Share-Based Compensation

9 Months Ended

Jun. 30, 2011

Share-Based Compensation

Share-Based Compensation

11.     SHARE-BASED COMPENSATION

We have various share-based compensation programs, which include stock options, deferred stock units, and restricted shares. During the nine months ended 30 June 2011, we granted 932,026 stock options at a weighted-average exercise price of $86.39 and an estimated fair value of $23.83 per option. The fair value of these options was estimated using a Black Scholes option valuation model that used the following assumptions: expected volatility of 29.2%-30.0%; expected dividend yield of 2.2%; expected life in years of 7.0-8.7; and a risk-free interest rate of 2.4%-2.9%. Fair values of stock options granted prior to 1 October 2010 were estimated using a lattice-based option valuation model. Beginning in fiscal 2011, we used the Black Scholes model to value stock option awards. The Black Scholes model is a widely used valuation technique that incorporates all the measurement objectives required by the share based compensation accounting guidance. Additionally, the Black Scholes model incorporates assumptions that reflect all substantive characteristics of our program. We believe the Black Scholes model improves comparability and efficiency. The impact of the change in valuation models was not significant to the consolidated financial statements. In addition, we granted 239,580 deferred stock units at a weighted-average grant-date fair value of $86.46 and 31,825 restricted shares at a weighted-average grant-date fair value of $86.39. Refer to Note 19, Share-Based Compensation, in our 2010 Form 10-K for information on the valuation and accounting for these programs.

Share-based compensation cost charged against income in the three and nine months ended 30 June 2011 was $11.2 ($7.0 after-tax) and $33.1 ($20.4 after-tax), respectively. Of the share-based compensation cost recognized for the nine months ended 30 June, $28.8 was a component of selling and administrative expense, $2.8 a component of cost of sales, and $1.5 a component of research and development. Share-based compensation cost charged against income in the three and nine months ended 30 June 2010 was $13.9 ($8.9 after-tax) and $36.6 ($23.0 after-tax), respectively. The amount of share-based compensation cost capitalized in 2011 and 2010 was not material.