SHARE-BASED COMPENSATION

At December 31, 2012, a variety of share-based compensation grants and awards were outstanding for employees (including officers). All share-based compensation plans are approved by the shareholders.

We have share-based compensation outstanding under two Long-Term Incentive Plans ("LTIP"): the 1998 LTIP and the 2008 LTIP. No further grants may be made under the 1998 LTIP. All outstanding share-based compensation under the 1998 LTIP continues to be governed by the terms and conditions of the existing agreements for those grants. Grants may continue to be made under the 2008 LTIP through April 2018. Under the 2008 LTIP, the number of shares of Common Stock that may be granted as share-based compensation in any year is limited to 2% of our issued and outstanding Common Stock as of December 31 of the prior calendar year. Any unused portion is available for later years. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 2012 the number of unused shares carried forward was 157 million shares.

We primarily issue two types of share-based compensation awards, restricted stock units ("RSUs") and stock options.

NOTE 22. SHARE-BASED COMPENSATION (Continued)

We grant performance-based and time-based RSUs to our employees. RSUs provide the recipients with the right to shares of Common Stock after a restriction period. We measure the fair value using the closing price of our Common Stock on grant date. Expenses associated with RSUs are recorded in Selling, administrative, and other expense.

Time-based RSUs generally have a graded vesting feature whereby one-third of each grant of RSUs vests after the first anniversary of the grant date, one-third after the second anniversary, and one-third after the third anniversary. Expense is recognized using the graded vesting method and is based on the fair value at grant date.

Performance-based RSUs have a performance period (usually one year) followed by a restriction period (usually two years). Compensation expense for performance-based RSUs is recognized when it is probable and estimable as measured against the performance metrics. Expense is recognized over the performance and restriction periods, if any, and is based on the fair value at grant date.

We also grant stock options to our employees. We measure the fair value of our stock options using the Black-Scholes option-pricing model, using historical volatility and our determination of the expected term. The expected term of stock options is the time period that the stock options are expected to be outstanding. Historical data are used to estimate option exercise behaviors and employee termination experience.

Stock options generally have a vesting feature whereby one-third of each grant of stock options are exercisable after the first anniversary of the grant date, one-third after the second anniversary, and one-third after the third anniversary. Stock options expire 10 years from the grant date and are expensed in Selling, administrative, and other expenses using a three-year graded vesting methodology.

We issue new shares of Common Stock upon vesting of RSUs and upon exercise of stock options.

Restricted Stock Units

RSU activity during 2012 was as follows:



	Shares (millions)		Weighted- Average Grant- Date Fair Value		Aggregate Intrinsic Value (millions)
Outstanding, beginning of year	36.1		$	7.31
Granted	8.2		12.43
Vested	(25.4	)	4.28
Forfeited	(0.7	)	14.12
Outstanding, end of year	18.2		13.18		$	235.7
RSU-stock expected to vest	18.0		N/A		232.6

Intrinsic value of RSUs is measured by applying the closing stock price as of December 31 to the applicable number of units. The fair value and intrinsic value of RSUs during 2012, 2011, and 2010 were as follows (in millions, except RSU per unit amounts):



	2012		2011		2010
Fair value
Granted	$	102	$	123	$	130
Weighted average for multiple grant dates (per unit)	12.43		14.47		12.69
Vested	109		141		112
Intrinsic value
Vested	329		478		522

NOTE 22. SHARE-BASED COMPENSATION (Continued)

Compensation cost for RSUs for the years ended December 31 was as follows (in millions):



	2012		2011		2010
Compensation cost (a)	$	62	$	84	$	138

__________


(a)	Net of tax benefit of $36 million, $49 million, and $0 in 2012, 2011, and 2010, respectively.

As of December 31, 2012, there was approximately $48 million in unrecognized compensation cost related to non-vested RSUs. This expense will be recognized over a weighted average period of 1.8 years.

Stock Options

Stock option activity was as follows:



	2012				2011				2010
	Shares (millions)		Weighted- Average Exercise Price		Shares (millions)		Weighted- Average Exercise Price		Shares (millions)		Weighted- Average Exercise Price
Outstanding, beginning of year	144.4		$	10.63	172.5		$	13.07	225.4		$	13.36
Granted	6.4		12.43		4.4		14.76		6.7		12.75
Exercised (a)	(7.6	)	5.70		(8.2	)	9.25		(36.5	)	8.41
Forfeited (including expirations)	(35.2	)	16.59		(24.3	)	29.18		(23.1	)	23.18
Outstanding, end of year	108.0		9.14		144.4		10.63		172.5		13.07
Exercisable, end of year	96.5		8.67		126.8		11.00		143.7		14.63

__________


(a)	Exercised at option price ranging from $1.96 to $12.49 during 2012, option price ranging from $1.96 to $16.91 during 2011, and option price ranging from $1.96 to $16.91 during 2010.

The total grant date fair value of options that vested during the years ended December 31 was as follows (in millions):



	2012		2011		2010
Fair value of vested options	$	37	$	36	$	37

We have 96.5 million fully-vested stock options, with a weighted-average exercise price of $8.67 and average remaining term of 4 years. We expect 11.3 million stock options (after forfeitures), with a weighted-average exercise price of $13.08 and average remaining term of 9 years, to vest in the future.

The intrinsic value for stock options is measured by comparing the awarded option price to the closing stock price at December 31. The intrinsic value for vested and unvested options during the years ended December 31 was as follows (in millions):



	2012		2011		2010
Intrinsic value of vested options	$	426	$	257	$	623
Intrinsic value of unvested options (after forfeitures)	4		74		324

We received approximately $43 million in proceeds from the exercise of stock options in 2012. The tax benefit realized was de minimis. An equivalent of about $87 million in new issues were used to settle exercised options. For options exercised during the years ended December 31, 2012, 2011, and 2010, the difference between the fair value of the Common Stock issued and the respective exercise price was $44 million, $54 million, and $187 million, respectively.

Compensation cost for stock options for the years ended December 31 was as follows (in millions):



	2012		2011		2010
Compensation cost (a)	$	26	$	30	$	34

__________


(a)	Net of tax benefit of $16 million, $17 million, and $0 in 2012, 2011, and 2010, respectively.

NOTE 22. SHARE-BASED COMPENSATION (Continued)

As of December 31, 2012, there was about $10 million in unrecognized compensation cost related to non-vested stock options. This expense will be recognized over a weighted-average period of 1.9 years. A summary of the status of our non-vested shares and changes during 2012 follows:



	Shares (millions)		Weighted- Average Grant- Date Fair Value
Non-vested, beginning of year	17.6		$	4.49
Granted	6.4		5.88
Vested	(12.4	)	3.03
Forfeited	(0.1	)	6.63
Non-vested, end of year	11.5		6.79

The estimated fair value of stock options at the time of grant using the Black-Scholes option-pricing model was as follows:



	2012			2011			2010
Fair value per stock option	$	5.88		$	8.48		$	7.21
Assumptions:
Annualized dividend yield	2		%	—		%	—		%
Expected volatility	53.8		%	53.2		%	53.4		%
Risk-free interest rate	1.6		%	3.2		%	3.0		%
Expected stock option term (in years)	7.2			7.1			6.9

Details on various stock option exercise price ranges are as follows:



	Outstanding Options				Exercisable Options
Range of Exercise Prices	Shares (millions)	Weighted- Average Life (years)	Weighted- Average Exercise Price		Shares (millions)	Weighted- Average Exercise Price
$1.96 – $2.84	19.7	6.2	$	2.11	19.7	$	2.11
$5.11 – $8.58	36.2	3.4	7.34		36.2	7.34
$10.11 – $12.98	30.5	4.7	12.52		21.8	12.52
$13.07 – $16.64	21.6	2.6	13.81		18.8	13.66
Total stock options	108.0				96.5

Other Share-Based Awards

Under the 1998 LTIP and 2008 LTIP, we have granted other share-based awards to certain employees. These awards include restricted stock grants, cash-settled restricted stock units, and stock appreciation rights. These awards have various vesting criteria which may include service requirements, individual performance targets, and company-wide performance targets.

Other share-based compensation cost for the years ended December 31 was as follows (in millions):



	2012		2011			2010
Compensation cost (a)	$	—	$	(6	)	$	6

__________


(a)	Net of tax of $0, $3 million, and $0 in 2012, 2011, and 2010, respectively.