Capital Stock and Stock-Based Compensation Plans

Preference Stock

The Company has the authority to issue 50,262,150 shares of preference stock.

Stock Repurchases

On June 18, 2018, the Board authorized the repurchase of shares of the Company’s common stock having an aggregate purchase price of up to $5 billion under a new share repurchase program (the “2018 Program”), which replaced a previously authorized share repurchase program (the “2015 Program”). The Company commenced repurchases of shares of the Company’s common stock under the 2018 Program beginning June 19, 2018. The Board also has authorized share repurchases on an ongoing basis to fulfill certain requirements of the Company’s compensation and benefit programs. The shares are repurchased from time to time in open market or privately negotiated transactions at the Company’s discretion, subject to market conditions, customary blackout periods and other factors. The Company repurchased its common stock at a cost of $1,238 during 2018 under the 2018 Program and 2015 Program.

The Company may use either authorized and unissued shares or treasury shares to meet share requirements resulting from the exercise of stock options and the vesting of restricted stock unit awards.

A summary of common stock and treasury stock activity for the three years ended December 31, is as follows:



	Common Stock Outstanding		Treasury Stock
Balance, January 1, 2016	892,738,518		572,967,842

Common stock acquired	(19,271,304	)	19,271,304
Shares issued for stock options	8,536,639		(8,536,639	)
Shares issued for restricted stock units and other	1,105,110		(1,105,110	)
Balance, December 31, 2016	883,108,963		582,597,397

Common stock acquired	(19,185,828	)	19,185,828
Shares issued for stock options	9,670,988		(9,670,988	)
Shares issued for restricted stock units and other	1,106,995		(1,106,995	)
Balance, December 31, 2017	874,701,118		591,005,242

Common stock acquired	(18,786,897	)	18,786,897
Shares issued for stock options	6,040,920		(6,040,920	)
Shares issued for restricted stock units and other	957,651		(957,651	)
Balance, December 31, 2018	862,912,792		602,793,568

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock units, based on the fair value of those awards at the date of grant. The fair value of restricted stock units, generally based on market prices, is amortized on a straight-line basis over the requisite service period. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Awards to employees eligible for retirement prior to the award becoming fully vested are recognized as compensation cost from the grant date through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award.

The Company has one incentive compensation plan pursuant to which it issues restricted stock units and stock options to employees and shares of common stock and stock options to non-employee directors. The Personnel and Organization Committee of the Board of Directors, which is comprised entirely of independent directors, administers the incentive compensation plan. The total stock-based compensation expense charged against pretax income for this plan was $109, $127 and $123 for the years ended December 31, 2018, 2017 and 2016, respectively. The total income tax benefit recognized on stock-based compensation, excluding excess tax benefits discussed below, was approximately $25, $42 and $40 for the years ended December 31, 2018, 2017 and 2016, respectively.

Stock-based compensation expense is recorded within Selling, general and administrative expenses in the Corporate segment as these amounts are not included in internal measures of segment operating performance.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The weighted-average estimated fair value of stock options granted in the years ended December 31, 2018, 2017 and 2016 was $9.48, $8.37 and $8.10, respectively. Fair value is estimated using the Black-Scholes option pricing model with the assumptions summarized in the following table:



	2018		2017		2016
Expected term of options	4.5 years		4.5 years		4.5 years
Expected volatility rate	17.7	%	16.0	%	16.7	%
Risk-free interest rate	2.8	%	1.8	%	1.2	%
Expected dividend yield	2.5	%	2.2	%	2.1	%

The weighted-average expected term of options granted each year was determined with reference to historical exercise and post-vesting cancellation experience, the vesting period of the awards and the contractual term of the awards, among other factors. Expected volatility incorporates implied share-price volatility derived from exchange traded options on the Company’s common stock. The risk-free interest rate for the expected term of the option is based on the yield of a zero-coupon U.S. Treasury bond with a maturity period equal to the option’s expected term.

Restricted Stock Units

The Company grants restricted stock unit awards, including long-term incentive awards, to officers and other employees. Under the Company’s long-term incentive plan, awards are granted following a three-year performance period. Awards vest at the end of the restriction period, which is three years from the date of grant. As of December 31, 2018, approximately 9,186,000 shares of common stock were available for future restricted stock unit awards.

A summary of restricted stock unit activity during 2018 is presented below:



	Shares (in thousands)		Weighted Average Grant Date Fair Value Per Award
Restricted stock units as of January 1, 2018	2,730		$	70
Activity:
Granted	814		69
Vested	(901	)	65
Forfeited	(169	)	70
Restricted stock units as of December 31, 2018	2,474		$	71

As of December 31, 2018, there was $45 of total unrecognized compensation expense related to unvested restricted stock unit awards, which will be recognized over a weighted-average period of 2.1 years. The total fair value of restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was $55, $66 and $61, respectively.

Stock Options

The Company issues non-qualified stock options to non-employee directors, officers and other employees. Stock options generally have a contractual term of six years and vest over three years. As of December 31, 2018, 15,604,000 shares of common stock were available for future stock option grants.

A summary of stock option activity during 2018 is presented below:



	Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Intrinsic Value of Unexercised In-the-Money Options
Options outstanding, January 1, 2018	40,979		$	65
Granted	6,290		68
Exercised	(6,669	)	55
Forfeited or expired	(890	)	71
Options outstanding, December 31, 2018	39,710		67		3	$	1,457
Options exercisable, December 31, 2018	26,420		$	66	3	$	1,457

As of December 31, 2018, there was $38 of total unrecognized compensation expense related to unvested options, which will be recognized over a weighted-average period of 1.5 years. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $92, $201 and $221, respectively.

The benefits of tax deductions in excess of grant date fair value resulting from the exercise of stock options and vesting of restricted stock unit awards for the years ended December 31, 2018, 2017 and 2016 were $12, $47 and $59, respectively. Through December 31, 2016 these amounts were recognized in equity and were reported as a financing cash flow. Effective January 1, 2017, as a result of the required adoption of ASU No. 2016-09, excess tax benefits from stock-based compensation have been recognized in the provision for income taxes as a discrete item in the quarterly period in which they occur and classified as an operating cash flow. Cash proceeds received from options exercised for the years ended December 31, 2018, 2017 and 2016 were $329, $507 and $386, respectively.