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 restricted stock units (RSUs) under the Second Restated 2002 Plan in lieu of stock options. Through a series of shareholder approvals, there have been amended and restated plans and new provisions implemented by the Company. Under revisions in the Fourth Restated 2002 Plan in the fourth quarter of fiscal 2008, grants of RSUs are subject, upon certain terminations of employment, to quarterly vesting. 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 first grant impacted by these amendments occurred in the first quarter of fiscal 2009. Each share issued in respect of stock bonus or stock unit awards is counted as 1.75 shares toward the limit of shares made available under the Fourth Restated 2002 Plan. The Sixth Restated 2002 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 2013. The Sixth Plan authorizes the issuance of 16,000,000 shares (9,143,000 RSUs) of common stock for future grants in addition to shares previously authorized. The Company issues new shares of common stock upon exercise of stock options and upon vesting of RSUs. Vested RSUs are generally delivered to participants annually, net of minimum statutory withholding taxes.
As required by the Company’s Sixth Plan, 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. The number of outstanding stock options and RSUs was increased by multiplying the number of outstanding shares by a factor of 1.0763, representing the ratio of the NASDAQ closing price of $105.95 on December 5, 2012, which was the last trading day immediately prior to the ex-dividend date, to the NASDAQ opening price of $98.44 on the ex-dividend date, December 6, 2012. The exercise prices of stock options were reduced by multiplying the prices by a factor of 0.9291, representing the ratio of the NASDAQ opening price on the ex-dividend date to the NASDAQ closing price on December 5. Approximately 2,905,000 stock options were adjusted, and approximately 9,676,000 RSUs were adjusted. 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 Stock Option Activity
All outstanding stock options were fully vested and exercisable at the end of 2013 and 2012. The following table summarizes stock option transactions during 2013:
|
| | | | | | | | | | | | |
| 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 2012 | 3,161 |
| | $ | 40.90 |
| | | | |
Exercised | (1,435 | ) | | 36.22 |
| | | | |
Special cash dividend | 221 |
| | N/A |
| | | | |
Outstanding at the end of 2013 | 1,947 |
| | $ | 39.70 |
| | 1.38 | | $ | 140 |
|
_______________
| |
(1) | The difference between the exercise price and market value of common stock at the end of 2013. |
The following is a summary of stock options outstanding at the end of 2013:
|
| | | | | | | | |
| Options Outstanding and Exercisable |
Range of Prices(1) | Number of Options (in 000’s) | | Weighted- Average Remaining Contractual Life | | Weighted- Average Exercise Price |
$34.71–$40.69 | 1,775 |
| | 1.36 | | $ | 39.39 |
|
$42.73–$43.17 | 172 |
| | 1.59 | | 42.93 |
|
| 1,947 |
| | 1.38 | | $ | 39.70 |
|
_______________
(1) Prices include the effect of the special cash dividend noted above.
The tax benefits realized, derived from the compensation deductions resulting from the option exercises, and intrinsic value related to total stock options exercised during 2013, 2012, and 2011 are provided in the following table:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Actual tax benefit realized for stock options exercised | $ | 33 |
| | $ | 50 |
| | $ | 78 |
|
Intrinsic value of stock options exercised(1) | $ | 94 |
| | $ | 137 |
| | $ | 227 |
|
_______________
(1) The difference between the exercise price and market value of common stock measured at each individual exercise date.
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 Company provides 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. Recipients are not entitled to vote or receive dividends on non-vested and undelivered shares. At the end of 2013, 11,174,000 shares were available to be granted as RSUs under the Sixth Restated 2002 Plan.
The following awards were outstanding at the end of 2013:
| |
• | 9,355,000 time-based RSUs that vest upon continued employment over specified periods of time; |
| |
• | 726,000 performance-based RSUs, of which 350,000 were granted to certain executive officers subject to the certification of the attainment of specified performance targets for 2013, which occurred in September 2013. These RSUs vest upon continued employment over specified periods of time. |
The following table summarizes RSU transactions during 2013:
|
| | | | | | |
| Number of Units (in 000’s) | | Weighted-Average Grant Date Fair Value |
Outstanding at the end of 2012 | 9,260 |
| | $ | 66.14 |
|
Granted | 4,192 |
| | 90.99 |
|
Vested and delivered | (3,872 | ) | | 67.17 |
|
Forfeited | (231 | ) | | 71.19 |
|
Special cash dividend | 732 |
| | N/A |
|
Outstanding at the end of 2013 | 10,081 |
| | $ | 72.52 |
|
The remaining unrecognized compensation cost related to non-vested RSUs at the end of 2013 was $504 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 2013 were approximately 3,100,000 RSUs vested but not yet delivered.
Summary of Stock-Based Compensation
The following table summarizes stock-based compensation expense and the related tax benefits under the Company’s plans:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Stock-based compensation expense before income taxes | $ | 285 |
| | $ | 241 |
| | $ | 207 |
|
Less recognized income tax benefit | (94 | ) | | (79 | ) | | (67 | ) |
Stock-based compensation expense, net of income taxes | $ | 191 |
| | $ | 162 |
| | $ | 140 |
|
