SHARE-BASED COMPENSATION

At December 31, 2014, a variety of share-based compensation grants and awards were outstanding for employees (including officers). All share-based compensation plans are approved by our shareholders.

We have share-based compensation outstanding under three Long-Term Incentive Plans (“LTIP”): the 1998 LTIP, the 2008 LTIP, and the 2014 Stock Plan for Non-Employee Directors (“2014 Plan”). No further grants may be made under the 1998 LTIP. All outstanding share-based compensation under the 1998 LTIP continues to be governed by the terms and conditions of the existing agreements for those grants. Grants may continue to be made under the 2008 LTIP through April 2018. Under the 2008 LTIP, the number of shares of Common Stock that may be granted as share-based compensation in any year is limited to 2% of our issued and outstanding Common Stock as of December 31 of the prior calendar year. Any unused portion is available for later years. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 2014, the number of unused shares carried forward was 279 million shares. Grants may continue to be made under the 2014 Plan through December 2023. Grants under the 2014 Plan are typically made on the third Thursday in May of each year. Pursuant to the 2014 Plan, the number of shares of Common Stock that may be granted is 10 million shares.

We primarily issue two types of share-based compensation awards: restricted stock units (“RSUs”) and stock options.

We grant time-based and performance-based RSUs to our employees. RSUs provide the recipients with the right to shares of Common Stock after a restriction period. We measure the fair value using the closing price of our Common Stock on grant date.

Time-based RSUs generally have a graded vesting feature whereby one-third of each grant of RSUs vests after the first anniversary of the grant date, one-third after the second anniversary, and one-third after the third anniversary. Performance-based RSUs have a performance period (usually one year) followed by a restriction period (usually two years).

NOTE 19. SHARE-BASED COMPENSATION (Continued)

Under the 2014 Plan, RSUs granted to non-employee directors vest immediately at grant date and shares of Common Stock are issued either immediately or at a subsequent specified date five years after grant or at separation. Directors are required to serve the entire calendar year in order to retain the entire grant for that year; otherwise a prorated award will be determined.

We also grant stock options to our employees. We measure the fair value of our stock options using the Black‑Scholes option-pricing model, using historical volatility and our determination of the expected term. The expected term of stock options is the time period that the stock options are expected to be outstanding. Historical data are used to estimate option exercise behaviors and employee termination experience.

Stock options generally have a vesting feature whereby one-third of each grant of stock options are exercisable after the first anniversary of the grant date, an additional one-third after the second anniversary, and the final one-third after the third anniversary. Stock options expire 10 years from the grant date.

Expense for RSUs and stock options is recorded in Selling, administrative, and other expense and is based on the fair value at grant date. RSU and stock option expense is recognized using the graded vesting method over the shorter of the vesting period or the time period an employee becomes eligible to retain the award at retirement. Performance-based RSU expense is recognized when it is probable and estimable as measured against the performance metrics over the performance and restriction periods, if any.

We measure the intrinsic value of RSUs and stock options by comparing the award price to the closing stock price at December 31.

We issue new shares of Common Stock upon vesting of RSUs and upon exercise of stock options.

Restricted Stock Units

RSU activity during 2014 was as follows (in millions, except for weighted average grant-date fair value):



	Shares		Weighted- Average Grant- Date Fair Value		Aggregate Intrinsic Value
Outstanding, beginning of year	20.3		$	13.11
Granted	10.8		15.40
Vested (a)	(7.5	)	13.60
Forfeited	(0.2	)	13.87
Outstanding, end of year (a)	23.4		14.01		$	362
RSU-stock expected to vest	23.0		N/A		358

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(a)	2014 Plan RSU awards vest immediately at grant. However, shares of Common Stock may be issued immediately, five years from grant, or at the time of the Director’s separation. As such, the amounts reflect shares vested, but unissued.

The fair value and intrinsic value of RSUs at December 31 were as follows (in millions, except RSU per unit amounts):



	2014		2013		2012
Fair value
Granted	$	166	$	138	$	102
Weighted average for multiple grant dates (per unit)	15.40		12.77		12.43
Vested	102		101		109
Intrinsic value
Vested	$	116	$	119	$	329

Compensation cost for RSUs for the years ended December 31 was as follows (in millions):



	2014		2013		2012
Compensation cost (a)	$	95	$	81	$	62

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(a)	Net of tax benefit of $49 million, $48 million, and $36 million in 2014, 2013, and 2012, respectively.

NOTE 19. SHARE-BASED COMPENSATION (Continued)

As of December 31, 2014, there was approximately $68 million in unrecognized compensation cost related to non‑vested RSUs. This expense will be recognized over a weighted average period of 1.8 years.

Stock Options

Stock option activity at December 31 was as follows (in millions, except for weighted average exercise price):



	2014				2013
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding, beginning of year	79.1		$	9.17	108.0		$	9.14
Granted	6.3		15.58		5.9		12.76
Exercised (a)	(19.9	)	8.68		(33.1	)	9.76
Expired	(1.6	)	13.39		(1.6	)	8.26
Forfeited	(0.1	)	15.16		(0.1	)	12.80
Outstanding, end of year	63.8		9.83		79.1		9.17
Exercisable, end of year	51.5		8.81		67.6		8.53

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(a)	Exercised at option prices ranging from $1.96 to $16.43 during 2014 and option prices ranging from $1.96 to $16.49 during 2013.

The total grant date fair value of options that vested during the years ended December 31 was as follows (in millions):



	2014		2013		2012
Fair value of vested options	$	34	$	41	$	37

We have 51.5 million fully-vested stock options, with a weighted-average exercise price of $8.81 and average remaining term of 3.5 years. We expect 12.1 million stock options (after forfeitures), with a weighted-average exercise price of $14.13 and average remaining term of 8.5 years, to vest in the future. The intrinsic value for vested and unvested options was $344 million and $18 million, respectively, for the year ended December 31, 2014.

We received approximately $173 million in proceeds from the exercise of stock options in 2014. The tax benefit realized was $10 million. An equivalent of about $324 million in new issues were used to settle exercised options. For options exercised during the years ended December 31, 2014, 2013, and 2012, the difference between the fair value of the Common Stock issued and the respective exercise price was $151 million, $188 million, and $44 million, respectively.

Compensation cost for stock options for the years ended December 31 was as follows (in millions):



	2014		2013		2012
Compensation cost (a)	$	27	$	18	$	26

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(a)	Net of tax benefit of $9 million, $11 million, and $16 million in 2014, 2013, and 2012, respectively.

As of December 31, 2014, there was about $14 million in unrecognized compensation cost related to non-vested stock options. This expense will be recognized over a weighted-average period of 1.5 years. A summary of the status of our non-vested shares and changes for the year end December 31, 2014 was as follows (in millions, except for weighted average grant-date fair value):



	Shares		Weighted- Average Grant- Date Fair Value
Non-vested, beginning of year	11.5		$	5.78
Granted	6.3		6.21
Vested	(5.4	)	6.28
Forfeited	(0.1	)	6.10
Non-vested, end of year	12.3		5.78

NOTE 19. SHARE-BASED COMPENSATION (Continued)

The estimated weighted-average fair value of stock options at the time of grant using the Black-Scholes option-pricing model was as follows:



	2014			2013			2012
Fair value per stock option	$	6.21		$	5.03		$	5.88
Assumptions:
Annualized dividend yield	3		%	3		%	2		%
Expected volatility	51.5		%	52.2		%	53.8		%
Risk-free interest rate	2.4		%	1.5		%	1.6		%
Expected stock option term (in years)	7.8			7.7			7.2

Details on various stock option exercise price ranges at December 31, 2014 were as follows (shares in millions):



	Outstanding Options				Exercisable Options
Range of Exercise Prices	Shares	Weighted- Average Life (years)	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
$1.96 – $2.84	9.0	4.2	$	2.29	9.0	$	2.29
$5.11 – $8.58	20.8	2.1	7.27		20.8	7.27
$10.11 – $12.98	23.6	5.1	12.60		17.6	12.59
$13.07 – $17.21	10.4	8.0	15.25		4.1	14.76
Total stock options	63.8				51.5