Note 9 — Incentive Stock Program

The 2009 Incentive Stock Program authorizes the granting of nonqualified stock options, restricted stock awards, restricted stock units, performance awards, foreign benefits and other share-based awards. Stock options and restricted stock awards and units comprise the majority of benefits that have been granted and are currently outstanding under this program and a prior program. In 2014, Abbott granted 3,905,076 stock options, 584,354 restricted stock awards and 5,434,799 restricted stock units under this program.

The purchase price of shares under option must be at least equal to the fair market value of the common stock on the date of grant, and the maximum term of an option is 10 years. Options generally vest equally over three years. Restricted stock awards generally vest between 3 and 5 years and for restricted stock awards that vest over 5 years, no more than one-third of the award vests in any one year upon Abbott reaching a minimum return on equity target. Restricted stock units vest over three years and upon vesting, the recipient receives one share of Abbott stock for each vested restricted stock unit. The aggregate fair market value of restricted stock awards and units is recognized as expense over the requisite service period. Restricted stock awards and settlement of vested restricted stock units are issued out of treasury shares. Abbott generally issues new shares for exercises of stock options. As a policy, Abbott does not purchase its shares relating to its share-based programs.

In connection with the separation of AbbVie on January 1, 2013, Abbott modified its outstanding equity awards granted under incentive stock programs for its employees. The awards were generally modified such that immediately following the separation; the awardees held the same number of awards in Abbott stock and an equal number of awards in AbbVie stock. The exercise price on outstanding Abbott options was adjusted and the exercise price on the AbbVie options granted under this modification was established with the intention of generally preserving the value of the awards immediately prior to the separation. This modification did not result in additional compensation expense.

At December 31, 2014, approximately 110 million shares were reserved for future grants.

The number of restricted stock awards and units outstanding and the weighted-average grant-date fair value at December 31, 2014 and December 31, 2013 was 12,671,328 and $35.48 and 14,385,221 and $30.13, respectively. The number of restricted stock awards and units, and the weighted-average grant-date fair value, that were granted, vested and lapsed during 2014 were 6,235,730 and $39.20, 7,204,498 and $28.13 and 745,125 and $34.31, respectively. The fair market value of restricted stock awards and units vested in 2014, 2013 and 2012 was $281 million, $274 million and $385 million, respectively.

	Options Outstanding							Exercisable Options
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Shares		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)
December 31, 2013		42,757,340		$	26.15		4.0		36,185,039	$	25.02		3.1


Granted		3,905,076			39.20
Exercised		(9,645,856	)		24.85
Lapsed		(219,860	)		33.97

December 31, 2014		36,796,700		$	27.83		4.1		29,276,499	$	25.60		3.0

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2014 was $634 million and $570 million, respectively. The total intrinsic value of options exercised in 2014, 2013 and 2012 was $152 million, $120 million and $528 million, respectively. The total unrecognized compensation cost related to all share-based compensation plans at December 31, 2014 amounted to approximately $150 million, which is expected to be recognized over the next three years.

Total non-cash stock compensation expense charged against income from continuing operations in 2014, 2013 and 2012 for share-based plans totaled approximately $239 million, $254 million and $278 million, respectively, and the tax benefit recognized was approximately $79 million, $82 million and $85 million, respectively. Stock compensation cost capitalized as part of inventory is not significant.

The fair value of an option granted in 2014, 2013 and 2012 was $6.39, $5.77, and $6.80, respectively. The fair value of an option grant was estimated using the Black-Scholes option-pricing model with the following assumptions:

	2014			2013			2012
Risk-free interest rate		1.9	%		1.1	%		1.2	%
Average life of options (years)		6.0			6.0			6.0
Volatility		20.0	%		20.0	%		21.0	%
Dividend yield		2.2	%		1.6	%		3.6	%

The risk-free interest rate is based on the rates available at the time of the grant for zero-coupon U.S. government issues with a remaining term equal to the option's expected life. The average life of an option is based on both historical and projected exercise and lapsing data. Expected volatility is based on implied volatilities from traded options on Abbott's stock and historical volatility of Abbott's stock over the expected life of the option. Dividend yield is based on the option's exercise price and annual dividend rate at the time of grant.