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 shares of the Company’s common stock in the open market with the proceeds received from the exercise of employee stock options and the Employee Stock Purchase Plan.

The Company has a Discretionary Stock Repurchase Plan originally approved by the Board of Directors in November 2001, and amended from time to time under which management as of December 31, 2018 is authorized to repurchase shares down to 160,000 shares of common stock outstanding.

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



	Cumulative shares repurchased	Average price per share
Non-Discretionary Plan (1994 through 2018)	39,912	$	35.20
Discretionary Plan (2001 through 2018)	68,743	$	44.66

B. | Omnibus Incentive Plan

On May 2, 2017, the shareholders approved the Company's 2017 Omnibus Incentive Plan (2017 Plan), which made available 2,500 shares of the Company's common stock in aggregate to be issued under any award type allowed by the 2017 Plan. The RSU granted in 2018 and 2017 vest annually over three years based on continued employment and are settled upon vesting in shares of the Company's common stock on a one-for-one basis.

The following table summarizes information about RSU:



	Number of shares		Weighted average grant date fair value
Outstanding at December 31, 2017	581		$	54.11
RSU granted	466		$	69.58
RSU vested	(193	)	$	54.17
RSU forfeited	(20	)	$	60.78
Outstanding at December 31, 2018	834		$	62.51

In 2018 and 2017, the Company also awarded 18 and 23 PSU, respectively, under the 2017 Plan. The PSU include performance conditions to be finally measured based on the financial results in 2020 and 2019, respectively. The final number of PSU will be determined using an adjustment factor of up to 2 times or down to 0.5 of the targeted PSU grant, depending on the degree of achievement of the designated performance targets. If the minimum performance thresholds are not achieved, no shares will be issued. Each PSU will convert to one share of the Company's common stock upon vesting.

RSU and PSU granted under the 2017 Plan have dividend equivalent rights, which entitle holders of RSU and PSU to the same dividend value per share as holders of common stock. Dividend equivalent rights are subject to the same vesting and other terms and conditions as the corresponding unvested RSU and PSU and are accumulated and paid in shares when the underlying awards vest.

At December 31, 2018, assuming target levels are achieved for PSU, there are 1,431 shares available for grant under the 2017 plan.

When restrictions on RSU or PSU lapse the Company derives a tax deduction in certain countries based on the fair market value of the award upon vesting. Until vesting, a deferred tax asset is recognized and measured based on the fair value of the award at the date of grant (consistent with measurement for stock compensation expense). Any excess or shortfall in the tax deduction resulting from the difference between fair market value of the award between the date of grant and the date of vesting is recognized in income tax expense upon vesting.

C. | Stock Option Plans

Historically, the Company granted stock options under stock option plans approved annually by shareholders. Those plans generally allowed for the grant of qualified and non-qualified grants and outstanding options expire no more than ten years from the date of grant. Stock options granted in 2016 vest over three years from the date of grant as compared to five years for options granted in prior years. Stock options were last granted in 2016 under the Company's 2016 stock options plan. No additional shares can be granted under any of the Company's stock option plans other than the 2017 Plan.

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 was credited to additional paid-in capital prior to 2017. Commencing in 2017, in connection with the new requirements and adoption of accounting guidance issued in March 2016, these tax amounts are no longer recorded in additional paid-in capital and instead are reflected as components of income tax expense.

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
Outstanding at December 31, 2017	12,961		$	44.36
Options granted	—		$	—
Options exercised	(3,422	)	$	43.68
Options forfeited	(152	)	$	45.68
Options canceled	(34	)	$	43.36
Outstanding at December 31, 2018	9,353		$	44.60	5.13	$	219,719
Exercisable at December 31, 2018	6,570		$	43.89	4.55	$	158,995

D. | Stock Purchase Plan

In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (the 2002 Plan), which became effective August 1, 2002. The Company’s amended 2002 Plan provides for 12,305 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 11,562 shares have been issued under the 2002 Plan since inception and $18,646 has been withheld from employees at December 31, 2018 in connection with the plan year ending July 31, 2019.

E. | Director Restricted Stock Plan

On May 7, 2014, the shareholders approved the Company’s 2014 Directors’ Restricted Stock Plan (the 2014 Directors’ Plan), which provides for annual awards of restricted stock to non-employee directors and makes 250 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 May 20 of each year. There are 81 shares available for grant under this plan as of December 31, 2018, and no shares can be granted under this plan after June 1, 2019. Each restricted stock award under the 2014 Directors’ Plan vests either at the time of grant or with a vesting schedule, as determined by the Compensation Committee of the Board of Directors. Restricted shares granted in 2016, 2017 and 2018 vested at the time of grant and there were no unvested restricted shares as of December 31, 2018. In 2018, restricted shares totaling 25 were granted with a fair value per share of $72.19. Restricted shares entitle the grantees to all shareholder rights, including cash dividends and transfer rights once vested.

F. | Share-Based Compensation Expense

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



	For the years ended December 31,
	2018			2017			2016
Dividend yield	1.30		%	1.50		%	1.70		%
Volatility – stock option plans	—			—			24 - 25%
Volatility – stock purchase rights plans	22		%	14		%	20		%
Risk-free interest rates	1.30		%	1.22		%	0.51 - 1.42%
Expected life (years) – stock option plans	—			—			5.5 - 6.5
Expected life (years) – stock purchase rights plans	1			1			1
Weighted average fair value of stock options granted during the period	$	—		$	—		$	9.57
Weighted average fair value of stock purchase rights granted during the period	$	17.49		$	11.69		$	10.99

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. 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 expense for RSU and PSU is based on the fair market value of the Company’s share of common stock on the date of grant. RSU and PSU awarded in 2018 and 2017 were granted at a weighted-average grant date fair value of $69.58 and $54.11, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was approximately $92 million, $55 million and $29 million, respectively.

As of December 31, 2018, the total unrecognized compensation cost related to stock awards is $56 million and the weighted average period over which that cost is expected to be recognized is 1.6 years.

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