Stock Options and Other Share-Based Compensation

12 Months Ended

Jul. 01, 2011

Stock Options and Other Share-Based Compensation [Abstract]

STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION

NOTE 14:  STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION

As of July 1, 2011, we had two shareholder-approved employee stock incentive plans (“SIPs”) under which options or other share-based compensation was outstanding, and we had the following types of share-based awards outstanding under our SIPs: stock options, performance share awards, performance share unit awards, restricted stock awards and restricted stock unit awards. We believe that such awards more closely align the interests of employees with those of shareholders. Certain share-based awards provide for accelerated vesting if there is a change in control (as defined under our SIPs).

Summary of Share-Based Compensation Expense

The following table summarizes the amounts and classification of share-based compensation expense:

	2011			2010			2009
	(In millions)
Total expense	$	46.1		$	35.3		$	39.3
Included in:
Cost of product sales and services	$	4.2		$	3.9		$	3.5
Engineering, selling and administrative expenses		41.9			31.4			35.8
Income from continuing operations		46.1			35.3			39.3
Tax effect on share-based compensation expense		(15.4	)		(11.7	)		(14.0	)
Total share-based compensation expense after-tax	$	30.7		$	23.6		$	25.3

Compensation cost related to share-based compensation arrangements that was capitalized as part of inventory or fixed assets in fiscal 2011, 2010 and 2009 was not material.

Shares of common stock remaining available for future issuance under our SIPs totaled 15,978,745 as of July 1, 2011. In fiscal 2011, we issued an aggregate of 984,187 shares of common stock under the terms of our SIPs, which is net of shares withheld for tax purposes.

Stock Options

The following information relates to stock options that have been granted under shareholder-approved SIPs. Option exercise prices are equal to or greater than the fair market value of our common stock on the date the options are granted, using the closing stock price of our common stock. Options may be exercised for a period set at the time of grant, which generally ranges from seven to ten years after the date of grant, and they generally become exercisable in installments, which are typically 33.3 percent one year from the grant date, 33.3 percent two years from the grant date and 33.3 percent three years from the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model which uses assumptions noted in the following table. Expected volatility is based on implied volatility from traded options on our common stock and the historical volatility of our stock price over the expected term of the options. The expected term of the options is based on historical observations of our common stock over the past ten years, considering average years to exercise for all options exercised, average years to cancellation for all options cancelled and average years remaining for outstanding options, which is calculated based on the weighted-average vesting period plus the weighted-average of the difference between the vesting period and average years to exercise and cancellation. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of the significant assumptions used in calculating the fair value of stock option grants under our SIPs is as follows:

	2011			2010			2009
Expected dividends		2.0	%		2.1	%		1.4	%
Expected volatility		35.6	%		38.2	%		33.4	%
Risk-free interest rates		1.5	%		2.4	%		2.6	%
Expected term (years)		4.94			4.71			4.45

A summary of stock option activity under our SIPs as of July 1, 2011 and changes during fiscal 2011 is as follows:

				Weighted		Weighted
				Average		Average
				Exercise		Remaining
				Price		Contractual		Aggregate
	Shares			Per Share		Term		Intrinsic Value
						(In years)		(In millions)
Stock options outstanding at July 2, 2010		7,027,509		$	37.55
Stock options forfeited or expired		(417,268	)	$	41.14
Stock options granted		1,423,400		$	43.32
Stock options exercised		(809,552	)	$	26.76
Stock options outstanding at July 1, 2011		7,224,089		$	39.69		5.08	$	55.59
Stock options exercisable at July 1, 2011		4,406,774		$	39.26		3.06	$	39.84

The weighted-average grant-date fair value was $11.75 per share, $10.38 per share and $11.38 per share for options granted during fiscal 2011, 2010 and 2009, respectively. The total intrinsic value of options exercised during fiscal 2011, 2010 and 2009 was $16.7 million, $16.4 million and $4.0 million, respectively, at the time of exercise.

A summary of the status of our nonvested stock options at July 1, 2011 and changes during fiscal 2011 is as follows:

				Weighted-
				Average
				Grant-Date
				Fair Value
	Shares			Per Share
Nonvested stock options at July 2, 2010		2,839,757		$	11.76
Stock options granted		1,423,400		$	11.75
Stock options vested		(1,445,842	)	$	12.33
Nonvested stock options at July 1, 2011		2,817,315		$	11.46

As of July 1, 2011, there was $32.3 million of total unrecognized compensation cost related to nonvested stock options granted under our SIPs. This cost is expected to be recognized over a weighted-average period of 1.58 years. The total fair value of stock options that vested during fiscal 2011, 2010 and 2009 was approximately $17.8 million, $16.8 million and $12.3 million, respectively.

Restricted Stock Awards

The following information relates to awards of restricted stock and restricted stock units that have been granted to employees under our SIPs. The restricted stock and restricted stock units are not transferable until vested and the restrictions lapse upon the achievement of continued employment over a specified time period.

The fair value of each restricted stock grant is based on the closing price of our common stock on the date of grant and is amortized to compensation expense over the vesting period. At July 1, 2011, there were 712,447 shares of restricted stock outstanding.

The fair value of each restricted stock unit, which can be distributed in cash or shares, is equal to the most probable estimate of intrinsic value at the time of distribution and is amortized to compensation expense over the vesting period. At July 1, 2011, we had 101,400 restricted stock units outstanding, all of which were payable in shares.

A summary of the status of our restricted stock and restricted stock units at July 1, 2011 and changes during fiscal 2011 is as follows:

				Weighted-
				Average
				Grant
				Price
	Shares			Per Share
Restricted stock and restricted stock units outstanding at July 2, 2010		590,248		$	42.61
Restricted stock and restricted stock units granted		470,550		$	44.73
Restricted stock and restricted stock units vested		(129,476	)	$	51.46
Restricted stock and restricted stock units forfeited		(117,475	)	$	43.97
Restricted stock and restricted stock units outstanding at July 1, 2011		813,847		$	42.23

As of July 1, 2011, there was $19.1 million of total unrecognized compensation cost related to restricted stock and restricted stock unit awards under our SIPs. This cost is expected to be recognized over a weighted-average period of 1.64 years. The weighted-average grant date price per share of restricted stock and per unit of restricted stock units granted during fiscal 2011, 2010 and 2009 was $44.73, $36.45 and $50.57, respectively. The total fair value of restricted stock and restricted stock units that vested during fiscal 2011, 2010 and 2009 was approximately $6.7 million, $8.3 million and $5.1 million, respectively.

Performance Share Awards

The following information relates to awards of performance shares and performance share units that have been granted to employees under our SIPs. Generally, performance share and performance share unit awards are subject to performance criteria such as meeting predetermined operating income and return on invested capital targets (and total shareholder returns, for such awards granted beginning fiscal 2011) for a three-year performance period. These awards also generally vest at the expiration of the same three-year period. The final determination of the number of shares to be issued in respect of an award is determined by our Board of Directors or a committee of our Board of Directors.

The fair value of each performance share is based on the closing price of our common stock on the date of grant and is amortized to compensation expense over the vesting period, if achievement of the performance measures is considered probable. At July 1, 2011, there were 847,627 performance shares outstanding.

The fair value of each performance share unit, which can be distributed in cash or shares, is equal to the most probable estimate of intrinsic value at the time of distribution and is amortized to compensation expense over the vesting period, if achievement of the performance measures is considered probable. At July 1, 2011, there were 50,670 performance share units outstanding, all of which were payable in shares.

A summary of the status of our performance shares and performance share units at July 1, 2011 and changes during fiscal 2011 is as follows:

				Weighted-
				Average
				Grant
				Price
	Shares			Per Share
Performance shares and performance share units outstanding at July 2, 2010		979,954		$	44.49
Performance shares and performance share units granted		210,348		$	44.12
Performance shares and performance share units vested		(237,701	)	$	58.74
Performance shares and performance share units forfeited		(54,304	)	$	40.21
Performance shares and performance share units outstanding at July 1, 2011		898,297		$	40.90

As of July 1, 2011, there was $11.9 million of total unrecognized compensation cost related to performance share and performance share unit awards under our SIPs. This cost is expected to be recognized over a weighted-average period of 1.04 years. The weighted-average grant date price per share of performance shares and per unit of performance share units granted during fiscal 2011, 2010 and 2009 was $44.12, $36.43 and $48.82, respectively. The total fair value of performance shares and performance share units that vested during fiscal 2011, 2010 and 2009 was approximately $14.0 million, $13.0 million and $10.7 million, respectively.