NOTE 10 - Equity

Preferred stock:

The Company has authorized 25 million shares of $0.01 par value preferred stock, none of which were issued or outstanding at December 31, 2013 and 2012.

Treasury stock:

The Company reacquired 21,629, 44,674 and 73,260 shares of its common stock during 2013, 2012 and 2011, respectively, by both repurchasing shares from employees under the stock incentive plan and through the cancellation of forfeited restricted stock. The Company repurchased shares from employees at average purchase prices of $44.55, $58.59 and $47.48, or fair value at the date of purchase, during 2013, 2012 and 2011, respectively. All of the acquired shares are held as common stock in treasury, less shares issued to employees under the stock incentive plan.

On December 13, 2013, the Board of Directors authorized a new stock repurchase program permitting the Company to purchase up to 4 million of its outstanding common shares through December 12, 2018. The Company’s previous stock repurchase program permitting the purchase of up to 5 million shares was completed in the fourth quarter of 2013. In 2013, the Company repurchased 3,385,000 common shares in open market transactions at a cost of approximately $227 million. In 2012, the Company repurchased 300,000 common shares in open market transactions at a cost of approximately $15 million. In 2011, the Company repurchased 1,000,000 common shares in open market transactions at a cost of approximately $45 million. At December 31, 2013, the Company had 4,000,000 shares available to be repurchased under its program. The parameters of the Company’s stock repurchase program are not established solely with reference to the dilutive impact of shares issued under the Company’s stock incentive plan. However, the Company expects that, over time, share repurchases will offset the dilutive impact of shares issued under the stock incentive plan.

Set forth below is a reconciliation of common stock share activity for the years ended December 31, 2011, 2012 and 2013:

(Shares of common stock, in thousands)	Issued	Held in Treasury		Outstanding
Balance at December 31, 2010	76,035	12		76,023
Issuance of restricted stock units as compensation	56	—		56
Issuance under incentive and other plans	91	(9	)	100
Stock options exercised	640	(137	)	777
Purchase/acquisition of treasury stock	—	1,073		(1,073	)
Balance at December 31, 2011	76,822	939		75,883
Issuance of restricted stock units as compensation	—	(6	)	6
Issuance under incentive and other plans	—	(142	)	142
Stock options exercised	320	(1,026	)	1,346
Purchase/acquisition of treasury stock	—	345		(345	)
Balance at December 31, 2012	77,142	110		77,032
Issuance of restricted stock units as compensation	6	(3	)	9
Issuance under incentive and other plans	130	(43	)	173
Stock options exercised	395	(110	)	505
Purchase/acquisition of treasury stock	—	3,407		(3,407	)
Balance at December 31, 2013	77,673	3,361		74,312

Share-based payments:

The Company has a stock incentive plan (“SIP”) administered by the compensation committee of its Board of Directors that provides for the granting of stock options, restricted stock, restricted stock units and other share-based awards to certain key employees. A maximum of 8 million shares were originally authorized for awards under the SIP. As of December 31, 2013, 2.8 million shares were available for future grants under the SIP. Shares covered by awards that expire, terminate or lapse will again be available for the grant of awards under the SIP. Total share-based compensation expense for 2013 was $12 million, net of income tax effect of $5 million. Total share-based compensation expense for 2012 was $12 million, net of income tax effect of $5 million. Total share-based compensation expense for 2011 was $11 million, net of income tax effect of $5 million.

The Company grants nonqualified options to purchase shares of the Company’s common stock. The stock options have a ten-year life and are exercisable upon vesting, which occurs evenly over a three-year period at the anniversary dates of the date of grant. Compensation expense is recognized on a straight-line basis for awards. As of December 31, 2013, certain of these nonqualified options have been forfeited due to the termination of employees.

The fair value of stock option awards was estimated at the grant dates using the Black-Scholes option-pricing model with the following assumptions:

	2013		2012		2011
Expected life (in years)	5.8		5.8		5.8
Risk-free interest rate	1.1	%	1.1	%	2.8	%
Expected volatility	32.6	%	33.3	%	32.7	%
Expected dividend yield	1.6	%	1.2	%	1.2	%

The expected life of options represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest rate is based on the US Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the options. Expected volatility is based on historical volatilities of the Company’s common stock. Dividend yields are based on historical dividend payments. The weighted average fair value of options granted during 2013, 2012 and 2011 was estimated to be $17.87, $16.16 and $15.17, respectively.

A summary of stock option transactions for the last three years follows:

(shares in thousands)	Stock Option Shares		Stock Option Price Range		Weighted Average per Share Exercise Price for Stock Options
Outstanding at December 31, 2010	4,434		$	14.17 to 40.71	$	27.49
Granted	438		47.95 to 52.64		47.96
Exercised	(777	)	14.17 to 40.71		24.24
Cancelled	(65	)	18.31 to 47.95		30.60
Outstanding at December 31, 2011	4,030		14.33 to 52.64		30.29
Granted	460		55.95 to 57.33		55.96
Exercised	(1,409	)	14.33 to 47.95		26.80
Cancelled	(49	)	25.58 to 55.95		39.29
Outstanding at December 31, 2012	3,032		16.92 to 57.33		35.66
Granted	416		66.07 to 66.26		66.07
Exercised	(511	)	16.92 to 57.33		28.74
Cancelled	(88	)	47.95 to 66.07		54.37
Outstanding at December 31, 2013	2,849		24.70 to 66.26		40.77

The intrinsic values of stock options exercised during 2013, 2012 and 2011 were approximately $20 million, $46 million and $22 million, respectively. For the years ended December 31, 2013, 2012 and 2011, cash received from the exercise of stock options was $14 million, $34 million and $18 million, respectively. The excess income tax benefit realized from share-based compensation was $5 million, $11 million and $6 million in 2013, 2012 and 2011, respectively. As of December 31, 2013, the unrecognized compensation cost related to non-vested stock options totaled $8 million, which is expected to be amortized over the weighted-average period of approximately 1.7 years.

The following table summarizes information about stock options outstanding at December 31, 2013:


(options in thousands) Range of Exercise Prices	Options Outstanding	Weighted Average Exercise Price per Share		Average Remaining Contractual Life (Years)	Options Exercisable	Weighted Average Exercise Price Per Share

$ 24.70 to 27.30	557	$	25.47	3.22	557	$	25.47
$ 27.31 to 29.90	465	29.00		6.07	465	29.00
$ 32.51 to 35.10	676	34.04		3.68	676	34.04
$ 45.51 to 53.30	357	47.96		7.11	239	47.96
$ 55.91 to 58.50	405	55.95		8.11	142	55.95
$ 63.71 to 66.26	389	66.07		9.10	—	—
	2,849	$	40.77	5.78	2,079	$	33.71

Stock options outstanding at December 31, 2013 had an aggregate intrinsic value of approximately $79 million and an average remaining contractual life of 5.8 years. Stock options exercisable at December 31, 2013 had an aggregate intrinsic value of approximately $72 million and an average remaining contractual life of 4.8 years. Stock options outstanding at December 31, 2012 had an aggregate intrinsic value of approximately $87 million and an average remaining contractual life of 6.0 years. Stock options exercisable at December 31, 2012 had an aggregate intrinsic value of approximately $71 million and an average remaining contractual life of 4.9 years.

In addition to stock options, the Company awards shares of restricted common stock (“restricted shares”) and restricted stock units (“restricted units”) to certain key employees. The restricted shares and restricted units issued under the plan are subject to cliff vesting, generally after three to five years provided the employee remains in the service of the Company. Expense is recognized on a straight-line basis over the vesting period taking into account an estimated forfeiture rate. The fair value of the restricted stock and restricted units is determined based upon the number of shares granted and the quoted market price of the Company’s common stock at the date of the grant. The compensation expense recognized for restricted shares and restricted units was $7 million in 2013, $6 million in 2012 and $4 million in 2011.

The following table summarizes restricted share and restricted unit activity for the last three years:

(shares in thousands)	Number of Restricted Shares		Weighted Average Fair Value per Share		Number of Restricted Units		Weighted Average Fair Value per Share
Non-vested at December 31, 2010	181		$	30.04	113		$	30.56
Granted	—		—		182		48.04
Vested	(34	)	27.56		(56	)	26.08
Cancelled	(11	)	29.74		(4	)	47.98
Non-vested at December 31, 2011	136		$	30.69	235		$	44.24
Granted	—		—		174		55.69
Vested	(37	)	33.73		(9	)	37.57
Cancelled	(4	)	25.58		(15	)	44.95
Non-vested at December 31, 2012	95		$	29.69	385		$	49.77
Granted	—		—		144		66.27
Vested	(33	)	34.02		(17	)	46.82
Cancelled	(14	)	31.25		(43	)	54.93
Non-vested at December 31, 2013	48		$	26.25	469		$	54.47

Restricted shares with a total fair value of $1 million vested in each of 2013, 2012 and 2011. The total fair value of restricted units that vested in 2013, 2012 and 2011 was $1 million, $0.3 million and $1 million, respectively.

At December 31, 2013, the total remaining unrecognized compensation cost related to restricted units was $10 million which will be amortized on a weighted-average basis over approximately 1.9 years. Unrecognized compensation cost related to restricted shares was insignificant at December 31, 2013. Recognized compensation cost related to unvested restricted share and restricted stock unit awards is included in share-based payments subject to redemption in the Consolidated Balance Sheets and totaled $17 million and $11 million at December 31, 2013 and 2012, respectively.

Other share-based awards under the SIP:

Under the compensation agreement with the Board of Directors at least 50 percent of a director’s compensation is awarded in shares of common stock or restricted units based on each director’s election to receive his or her compensation or a portion thereof in the form of restricted units. These restricted units vest immediately, but cannot be transferred until a date not less than six months after the director’s termination of service from the board at which time the restricted units will be settled by delivering shares of common stock. The compensation expense relating to this plan included in the Consolidated Statements of Income for 2013, 2012 and 2011 was not material. At December 31, 2013, there were approximately 218,000 restricted units outstanding under this plan at a carrying value of approximately $6 million.

The Company has a long-term incentive plan for officers in the form of performance shares. The ultimate payments for performance shares awarded in 2011, 2012 and 2013 to be paid in 2014, 2015 and 2016 will be based solely on the Company’s stock performance as compared to the stock performance of a peer group. Compensation expense is based on the fair value of the performance shares at the grant date, established using a Monte Carlo simulation model. The total compensation expense for these awards is amortized over a three-year service period. Compensation expense relating to these awards included in the Consolidated Statements of Income for 2013, 2012 and 2011 was $3 million, $4 million and $6 million, respectively. As of December 31, 2013, the unrecognized compensation cost relating to these plans was $3 million, which will be amortized over the remaining requisite service periods of 1 to 2 years. Recognized compensation cost related to these unvested awards is included in share-based payments subject to redemption in the Consolidated Balance Sheets and totaled $7 million and $8 million at December 31, 2013 and 2012, respectively.

Accumulated Other Comprehensive Loss:

A summary of accumulated other comprehensive income (loss) for the years ended December 31, 2011, 2012 and 2013 is

presented below:

										Unrealized
	Cumulative			Deferred Gain/(Loss)			Pension/			Gain (Loss)			Accumulated Other
	Translation			on Hedging			Postretirement			on			Comprehensive
(in millions)	Adjustment			Activities			Adjustment			Investment			Loss
Balance, December 31, 2010	$	(180	)	$	41		$	(49	)	$	(2	)	$	(190	)
Gains on cash-flow hedges, net of income tax effect of $19				29									29
Amount of gains on cash-flow hedges reclassified to earnings, net of income tax effect of $61				(105		)							(105		)
Actuarial loss on pension and other postretirement obligations, settlements and plan amendments, net of income tax of $4							(10		)				(10		)
Gains related to pension and other postretirement obligations reclassified to earnings, net of income tax of $5							(11		)				(11		)
Currency translation adjustment	(126		)										(126		)
Balance, December 31, 2011	$	(306	)	$	(35	)	$	(70	)	$	(2	)	$	(413	)
Gains on cash-flow hedges, net of income tax effect of $25				43									43
Amount of gains on cash-flow hedges reclassified to earnings, net of income tax effect of $15				(25		)							(25		)
Actuarial loss on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $27							(56		)				(56		)
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax of $2							5						5
Currency translation adjustment	(29		)										(29		)
Balance, December 31, 2012	$	(335	)	$	(17	)	$	(121	)	$	(2	)	$	(475	)
Losses on cash-flow hedges, net of income tax effect of $29				(64		)							(64		)
Amount of losses on cash-flow hedges reclassified to earnings, net of income tax effect of $19				41									41
Actuarial gain on pension and other postretirement obligations, settlements and plan amendments, net of income tax effect of $32							63						63
Losses related to pension and other postretirement obligations reclassified to earnings, net of income tax of $3							5						5
Unrealized gain on investment, net of income tax effect										1			1
Currency translation adjustment	(154		)										(154		)
Balance, December 31, 2013	$	(489	)	$	(40	)	$	(53	)	$	(1	)	$	(583	)

The following table provides detail pertaining to reclassifications from AOCI into net income for the periods presented:

										Affected Line Item in
Details about AOCI Components	Amount Reclassified from AOCI									Consolidated Statements
(in millions)	2013			2012			2011			of Income
Gains (losses) on cash-flow hedges:
Commodity and foreign currency contracts	$	(57	)	$	43		$	169		Cost of sales
Interest rate contracts	(3		)	(3		)	(3		)	Financing costs, net

Gains (losses) related to pension and other postretirement obligations	(8		)	(7		)	16			(a)
Total before tax reclassifications	$	(68	)	$	33		$	182
Income tax (expense) benefit	22			(13		)	(66		)
Total after-tax reclassifications	$	(46	)	$	20		$	116

(a) This component is included in the computation of net periodic benefit cost and affects both cost of sales and SG&A expenses on the Consolidated Statements of Income.