EMPLOYEE STOCK BENEFIT PLANS

12 Months Ended

Dec. 31, 2012

Employee Stock Benefit Plans [Abstract]

Employee Stock Benefit Plans [Text Block]

Note 19. EMPLOYEE STOCK BENEFIT PLANS

On May 1, 2012, the shareholders approved the 2012 Stock Award and Incentive Plan (the 2012 Plan), which replaced the 2007 Stock Incentive Plan.  Shares of common stock reserved for issuance pursuant to stock plans, options and conversions of preferred stock were 283 million at December 31, 2012.  Shares available to be granted for the active plans, adjusted for the combination of plans, were 116 million at December 31, 2012.  Shares for the stock option exercise and share unit vesting are issued from treasury stock.  Only shares actually delivered to participants in connection with an award after all restrictions have lapsed will reduce the number of shares reserved.  Shares tendered in a prior year to pay the purchase price of options and shares previously utilized to satisfy withholding tax obligations upon exercise continue to be available and reserved.

Executive officers and key employees may be granted options to purchase common stock at no less than the market price on the date the option is granted. Options generally become exercisable ratably over 4 years and have a maximum term of 10 years. Additionally, the plan provides for the granting of stock appreciation rights whereby the grantee may surrender exercisable rights and receive common stock and/or cash measured by the excess of the market price of the common stock over the option exercise price.

Common stock may be granted to key employees, subject to restrictions as to continuous employment. Restrictions expire over a four year period from date of grant. Compensation expense is recognized over the vesting period. A stock unit is a right to receive stock at the end of the specified vesting period but has no voting rights.

Market share units were granted to certain executives beginning in 2010. Vesting is conditioned upon continuous employment until vesting date and the payout factor equals at least 60%. The payout factor is the share price on vesting date divided by share price on award date, with a maximum of 200%. The share price used in the payout factor is calculated using an average of the closing prices on the grant or vest date, and the nine trading days immediately preceding the grant or vest date. Vesting occurs ratably over four years.

Long-term performance awards have a three year cycle and are delivered in the form of a target number of performance share units. The number of shares ultimately issued is calculated based on actual performance compared to earnings targets and other performance criteria established at the beginning of the performance period. The awards have annual goals with a maximum payout of 167.5%. If threshold targets are not met for a performance period, no payment is made under the plan for that annual period. Vesting occurs at the end of the three year period.

Stock-based compensation expense is based on awards ultimately expected to vest and is recognized over the vesting period. The acceleration of unvested stock options and restricted stock units in connection with the acquisition of Amylin resulted in stock-based compensation expense in 2012. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.Stock-based compensation expense was as follows:

	Years Ended December 31,
Dollars in Millions	2012		2011		2010
Stock options	$	7	$	27	$	50
Restricted stock		64		79		83
Market share units		23		23		13
Long-term performance awards		60		32		47
Amylin stock options and restricted stock units (see Note 4)		94		-		-
Total stock-based compensation expense	$	248	$	161	$	193
Income tax benefit	$	82	$	56	$	63

Share-based compensation activities were as follows:

										Long-Term
	Stock Options			Restricted Stock Units			Market Share Units			Performance Awards
		Weighted-		Number	Weighted-		Number	Weighted-		Number	Weighted-
	Number of	Average		of	Average		of	Average		of	Average
	Options	Exercise Price		Nonvested	Grant-Date		Nonvested	Grant-Date		Nonvested	Grant-Date
Shares in Thousands	Outstanding	of Shares		Awards	Fair Value		Awards	Fair Value		Awards	Fair Value
Balance at January 1, 2012	70,224	$	27.04	8,416	$	23.10	1,982	$	25.39	3,411	$	23.53
Granted	-		-	3,036		32.71	1,076		31.85	1,717		32.33
Released/Exercised	(16,560)		24.18	(3,341)		22.13	(562)		25.29	(1,087)		19.63
Adjustments for actual payout	-		-	-		-	(166)		25.29	225		32.55
Forfeited/Cancelled	(11,699)		44.85	(543)		25.96	(126)		27.38	(170)		28.90
Balance at December 31, 2012	41,965		23.21	7,568		27.18	2,204		28.46	4,096		28.44
Vested or expected to vest	41,875		23.22	6,826		27.18	1,988		28.46	3,694		28.44

Total compensation costs related to share-based payment awards not yet recognized and the weighted-average period over which such awards are expected to be recognized at December 31, 2012 were as follows:

							Long-Term
	Stock		Restricted		Market		Performance
Dollars in Millions	Options		Stock Units		Share Units		Awards
Unrecognized compensation cost	$	2	$	146	$	31	$	32
Expected weighted-average period in years of compensation cost to be recognized		0.2		2.6		2.7		1.4

Additional information related to share-based compensation awards is summarized as follows:

Amounts in Millions, except per share data		2012		2011		2010
Weighted-average grant date fair value (per share):
	Restricted stock units		32.71		26.04		24.80
	Market share units		31.85		25.83		24.69
	Long-term performance awards		32.33		25.30		23.65
Fair value of options or awards that vested during the year:
	Stock options	$	23	$	45	$	73
	Restricted stock units		74		75		79
	Market share units		18		8		-
	Long-term performance awards		56		21		56
Total intrinsic value of stock options exercised during the year		$	153	$	154	$	47

The following table summarizes significant ranges of outstanding and exercisable options at December 31, 2012 (amounts in millions, except per share data):

	Options Outstanding						Options Exercisable
		Weighted-	Weighted-					Weighted-	Weighted-
		Average	Average					Average	Average
	Number	Remaining	Exercise		Aggregate			Remaining	Exercise		Aggregate
	Outstanding	Contractual Life	Price		Intrinsic		Number	Contractual Life	Price		Intrinsic
Range of Exercise Prices	(in thousands)	(in years)	Per Share		Value		Exercisable	(in years)	Per Share		Value
$1 - $20	10,344	6.16	$	17.51	$	156	7,184	6.16	$	17.49	$	109
$20 - $30	31,606	3.00		25.06		238	31,585	3.00		25.07		238
$30 - $40	15	4.49		31.62		-	15	4.49		31.62		-
	41,965	3.78		23.21	$	394	38,784	3.58		23.67	$	347

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the closing stock price of $32.59 on December 31, 2012.

Fair Value Assumptions

The fair value of restricted stock units and long-term performance awardsis determined based on the closing trading price of the Company's common stock on the grant date.Beginning in 2010, the fair value of performance share units granted was not discounted because they participate in dividends. The fair value of performance share units granted prior to 2010 was discounted using the risk-free interest rate on the date of grant because they do not participate in dividends.

The fair value of the market share units was estimated on the date of grant using a model applying multiple input variables that determine the probability of satisfying market conditions. The model uses the following input variables:

	2012	2011	2010
Expected volatility	24.1%	24.3%	24.8%
Risk-free interest rate	0.6%	1.8%	1.9%
Dividend yield	4.4%	4.9%	5.8%

Expected volatility is based on the four year historical volatility levels on the Company's common stock and the current implied volatility. The four-year risk-free interest rate was derived from the Federal Reserve, based on the market share units' contractual term. Expected dividend yield is based on historical dividend payments.