SHARE-BASED COMPENSATION

As of December 31, 2013, 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. 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. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time- and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of December 31, 2013, approximately 12.4 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)	2013			2012			2011
Impact on earnings from continuing operations		$	37		$	37		$	39
Impact on earnings before income taxes		37			37			39
Impact on net earnings		25			26			27
Impact on net earnings per share:
Basic		$	.05		$	.06		$	.06
Diluted		.05			.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 $14.25 per share for 2013, compared with $16.84 for 2012 and $17.02 in 2011. The following table presents the assumptions used in valuing options granted during the years ended December 31.



	2013			2012			2011
Expected term (years)		6.6			6.5			6.9
Expected volatility		34.0	%		38.0	%		30.0	%
Annual forfeiture rate		1.6			1.6			1.6
Risk-free interest rate		1.8			2.1			3.4
Dividend yield		2.6			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, 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
Granted in 2013		703			52.86
Canceled in 2013		(179	)		44.79
Exercised in 2013		(3,281	)		40.52
Outstanding at December 31, 2013		9,980			$	47.03



(In thousands of shares)	2013		2012		2011
Shares exercisable, end of year		8,042		10,635		11,246

The following table summarizes information about stock options outstanding and exercisable at December 31, 2013.



(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	-	$	40.23		2,053		4.3		$	32.69		2,017		$	32.61
	40.30		-	47.06			2,655		4.0		44.39			2,336		44.42
	47.23		-	49.50			2,189		5.1		48.15			1,368		47.62
	49.57		-	61.81			2,848		5.5		57.56			2,225		57.83
	61.84		-	67.67			235		7.5		64.05			96		65.09
	$	14.99	-	$	67.67		9,980		4.8		$	47.03		8,042		$	45.96

The aggregate intrinsic value represents the difference between the exercise price of the stock options and the quoted closing common stock price of $66.80 as of December 31, 2013, for those awards that have an exercise price currently below the closing price. As of December 31, 2013, the aggregate intrinsic value of stock options outstanding was $197 million, with a weighted-average remaining term of 4.8 years. The aggregate intrinsic value of stock options exercisable at that same date was $168 million, with a weighted-average remaining term of 4.0 years.

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



(In millions)	2013			2012			2011
Total intrinsic value of options exercised		$	66		$	41		$	23
Cash received from options exercised		113			35			18
Tax benefit realized as a result of options exercised and restricted stock releases		30			24			14

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, 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
Granted in 2013		782			52.77
Canceled in 2013		(56	)		48.63
Vested in 2013		(418	)		47.49
Restricted stock at December 31, 2013		1,671			$	52.12

As of December 31, 2013, total compensation cost not yet recognized in our financial statements related to restricted stock awards was $42 million, of which $23 million (887 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 1.5 years. There are no other contractual terms covering restricted stock awards once vested.