15. Stock Compensation Plans

The Walgreens Boots Alliance, Inc. Omnibus Incentive Plan (the “Omnibus Plan”) which became effective in fiscal 2013, provides for incentive compensation to the Company’s non-employee directors, officers and employees, and consolidates into a single plan several previously existing equity compensation plans. A total of 60.4 million shares became available for delivery under the Omnibus Plan.

In connection with the Reorganization, the Omnibus Plan was assumed by the Company and each Walgreens stock option, restricted stock unit award, performance share award, deferred stock unit award, and share of common stock converted automatically into an award with respect to the number of shares of common stock of the Company on a one-for-one basis. The Company’s awards continue to be subject to the same terms and conditions as those that were applicable to such award immediately prior to their conversion. The Company did not record any incremental compensation expense related to the conversion.

A summary of the equity awards authorized and available for future grants under the Omnibus Plan follows:

Available for future grants at August 31, 2014	48,352,242
Newly authorized options	-
Granted	(8,649,296	)
Cancellation and forfeitures	5,059,061
Plan termination	1,409,063
Available for future grants at August 31, 2015	46,171,070

A summary of the Company’s stock options outstanding under the Omnibus Plan follows:

Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)
Outstanding at August 31, 2014		31,916,824		$	39.28		6.40	$	674
Granted		4,119,972			64.19
Exercised		(10,007,975	)		35.22
Expired/Forfeited		(3,754,248	)		53.72
Outstanding at August 31, 2015		22,274,573			43.52		6.29		959
Vested or expected to vest at August 31, 2015		21,879,917			43.20		6.25		948
Exercisable at August 31, 2015		8,825,638			32.42		4.03		478

The fair value of each option grant was determined using the Black-Scholes option pricing model with the following weighted-average assumptions used in fiscal 2015, 2014 and 2013:

	2015			2014			2013
Risk-free interest rate⁽¹⁾		1.97	%		1.98	%		1.15	%
Average life of option (years)⁽²⁾		6.6			6.9			7.0
Volatility⁽³⁾		25.58	%		26.27	%		24.94	%
Dividend yield⁽⁴⁾		1.79	%		2.48	%		2.44	%
Weighted-average grant-date fair value	$	14.62		$	12.88		$	6.75

⁽¹⁾	Represents the U.S. Treasury security rates for the expected term of the option.

⁽²⁾	Represents the period of time that options granted are expected to be outstanding. The Company analyzed separate groups of employees with similar exercise behavior to determine the expected term.

⁽³⁾	Volatility was based on historical and implied volatility of the Company’s common stock.

⁽⁴⁾	Represents the Company’s forecasted cash dividend for the expected term.

The intrinsic value for options exercised in fiscal 2015, 2014 and 2013 was $423 million, $346 million and $159 million, respectively. The total fair value of options vested in fiscal 2015, 2014 and 2013 was $54 million, $58 million and $51 million, respectively.

Cash received from the exercise of options in fiscal 2015 was $352 million compared to $490 million in the prior year. The related tax benefit realized was $159 million in fiscal 2015 compared to $130 million in the prior year.

The Walgreens Boots Alliance, Inc. Employees Stock Purchase Plan permits eligible employees to purchase common stock at 90% of the fair market value at the date of purchase. Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under this plan is 94 million. At August 31, 2015, 14 million shares were available for future purchase.

Restricted performance shares issued under the Omnibus Plan offer performance-based incentive awards and equity-based awards to key employees. Restricted stock units are also equity-based awards with performance requirements that are granted to key employees. The restricted performance shares and restricted stock unit awards are both subject to restrictions as to continuous employment except in the case of death, normal retirement or total and permanent disability. In accordance with ASC Topic 718, Compensation – Stock Compensation, compensation expense is recognized based on the market price of the Company’s common stock on the grant date and is recognized on a straight-line basis over the employee’s vesting period or to the employee’s retirement eligible date, if earlier.

A summary of information relative to the Company’s restricted stock units follows:

Outstanding Shares	Shares			Weighted-Average Grant-Date Fair Value
Outstanding at August 31, 2014		3,280,067		$	45.40
Granted		1,157,312			66.26
Dividends		64,796			-
Forfeited		(636,244	)		52.68
Vested		(531,479	)		52.29
Outstanding at August 31, 2015		3,334,452		$	50.85

Unless otherwise noted, the fair value of each performance share granted assumes that performance goals will be achieved at 100 percent. If such goals are not met, no compensation expense is recognized and any recognized compensation expense is reversed. A summary of information relative to the Company's performance shares follows:

Outstanding Shares	Shares			Weighted-Average Grant-Date Fair Value
Outstanding at August 31, 2014		2,063,132		$	44.85
Granted		483,174			65.31
Performance adjustment⁽¹⁾		(615,445	)		35.30
Forfeited		(444,961	)		55.00
Vested		(40,120	)		44.00
Outstanding at August 31, 2015		1,445,780		$	50.78

⁽¹⁾	Represents the adjustment to previously granted shares based on performance criteria.

The Company also issues shares to nonemployee directors. Each director receives an equity grant of shares every year on November 1. In fiscal 2013, the number of shares granted to each director was determined by dividing $170,000 by the price of a share of common stock on November 1, 2012. In fiscal 2014 and 2015, the number of shares granted to each director was determined by dividing $175,000 by the price of a share of common stock on November 1, 2013 and November 1, 2014, respectively. Each nonemployee director may elect to receive this annual share grant in the form of shares or deferred stock units. In fiscal 2015, there were 2,725 shares granted to nonemployee directors compared to 2,892 shares and 4,789 shares in fiscal 2014 and 2013, respectively. New directors in any fiscal year earned a prorated amount. Payment of the annual retainer is paid in the form of cash, which may be deferred.

A summary of total stock-based compensation expense follows (in millions):

	2015		2014		2013
Stock options	$	24	$	52	$	51
Restricted stock units		68		48		33
Performance shares		11		8		15
Other		6		6		5
	$	109	$	114	$	104