17.

Stock-Based Associate Compensation Plans

We currently have four equity compensation plans that permit us to grant various types of equity awards. We currently grant incentive stock options, non-qualified stock options, service-based restricted stock units and performance-based restricted stock units, including some with market-based performance objectives, under our shareholder-approved plans. We also have a Holiday Stock Plan that permits annual awards of one share of common stock to each full-time associate for each full calendar year of service up to a maximum of 10 shares. One of our equity compensation plans permits us to grant stock to our outside directors as a component of their annual compensation.

Stock-based compensation cost after tax was $9 million, $8 million and $7 million for the years ended December 31, 2011, 2010 and 2009, respectively. The related income tax benefit recognized was $4 million, $3 million and $3 million for the years ended December 31, 2011, 2010 and 2009, respectively. Options exercised during the years ended December 31, 2011, 2010 and 2009 had intrinsic value less than $1 million. (Intrinsic value is the market price less the exercise price.) Options vested during the year ended December 31, 2011 and 2010, had total intrinsic value of $2 million and $1 million, respectively. Options vested during the year ended 2009 had intrinsic value less than $1 million.

As of December 31, 2011, we had $15 million of unrecognized total compensation cost related to non-vested stock options and restricted stock unit awards. That cost will be recognized over a weighted-average period of 1.9 years.

Stock options are granted to associates at an exercise price that is equal to the fair value as reported on the Nasdaq Global Select Market for the grant date and are exercisable over 10-year periods. The stock options generally vest ratably over a three-year period. In determining the share-based compensation amounts, we estimate the fair value of each option granted on the date of grant using a binomial option-pricing model. We make assumptions in four areas to develop the binomial option-pricing model:

Weighted-average expected term is based on historical experience of similar awards with consideration for current exercise trends.

Expected volatility is based on our stock price over a historical period that approximates the expected term.

Dividend yield is determined by dividing the annualized per share dividend by the stock price on the date of grant.

Risk-free rates are the implied yield currently available on U.S. Treasury issues with a remaining term approximating the expected term.

During 2011 and 2010, we granted stock-based awards to associates and issued our common stock to eligible associates under our Holiday Stock Plan. No stock-based awards were granted to associates during 2009 except for under our Holiday Stock Plan. The following weighted average assumptions were used for option grants issued during 2011 and 2010 in determining fair value:

	2011		2010
Weighted-average expected term		9 years		8 years
Expected volatility		26.06-26.12%		27.11-27.16%
Dividend yield		4.70-5.29%		5.41-5.94%
Risk-free rates		2.86-3.41%		3.49-3.52%
Weighted-average fair value of options granted during the period	$	7.29	$	5.13

Here is a summary of options information:

(Dollars in millions, shares in thousands)	Shares			Weighted- average exercise price		Aggregate intrinsic value
Outstanding at January 1, 2011		9,690		$	36.59
Granted		891			33.98
Exercised		(28	)		26.83
Forfeited or expired		(1,196	)		33.94
Outstanding at December 31, 2011		9,357			36.71	$	6

Options exercisable at end of period		7,913		$	37.75	$	4

Cash received from the exercise of options was $1 million for the year ended December 31, 2011, and less than $1 million for the years ended 2010 and 2009.

Options outstanding and exercisable consisted of the following at December 31, 2011:

(Shares in thousands)
	Options outstanding						Options exercisable
Range of exercise prices	Shares		Weighted-average remaining contractual life		Weighted- average exercise price		Shares		Weighted- average exercise price
$25.00 to $29.99		1,615		7.35 yrs	$	26.59		1,045	$	26.58
$30.00 to $34.99		2,847		3.22 yrs		33.76		1,973		33.67
$35.00 to $39.99		1,880		3.46 yrs		38.79		1,880		38.79
$40.00 to $44.99		1,813		3.49 yrs		42.56		1,813		42.56
$45.00 to $49.99		1,202		3.88 yrs		45.26		1,202		45.26
Total		9,357		4.12 yrs		36.71		7,913		37.75

The weighted-average remaining contractual life for exercisable awards as of December 31, 2011 was 3.3 years. A total of 16.9 million shares are authorized to be granted under the shareholder-approved plans. At December 31, 2011, 4.4 million shares were available for future issuance under the plans. During 2009, our shareholders approved the Directors’ Stock Plan of 2009, which authorizes 300,000 shares to be granted to our directors. During 2011 we granted 24,492 shares of common stock to our directors for 2010 board service fees. We currently issue new shares or use treasury shares for stock-based compensation award issues or exercises.

Restricted Stock Units

Service-based restricted stock units are granted to associates at fair value of the shares on the date of grant less the present value of the dividends that holders of restricted stock units will not receive on the shares underlying the restricted stock units during the vesting period. Service-based restricted stock units cliff vest three years after the date of grant. Service-based restricted stock units vested during the year had an intrinsic value of $13 million and $5 million for the years ended December, 31, 2011 and 2010, respectively. There were no performance-based restricted stock units that lapsed during the years ended December 31, 2011 and 2010. Both service-based and performance-based restricted stock units that vested or lapsed had intrinsic value less than $1 million during the year ended December 31, 2009.

We have market-based awards that vest on the first day of March after a three-calendar-year performance period. These awards vest according to the level of total shareholder return achieved compared to a peer group over a three-year period. These awards are valued using a Monte-Carlo valuation on the date of grant, which uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each peer and the correlations of each peer being modeled. Compensation cost is recognized regardless of whether the market-based performance objective has been satisfied. We make assumptions to develop the Monte-Carlo model as follows:

Correlation coefficients are based upon the price data used to calculate the historical volatilities. The correlation coefficients are used to model the way in which each entity tends to move in relation to each other.

Expected volatility is based on our stock price over a historical period that approximates the expected term. We have used the historical volatilities over a range of 2.59-2.87 for 2011 and 2.76-2.86 years for 2010 grants.

Dividend yield has been modeled assuming that the holder of the award is not entitled to receive dividends that are paid during the performance period. Dividend yield range from 4.68%-5.26% for 2011 grants and 5.41%-5.94% for 2010 grants.

Risk-free rates are equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is commensurate with the performance period. Risk free rates used range from 0.65%-1.25% for 2011 grants and 1.43%-1.50% for 2010 grants.

Here is a summary of restricted stock unit information for 2011:

(Shares in thousands)	Service-based shares			Weighted- average grant- date fair value		Performance-based shares			Weighted- average grant- date fair value
Nonvested at January 1, 2011		716		$	26.00		149		$	26.08
Granted		298			29.59		51			30.96
Vested		(433	)		28.46		0			0.00
Forfeited or canceled		(18	)		24.77		(44	)		32.56
Nonvested at December 31, 2011		563			26.05		156			25.86