), which became effective August 1, 2002. The Company’s amended 2002 Plan provides for 9,305,452 shares of the Company’s common stock to be reserved for issuance upon exercise of purchase rights granted to employees who elect to participate through regular payroll deductions beginning August 1 of each year. The purchase rights are exercisable on July 31 of the following year at a price equal to the lesser of (1) 85% of the fair market value of the Company’s stock on the last trading day in July or (2) 85% of the fair market value of the Company’s stock on the first trading day in August of the preceding year. A total of 8,139,481 shares have been issued under the 2002 Plan and $12,047 have been withheld from employees at December 31, 2013 in connection with the plan year ending July 31, 2014.

D. | Director Restricted Stock Plan

In May 2008, the shareholders approved the Company’s 2008 Directors’ Restricted Stock Plan (the 2008 Directors’ Plan), which provides for annual awards of restricted stock to non-employee directors and makes 200,000 shares of the Company’s common stock available for grant. The plan provides for an annual grant of restricted stock awards with a fair market value equal to $200 to each participant on June 1^st of each year. The 2008 Directors’ Plan terminated on June 1st 2013, and there are no shares available for grant under this plan as of December 31, 2013. Each restricted stock award under the 2008 Directors’ Plan vests in equal amounts monthly over one year. Restricted shares entitle the grantees to all shareholder rights once vested, except for cash dividends and transfer rights which are forfeited until the final vesting date of the award. If a non-employee director’s service is terminated, any unvested portion of an award will be forfeited unless the Compensation Committee of the Board of Directors determines otherwise.

E. | Stock Option Activity

The following table summarizes information about stock options:



	Number of shares		Weighted average exercise price per share		Weighted average remaining contractual life	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2012	17,830,164		$	40.51
Options granted	2,779,700		$	35.33
Options exercised	(1,483,190	)	$	24.12
Options forfeited	(359,525	)	$	43.25
Options canceled	(237,009	)	$	38.41
Outstanding at December 31, 2013	18,530,140		$	41.02	5.88	$	88,006
Exercisable at December 31, 2013	8,821,695		$	39.53	3.59	$	46,729

F. | Share-Based Compensation Expense

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



	For the years ended December 31,
	2013			2012			2011
Dividend yield	1.50 - 1.53%			1.30 - 1.35%			.97 - .98%
Volatility – stock option plans	38%			38 - 39%			38 - 40%
Volatility – stock purchase rights plans	21		%	34		%	26		%
Risk-free interest rates	0.12 - 1.40%			.19 - 1.43%			.19 - 2.84%
Expected life (years) – stock option plans	5.91 - 7.43			5.79 - 7.26			5.50 - 7.11
Expected life (years) – stock purchase rights plans	1			1			1
Weighted average fair value of stock options granted during the period	$	11.17		$	13.53		$	19.35
Weighted average fair value of stock purchase rights granted during the period	$	9.43		$	9.70		$	11.70

The Company’s expected volatility assumptions are based on the historical volatility of the Company’s stock over a period of time commensurate to the expected life. The expected life assumption is primarily based on historical employee exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the corresponding yield curve in effect at the time of grant for U.S. Treasury bonds having the same term as the expected life of the option, i.e. a ten year bond rate is used for valuing an option with a ten year expected life. The expected dividend yield is based on the Company’s historical experience. The forfeiture assumption used to calculate compensation expense is primarily based on historical pre-vesting employee forfeiture patterns.

The compensation for restricted stock awards is based on the fair market value of the Company’s share of common stock on the date of grant. In 2013, restricted shares totaling 35,868 were granted with a fair value per share of $39.03.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was approximately $24 million, $39 million and $47 million, respectively.

As of December 31, 2013, the total unrecognized compensation cost related to unvested stock options, unvested restricted stock awards and stock purchase rights is $82 million and the weighted average period over which that cost is expected to be recognized is 2.9 years.

Total stock compensation expense and the total related tax benefit recognized are as follows:



	For the years ended December 31,
	2013		2012	2011
Stock compensation expense	$	43,813	44,058	44,278
Recognized tax benefit	$	3,473	2,016	156

Shares issued as a result of stock option exercises, restricted stock awards and employee stock plan purchases are issued as new shares outstanding by the Company.