Note 10. Stock Plans

Under our Amended and Restated 2005 Performance Incentive Plan (the “Plan”), we are authorized through May 21, 2024 to issue a maximum of 243.7 million shares of our Common Stock to employees and non-employee directors. As of December 31, 2017, there were 67.2 million shares available to be granted under the Plan.

Stock Options:

Stock options (including stock appreciation rights) are granted at an exercise price equal to the market value of the underlying stock on the grant date, generally become exercisable in three annual installments beginning on the first anniversary of the grant date and have a maximum term of ten years.

We account for our employee stock options under the fair value method of accounting using a Black-Scholes methodology to measure stock option expense at the date of grant. The fair value of the stock options at the date of grant is amortized to expense over the vesting period. We recorded compensation expense related to stock options held by our employees of $50 million in 2017, $57 million in 2016 and $50 million in 2015 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $12 million in 2017, $15 million in 2016 and $13 million in 2015. The unamortized compensation expense related to our employee stock options was $44 million at December 31, 2017 and is expected to be recognized over a weighted-average period of 1.2 years.

Our weighted-average Black-Scholes fair value assumptions were:


	Risk-Free Interest Rate			Expected Life		Expected Volatility			Expected Dividend Yield			Fair Value at Grant Date

2017		2.04	%		6 years		22.75	%		1.74	%	$	8.57
2016		1.40	%		6 years		23.11	%		1.61	%	$	7.86
2015		1.70	%		6 years		18.51	%		1.61	%	$	6.12

The risk-free interest rate represents the constant maturity U.S. government treasuries rate with a remaining term equal to the expected life of the options. The expected life is the period over which our employees are expected to hold their options. Volatility reflects historical movements in our stock price for a period commensurate with the expected life of the options. The dividend yield reflects the dividend yield in place at the time of the historical grants.

Stock option activity is reflected below:


				Weighted-
				Average		Average
				Exercise or		Remaining		Aggregate
	Shares Subject			Grant Price		Contractual		Intrinsic
	to Option			Per Share		Term		Value

Balance at January 1, 2015		56,431,551		$	24.19			$	685 million

Annual grant to eligible employees		8,899,530			36.94
Additional options issued		901,340			35.84

Total options granted		9,800,870			36.84
Options exercised ⁽¹⁾		(6,444,515	)		22.94			$	108 million
Options cancelled		(2,753,798	)		32.35

Balance at December 31, 2015		57,034,108			26.12			$	1,068 million

Annual grant to eligible employees		7,517,290			39.70
Additional options issued		115,800			42.26

Total options granted		7,633,090			39.74
Options exercised ⁽¹⁾		(8,883,101	)		24.09			$	174 million
Options cancelled		(2,182,485	)		35.23

Balance at December 31, 2016		53,601,612			28.02			$	874 million

Annual grant to eligible employees		6,012,140			43.20
Additional options issued		162,880			42.54

Total options granted		6,175,020			43.18
Options exercised ⁽¹⁾		(9,431,009	)		26.17			$	170 million
Options cancelled		(1,910,968	)		38.10

Balance at December 31, 2017		48,434,655			29.92		5 years	$	626 million

Exercisable at December 31, 2017		37,240,858			26.58		4 years	$	604 million

(1)

Cash received from options exercised was $257 million in 2017, $221 million in 2016 and $148 million in 2015. The actual tax benefit realized for the tax deductions from the option exercises totaled $31 million in 2017, $31 million in 2016 and $58 million in 2015.

Deferred Stock Units, Performance Share Units and Restricted Stock:

Historically we have made grants of deferred stock units, performance share units and restricted stock. Beginning in 2016, we only grant deferred stock units and performance share units and no longer grant restricted stock. We may grant shares of deferred stock units to eligible employees, giving them, in most instances, all of the rights of shareholders, except that they may not sell, assign, pledge or otherwise encumber the shares and our deferred stock units do not have voting rights until vested. Shares of deferred stock units are subject to forfeiture if certain employment conditions are not met. Deferred stock units generally vest on the third anniversary of the grant date. Performance share units granted under our 2005 Plan vest based on varying performance, market and service conditions. The unvested performance share units have no voting rights and do not pay dividends. Dividend equivalents accumulated over the vesting period are paid only after the performance share units vest.

The fair value of the deferred stock units, performance share units and restricted stock at the date of grant is amortized to earnings over the vesting period. The fair value of our deferred stock units and restricted stock is measured at the market price of our Common Stock on the grant date. Performance share unit awards generally have targets tied to both performance and market-based conditions. For market condition components, market volatility and other factors are taken into consideration in determining the grant date fair value and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. For performance condition components, we estimate the probability that the performance conditions will be achieved each quarter and adjust compensation expenses accordingly. The grant date fair value of performance share units is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the market price of our Common Stock on the grant date for performance-based components. The number of performance share units that ultimately vest ranges from 0-200 percent of the number granted, based on the achievement of the performance and market-based components. We recorded compensation expense related to deferred stock units, performance share units and restricted stock of $87 million in 2017, $83 million in 2016 and $86 million in 2015 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $23 million in 2017, $22 million in 2016 and $24 million in 2015. The unamortized compensation expense related to our deferred stock units, performance share units and restricted stock was $138 million at December 31, 2017 and is expected to be recognized over a weighted-average period of 1.8 years.

Our performance share unit, deferred stock unit and restricted stock activity is reflected below:


						Weighted-Average		Weighted-Average
	Number					Fair Value		Aggregate
	of Shares			Grant Date		Per Share (4)		Fair Value (4)

Balance at January 1, 2015		10,582,640				$	28.86

Annual grant to eligible employees:					Feb. 18, 2015
Performance share units		1,598,290					38.81
Restricted stock		386,910					36.94
Deferred stock units		866,640					36.94
Additional shares granted ⁽¹⁾		1,087,322			Various		36.00

Total shares granted		3,939,162					37.44	$	147 million
Vested ⁽²⁾		(3,905,745	)				24.66	$	96 million
Forfeited ⁽²⁾		(1,197,841	)				32.63

Balance at December 31, 2015		9,418,216					33.71

Annual grant to eligible employees:					Feb. 22, 2016
Performance share units		1,406,500					34.35
Deferred stock units		1,040,790					39.70
Additional shares granted ⁽³⁾		864,851			Various		32.90

Total shares granted		3,312,141					35.65	$	118 million
Vested ⁽²⁾		(3,992,902	)				28.15	$	112 million
Forfeited ⁽²⁾		(1,143,828	)				37.58

Balance at December 31, 2016		7,593,627					36.90

Annual grant to eligible employees:					Feb. 16, 2017
Performance share units		1,087,010					43.14
Deferred stock units		845,550					43.20
Additional shares granted ⁽³⁾		1,537,763			Various		42.22

Total shares granted		3,470,323					42.75	$	148 million
Vested ⁽²⁾		(2,622,807	)				35.78	$	94 million
Forfeited ⁽²⁾		(771,438	)				38.69

Balance at December 31, 2017		7,669,705					39.74

(1)

Includes performance share units, deferred stock units and restricted stock.

(2)

Includes performance share units, deferred stock units and restricted stock. The actual tax benefit realized for the tax deductions from the shares vested totaled $7 million in 2017, $18 million in 2016 and $18 million in 2015.

(3)

Includes performance share units and deferred stock units.

(4)

Performance share units reflect grant date fair values. Prior-year weighted average fair value per share has been revised.