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STOCK OPTION AND RESTRICTED STOCK AWARDS | 12 Months Ended
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Oct. 31, 2014
STOCK OPTION AND RESTRICTED STOCK AWARDS |
STOCK OPTION AND RESTRICTED STOCK AWARDS | 24. STOCK OPTION AND RESTRICTED STOCK AWARDS The company issues stock options and restricted stock awards to key employees under plans approved by stockholders. Restricted stock is also issued to nonemployee directors for their services as directors under a plan approved by stockholders. Options are awarded with the exercise price equal to the market price and become exercisable in one to three years after grant. Options expire ten years after the date of grant. Restricted stock awards generally vest after three years. The compensation cost for stock options, service based restricted stock units and market/service based restricted stock units, which is based on the fair value at the grant date, is recognized on a straight-line basis over the requisite period the employee is required to render service. The compensation cost for performance/service based units, which is based on the fair value at the grant date, is recognized over the employees’ requisite service period and periodically adjusted for the probable number of shares to be awarded. According to these plans at October 31, 2014, the company is authorized to grant an additional 7.2 million shares related to stock options or restricted stock. The fair value of each option award was estimated on the date of grant using a binomial lattice option valuation model. Expected volatilities are based on implied volatilities from traded call options on the company’s stock. The expected volatilities are constructed from the following three components: the starting implied volatility of short-term call options traded within a few days of the valuation date; the predicted implied volatility of long-term call options; and the trend in implied volatilities over the span of the call options’ time to maturity. The company uses historical data to estimate option exercise behavior and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rates utilized for periods throughout the contractual life of the options are based on U.S. Treasury security yields at the time of grant. The assumptions used for the binomial lattice model to determine the fair value of options follow:
|  | 2014 |  | 2013 |  | 2012 |
Risk-free interest rate |  | .03% - 2.9% |  | .04% - 1.7% |  | .01% - 2.0% |
Expected dividends |  | 2.3% |  | 2.3% |  | 1.9% |
Expected volatility |  | 25.9% - 32.0% |  | 26.6% - 32.5% |  | 34.1% - 41.9% |
Weighted-average volatility |  | 31.9% |  | 32.4% |  | 33.6% |
Expected term (in years) |  | 7.3 - 7.4 |  | 7.3 - 7.9 |  | 6.8 - 7.8 |
Stock option activity at October 31, 2014 and changes during 2014 in millions of dollars and shares follow:
|  | Shares |  | Exercise Price* |  | Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value |
Outstanding at beginning of year |  | 15.7 |  | $ | 64.82 |  |  |  |  |
Granted |  | 2.4 |  | 87.46 |  |  |  |  |
Exercised |  | (3.0 | ) | 48.53 |  |  |  |  |
Expired or forfeited |  | (.2 | ) | 85.99 |  |  |  |  |
Outstanding at end of year |  | 14.9 |  | 71.64 |  | 6.06 |  | $ | 218.4 |
Exercisable at end of year |  | 9.0 |  | 67.02 |  | 5.21 |  | 171.5 |
* Weighted-averages The weighted-average grant-date fair values of options granted during 2014, 2013 and 2012 were $24.74, $23.73 and $22.51, respectively. The total intrinsic values of options exercised during 2014, 2013 and 2012 were $125 million, $183 million and $88 million, respectively. During 2014, 2013 and 2012, cash received from stock option exercises was $149 million, $175 million and $61 million with tax benefits of $46 million, $68 million and $33 million, respectively. The company granted 236 thousand, 254 thousand and 266 thousand restricted stock units to employees and nonemployee directors in 2014, 2013 and 2012, of which 102 thousand, 110 thousand and 122 thousand are subject to service based only conditions, 67 thousand, 72 thousand and 72 thousand are subject to performance/service based conditions, 67 thousand, 72 thousand and 72 thousand are subject to market/service based conditions, respectively. The service based only units award one share of common stock for each unit at the end of the vesting period and include dividend equivalent payments. The performance/service based units are subject to a performance metric based on the company’s compound annual revenue growth rate, compared to a benchmark group of companies over the vesting period. The market/service based units are subject to a market related metric based on total shareholder return, compared to the same benchmark group of companies over the vesting period. The performance/service based units and the market/service based units both award common stock in a range of zero to 200 percent for each unit granted based on the level of the metric achieved and do not include dividend equivalent payments over the vesting period. The weighted-average fair values of the service based only units at the grant dates during 2014, 2013 and 2012 were $87.16, $86.88 and $75.27 per unit, respectively, based on the market price of a share of underlying common stock. The fair value of the performance/service based units at the grant date during 2014, 2013 and 2012 were $81.53, $80.73 and $70.14 per unit, respectively, based on the market price of a share of underlying common stock excluding dividends. The fair value of the market/service based units at the grant date during 2014, 2013 and 2012 were $116.86, $106.75 and $92.85 per unit, respectively, based on a lattice valuation model excluding dividends. The company’s nonvested restricted shares at October 31, 2014 and changes during 2014 in millions of shares follow:
|  | Shares |  | Grant-Date Fair Value* |
Service based only |  |  |  |  |
Nonvested at beginning of year |  | .3 |  | $ | 81.00 |
Granted |  | .1 |  | 87.16 |
Vested |  | (.1) |  | 81.67 |
Nonvested at end of year |  | .3 |  | 83.00 |
Performance/service and market/service based |  |  |  |  |
Nonvested at beginning of year |  | .4 |  | $ | 88.86 |
Granted |  | .1 |  | 99.20 |
Vested |  | (.1) |  | 76.17 |
Performance change |  | .1 |  | 76.17 |
Expired or forfeited |  | (.1) |  | 107.10 |
Nonvested at end of year |  | .4 |  | 91.30 |
* Weighted-averages During 2014, 2013 and 2012, the total share-based compensation expense was $79 million, $81 million and $75 million, respectively, with recognized income tax benefits of $29 million, $30 million and $28 million, respectively. At October 31, 2014, there was $44 million of total unrecognized compensation cost from share-based compensation arrangements granted under the plans, which is related to nonvested shares. This compensation is expected to be recognized over a weighted-average period of approximately two years. The total grant-date fair values of stock options and restricted shares vested during 2014, 2013 and 2012 were $69 million, $68 million and $76 million, respectively. The company currently uses shares that have been repurchased through its stock repurchase programs to satisfy share option exercises. At October 31, 2014, the company had 191 million shares in treasury stock and 73 million shares remaining to be repurchased under its current publicly announced repurchase program (see Note 23).

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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