SHARE-BASED COMPENSATION

As of December 31, 2012, the Company has outstanding share-based awards under two long-term incentive compensation plans.

The first plan, which expired in February 2007, is a stock option plan which allowed grants for incentive stock options (ISOs) to employees and non-qualifying stock options (NQSOs) to employees and non-employee directors. The options have a term of 10 years and generally vest after three years. The exercise price of options granted under this plan is equal to the fair market value of a share of the Company's common stock at the date of grant. Options granted before the plan's expiration date remain outstanding in accordance with their terms.

The second long-term incentive compensation plan allows awards to Company employees for ISOs, NQSOs, restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights. Generally, the awards vest based upon time-based conditions or time- and performance-based conditions. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. Effective March 14, 2012, the board of directors approved to amend and restate the long-term incentive plan. The shareholders approved the amended and restated plan at the annual shareholder meeting in May 2012. The amended and restated plan provides, among other things, an extension of its expiration date from 2014 to 2017, makes clear that option strike prices can be set at the closing price on the date of grant (rather than only at the average high-low sales price), updates the performance factors available for use under awards that are intended to qualify for favorable tax deduction treatment, and adjusts the size of awards that may be granted to incumbent directors. There were no additional shares of common stock authorized for issuance under the amended and restated plan. As of December 31, 2012, approximately 13.7 million shares were available for future grants under this plan, and the only performance-based awards issued and outstanding were restricted stock awards.

Share-based awards granted to U.S.-based grantees are settled with authorized but unissued Company stock, while those issued to Japan-based grantees are settled with treasury shares.

The following table presents the impact of the expense recognized in connection with share-based awards for the periods ended December 31.



(In millions, except for per-share amounts)	2012			2011			2010
Impact on earnings from continuing operations		$	37		$	39		$	39
Impact on earnings before income taxes		37			39			39
Impact on net earnings		26			27			27
Impact on net earnings per share:
Basic		$	.06		$	.06		$	.06
Diluted		.06			.06			.06

We estimate the fair value of each stock option granted using the Black-Scholes-Merton multiple option approach. Expected volatility is based on historical periods generally commensurate with the estimated terms of the options. We use historical data to estimate option exercise and termination patterns within the model. Separate groups of employees that have similar historical exercise patterns are stratified and considered separately for valuation purposes. The expected term of options granted is derived from the output of our option model and represents the weighted-average period of time that options granted are expected to be outstanding. We base the risk-free interest rate on the Treasury note rate with a term comparable to that of the estimated term of the options. The weighted-average fair value of options at their grant date was $16.84 per share for 2012, compared with $17.02 for 2011 and $17.81 in 2010. The following table presents the assumptions used in valuing options granted during the years ended December 31.



	2012			2011			2010
Expected term (years)		6.5			6.9			6.9
Expected volatility		38.0	%		30.0	%		36.0	%
Annual forfeiture rate		1.6			1.6			1.8
Risk-free interest rate		2.1			3.4			3.1
Dividend yield		1.3			1.3			1.3

The following table summarizes stock option activity.



(In thousands of shares)	Stock Option Shares			Weighted-Average Exercise Price Per Share
Outstanding at December 31, 2009		16,417			$	37.89
Granted in 2010		1,342			48.41
Canceled in 2010		(187	)		36.77
Exercised in 2010		(3,066	)		27.55
Outstanding at December 31, 2010		14,506			41.06
Granted in 2011		1,216			52.32
Canceled in 2011		(151	)		41.43
Exercised in 2011		(1,008	)		30.00
Outstanding at December 31, 2011		14,563			42.76
Granted in 2012		784			47.25
Canceled in 2012		(134	)		48.59
Exercised in 2012		(2,476	)		32.27
Outstanding at December 31, 2012		12,737			$	45.00



(In thousands of shares)	2012		2011		2010
Shares exercisable, end of year		10,635		11,246		10,720

The following table summarizes information about stock options outstanding and exercisable at December 31, 2012.



(In thousands of shares)						Options Outstanding							Options Exercisable
	Range of Exercise Prices Per Share					Stock Option Shares Outstanding		Wgtd.-Avg. Remaining Contractual Life (Yrs.)		Wgtd.-Avg. Exercise Price Per Share			Stock Option Shares Exercisable		Wgtd.-Avg. Exercise Price Per Share
	$	14.99	-	$	39.61		2,593		4.1		$	31.29		2,529		$	31.15
	39.73		-	43.07			2,599		3.1		41.11			2,442		41.11
	43.28		-	47.25			3,169		4.7		45.74			2,424		45.45
	47.33		-	57.90			3,169		6.6		52.16			2,033		51.60
	61.81		-	67.67			1,207		5.1		62.08			1,207		62.08
	$	14.99	-	$	67.67		12,737		4.8		$	45.00		10,635		$	44.11

The aggregate intrinsic value represents the difference between the exercise price of the stock options and the quoted closing common stock price of $53.12 as of December 31, 2012, for those awards that have an exercise price currently below the closing price. As of December 31, 2012, the aggregate intrinsic value of stock options outstanding was $119 million, with a weighted-average remaining term of 4.8 years. The aggregate intrinsic value of stock options exercisable at that same date was $109 million, with a weighted-average remaining term of 4.1 years.

The following table summarizes stock option activity during the years ended December 31.



(In millions)	2012			2011			2010
Total intrinsic value of options exercised		$	41		$	23		$	68
Cash received from options exercised		35			18			73
Tax benefit realized as a result of options exercised and restricted stock releases		24			14			30

The value of restricted stock awards is based on the fair market value of our common stock at the date of grant. The following table summarizes restricted stock activity during the years ended December 31.



(In thousands of shares)	Shares			Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2009		1,219			$	39.81
Granted in 2010		468			47.53
Canceled in 2010		(41	)		41.31
Vested in 2010		(372	)		47.80
Restricted stock at December 31, 2010		1,274			40.26
Granted in 2011		405			56.22
Canceled in 2011		(35	)		42.44
Vested in 2011		(294	)		59.02
Restricted stock at December 31, 2011		1,350			40.92
Granted in 2012		637			48.18
Canceled in 2012		(56	)		48.22
Vested in 2012		(568	)		26.13
Restricted stock at December 31, 2012		1,363			$	50.19

As of December 31, 2012, total compensation cost not yet recognized in our financial statements related to restricted stock awards was $32 million, of which $15 million (702 thousand shares) was related to restricted stock awards with a performance-based vesting condition. We expect to recognize these amounts over a weighted-average period of approximately 1.3 years. There are no other contractual terms covering restricted stock awards once vested.