Note 7—Stock-Based Compensation Plans

The Company grants stock-based compensation to employees and non-employee directors. Stock option awards were granted under the Amended and Restated 2002 Stock Incentive Plan, amended as of January 2006 (Second Restated 2002 Plan), and predecessor plans until, effective in the fourth quarter of fiscal 2006, the Company began awarding RSUs under the Second Restated 2002 Plan in lieu of stock options. Beginning in 2009, RSU grants to all executive officers have been performance-based. Through a series of shareholder approvals, there have been amended and restated plans and new provisions implemented by the Company. RSUs held by employees and non-employee directors are subject to quarterly or daily vesting, respectively, upon certain terminations of employment or service. Employees who attain certain years of service with the Company receive shares under accelerated vesting provisions on the annual vesting date rather than upon qualified retirement. The Sixth Restated 2002 Stock Incentive Plan (Sixth Plan), amended in the second quarter of fiscal 2012, is the Company’s only stock-based compensation plan with shares available for grant at the end of 2014. Each share issued in respect of stock awards is counted as 1.75 shares toward the limit of shares made available under the Sixth Plan. The Sixth Plan authorized the issuance of 16,000,000 shares (9,143,000 RSUs) of common stock for future grants. The Company issues new shares of common stock upon exercise of stock options and upon vesting of RSUs. Shares for vested RSUs are generally delivered to participants annually, net of shares equal to minimum statutory withholding taxes.

In conjunction with the special cash dividend discussed in Note 6, adjustments were made to awards outstanding on the dividend record date to preserve their value following the dividend, as follows: (i) the number of shares subject to outstanding RSUs was increased; and (ii) the exercise prices of outstanding stock options were reduced and the number of shares subject to such options was increased. Approximately 2,905,000 stock options were adjusted by 221,000 shares, and approximately 9,676,000 RSUs were adjusted by 732,000 shares. These adjustments did not result in additional stock-based compensation expense, as the fair value of the outstanding awards did not change. As further required by the Sixth Plan, the maximum number of shares issuable under the Sixth Plan was also proportionally adjusted, which resulted in an additional 1,362,000 shares (778,000 RSUs) available to be granted.

Summary of Restricted Stock Unit Activity

RSUs granted to employees and to non-employee directors generally vest over five years and three years, respectively; however, the terms of the RSUs provide for accelerated vesting for employees and non-employee directors who have attained 25 or more years and five or more years of service with the Company, respectively, and provides for vesting upon certain terminations of employment or service. Recipients are not entitled to vote or receive dividends on non-vested and undelivered shares. At the end of 2014, 7,972,000 shares were available to be granted as RSUs under the Sixth Plan.

The following awards were outstanding at the end of 2014:


•	8,505,000 time-based RSUs that vest upon continued employment over specified periods of time;


•	612,000 performance-based RSUs, of which 269,000 were granted to executive officers subject to the certification of the attainment of specified performance targets for 2014. This certification occurred in September 2014, at which time a portion vested as a result of the long service of all executive officers. The awards are subject to future time-based and long-service vesting.

The following table summarizes RSU transactions during 2014:



	Number of Units (in 000’s)		Weighted-Average Grant Date Fair Value
Outstanding at the end of 2013	10,081		$	72.52
Granted	3,456		113.64
Vested and delivered	(4,166	)	72.45
Forfeited	(254	)	81.04
Outstanding at the end of 2014	9,117		$	86.92

The remaining unrecognized compensation cost related to non-vested RSUs at the end of 2014 was $548 and the weighted-average period of time over which this cost will be recognized is 1.7 years. Included in the outstanding balance at the end of 2014 were approximately 2,811,000 RSUs vested but not yet delivered.

Summary of Stock Option Activity

All outstanding stock options were fully vested and exercisable at the end of 2014 and 2013. The following table summarizes stock option transactions during 2014:



	Number Of Options (in 000’s)		Weighted- Average Exercise Price			Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value⁽¹⁾
Outstanding at the end of 2013	1,947		$	39.70
Exercised	(971	)	38.47
Outstanding at the end of 2014	976		$	40.92	(2)	0.61	$	78

_______________


(1)	The difference between the exercise price and market value of common stock at the end of 2014.


(2)	The exercise prices for the remaining options outstanding at the end of 2014 ranged from $40.69 to $43.17.

The tax benefits realized, derived from the compensation deductions resulting from the option exercises, and intrinsic value related to total stock options exercised during 2014, 2013, and 2012 are provided in the following table:



	2014		2013		2012
Actual tax benefit realized for stock options exercised	$	27	$	33	$	50
Intrinsic value of stock options exercised⁽¹⁾	$	76	$	94	$	137

_______________

(1) The difference between the exercise price and market value of common stock measured at each individual exercise date.

Summary of Stock-Based Compensation

The following table summarizes stock-based compensation expense and the related tax benefits under the Company’s plans:



	2014			2013			2012
Stock-based compensation expense before income taxes	$	327		$	285		$	241
Less recognized income tax benefit	(109		)	(94		)	(79		)
Stock-based compensation expense, net of income taxes	$	218		$	191		$	162