Share-Based Compensation

12 Months Ended

Sep. 30, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

Note 7 — Share-Based Compensation

The Company grants share-based awards under the 2004 Employee and Director Equity-Based Compensation Plan (“2004 Plan”), which provides long-term incentive compensation to employees and directors consisting of: stock appreciation rights (“SARs”), stock options, performance-based restricted stock units, time-vested restricted stock units and other stock awards.

The amounts and location of compensation cost relating to share-based payments included in consolidated statements of income is as follows:

	2011		2010		2009
Cost of products sold	$	14,440	$	15,128	$	16,846
Selling and administrative expense		49,536		54,423		58,920
Research and development expense		9,387		9,823		10,808
	$	73,363	$	79,374	$	86,574

The associated income tax benefit recognized was $26,342, $28,532 and $31,307, respectively.

Stock Appreciation Rights

SARs represent the right to receive, upon exercise, shares of common stock having a value equal to the difference between the market price of common stock on the date of exercise and the exercise price on the date of grant. SARs vest over a four-year period and have a ten-year term. The fair value was estimated on the date of grant using a lattice-based binomial option valuation model that uses the following weighted-average assumptions:

	2011	2010	2009
Risk-free interest rate	2.40%	2.60%	2.73%
Expected volatility	24.00%	28.0%	28.0%
Expected dividend yield	2.14%	1.96%	2.11%
Expected life	7.8 years	6.5 years	6.5 years
Fair value derived	$16.80	$19.70	$16.11

Expected volatility is based upon historical volatility for the Company’s common stock and other factors. The expected life of SARs granted is derived from the output of the lattice-based model, using assumed exercise rates based on historical exercise and termination patterns, and represents the period of time that SARs granted are expected to be outstanding. The risk-free interest rate used is based upon the published U.S. Treasury yield curve in effect at the time of grant for instruments with a similar life. The dividend yield is based upon the most recently declared quarterly dividend as of the grant date. The total intrinsic value of SARs exercised during 2011, 2010, and 2009 was $9,185, $2,831, and $406, respectively. The Company issued 81,848 shares during 2011 to satisfy the SARs exercised. The actual tax benefit realized during 2011, 2010, and 2009 for tax deductions from SAR exercises totaled $3,459, $1,031 and $154, respectively. The total fair value of SARs vested during 2011, 2010 and 2009 was $31,992, $33,640 and $24,888, respectively.

A summary of SARs outstanding as of September 30, 2011, and changes during the year then ended is as follows:

						Weighted
						Average
				Weighted		Remaining		Aggregate
				Average		Contractual Term		Intrinsic
	SARs			Exercise Price		(Years)		Value
Balance at October 1		7,659,155		$	70.46
Granted		2,216,436			76.64
Exercised		(555,155	)		66.58
Forfeited, canceled or expired		(293,399	)		72.71
Balance at September 30		9,027,037		$	72.14		7.07	$	35,203
Vested and expected to vest at September 30		8,584,694		$	72.03		7.00	$	34,346
Exercisable at September 30		4,603,602		$	70.09		5.85	$	26,631

Stock options

The Company has not granted stock options since 2005. All outstanding stock option grants are fully vested and have a ten-year term.

A summary of stock options outstanding as of September 30, 2011 and changes during the year then ended is as follows:

						Weighted Average
				Weighted		Remaining		Aggregate
	Stock			Average		Contractual Term		Intrinsic
	Options			Exercise Price		(Years)		Value
Balance at October 1		6,433,148		$	38.12
Granted		—			—
Exercised		(2,927,278	)		35.28
Forfeited, canceled or expired		(48,519	)		32.22
Balance at September 30		3,457,351		$	40.61		2.04	$	113,078
Vested and expected to vest at September 30		3,457,351		$	40.61		2.04	$	113,078
Exercisable at September 30		3,457,351		$	40.61		2.04	$	113,078

Cash received from the exercising of stock options in 2011, 2010 and 2009 was $103,267, $72,770 and $53,019, respectively. The actual tax benefit realized for tax deductions from stock option exercises totaled $45,829, $28,660 and $16,931, respectively. The total intrinsic value of stock options exercised during the years 2011, 2010 and 2009 was $137,720, $89,943 and $53,630, respectively. The total fair value of stock options vested during 2011, 2010 and 2009 was $0, $0 and $6,083, respectively.

Performance-Based Restricted Stock Units

Performance-based restricted stock units cliff vest three years after the date of grant. These units are tied to the Company’s performance against pre-established targets, including its average growth rate of consolidated revenues and average return on invested capital, over a three-year performance period. Under the Company’s long-term incentive program, the actual payout under these awards may vary from zero to 200% of an employee’s target payout, based on the Company’s actual performance over the three-year performance period. The fair value is based on the market price of the Company’s stock on the date of grant. Compensation cost initially recognized assumes that the target payout level will be achieved and is adjusted for subsequent changes in the expected outcome of performance-related conditions.

A summary of performance-based restricted stock units outstanding as of September 30, 2011 and changes during the year then ended is as follows:

				Weighted
	Stock			Average Grant
	Units			Date Fair Value
Balance at October 1		2,879,568		$	72.79
Granted		944,174			76.64
Distributed		(122,554	)		84.29
Forfeited or canceled		(798,254	)		82.24
Balance at September 30(A)		2,902,934		$	70.96
Expected to vest at September 30(B)		234,015		$	70.32

(A)	Based on 200% of target payout.
(B)	Net of expected forfeited units and units in excess of the expected performance payout of 180,182 and 2,488,737, respectively.

The weighted average grant date fair value of performance-based restricted stock units granted during the years 2010 and 2009 was $75.63 and $62.50, respectively. The total fair value of performance-based restricted stock units vested during 2011, 2010 and 2009 was $15,430, $24,357 and $33,712, respectively. At September 30, 2011, the weighted average remaining vesting term of performance-based restricted stock units is 1.08 years.

Time-Vested Restricted Stock Units

Time-vested restricted stock units generally cliff vest three years after the date of grant, except for certain key executives of the Company, including the executive officers, for which such units generally vest one year following the employee’s retirement. The related share-based compensation expense is recorded over the requisite service period, which is the vesting period or in the case of certain key executives is based on retirement eligibility. The fair value of all time-vested restricted stock units is based on the market value of the Company’s stock on the date of grant.

A summary of time-vested restricted stock units outstanding as of September 30, 2011 and changes during the year then ended is as follows:

				Weighted
	Stock			Average Grant
	Units			Date Fair Value
Balance at October 1		1,808,295		$	70.90
Granted		600,651			76.97
Distributed		(301,196	)		80.46
Forfeited or canceled		(197,080	)		77.77
Balance at September 30		1,910,670		$	70.59
Expected to vest at September 30		1,719,603		$	70.59

The weighted average grant date fair value of time-vested restricted stock units granted during the years 2010 and 2009 was $75.58 and $62.96, respectively. The total fair value of time-vested restricted stock units vested during 2011, 2010 and 2009 was $36,009, $36,675 and $29,535, respectively. At September 30, 2011, the weighted average remaining vesting term of the time-vested restricted stock units is 1.36 years.

The amount of unrecognized compensation expense for all non-vested share-based awards as of September 30, 2011, is approximately $80,744, which is expected to be recognized over a weighted-average remaining life of approximately 2.09 years. At September 30, 2011, 7,717,344 shares were authorized for future grants under the 2004 Plan.

The Company has a policy of satisfying share-based payments through either open market purchases or shares held in treasury. At September 30, 2011, the Company has sufficient shares held in treasury to satisfy these payments in 2011.

Other Stock Plans

The Company has a Stock Award Plan, which allows for grants of common shares to certain key employees. Distribution of 25% or more of each award is deferred until after retirement or involuntary termination, upon which the deferred portion of the award is distributable in five equal annual installments. The balance of the award is distributable over five years from the grant date, subject to certain conditions. In February 2004, this plan was terminated with respect to future grants upon the adoption of the 2004 Plan. At September 30, 2011 and 2010, awards for 97,705 and 106,293 shares, respectively, were outstanding.

The Company has a Restricted Stock Plan for Non-Employee Directors which reserves for issuance of 300,000 shares of the Company’s common stock. No restricted shares were issued in 2011.

The Company has a Directors’ Deferral Plan, which provides a means to defer director compensation, from time to time, on a deferred stock or cash basis. As of September 30, 2011, 97,628 shares were held in trust, of which 4,212 shares represented Directors’ compensation in 2011, in accordance with the provisions of the plan. Under this plan, which is unfunded, directors have an unsecured contractual commitment from the Company.

The Company also has a Deferred Compensation Plan that allows certain highly-compensated employees, including executive officers, to defer salary, annual incentive awards and certain equity-based compensation. As of September 30, 2011, 508,144 shares were issuable under this plan.