11. Stock-Based Compensation

The following table shows stock-based compensation expense as included in the Consolidated Statements of Income:



	Years Ended December 31,
	2012			2011			2010
Cost of equipment sales	$	1,212		$	1,292		$	1,397
Cost of support services	522			557			602
Cost of business services	721			770			831
Selling, general and administrative	15,176			15,689			16,936
Research and development	596			640			686
Stock-based compensation expense	18,227			18,948			20,452
Income tax	(6,061		)	(6,170		)	(7,265		)
Stock-based compensation expense, net of tax	$	12,166		$	12,778		$	13,187

Stock Plans

We have a long-term incentive program whereby eligible employees may be granted restricted stock units, market stock units, non-qualified stock options, other stock-based awards, cash or any combination thereof. The Executive Compensation Committee of the Board of Directors administers these plans. We settle employee stock compensation awards with treasury shares. At December 31, 2012, there were 16,644,439 shares available for future grants under our long-term incentive program.

Restricted Stock Units

Restricted stock units are granted to employees and entitle the holder to shares of common stock as the units vest, typically over a four year service period. The fair value of the units is determined on the grant date based on our stock price at that date less the present value of expected dividends. The following table summarizes information about restricted stock units during 2012 and 2011:



	2012				2011
	Shares		Weighted average grant date fair value		Shares		Weighted average grant date fair value
Restricted stock units outstanding at beginning of year	1,629,055		$	22.33	1,637,242		$	25.55
Granted	999,381		14.72		662,049		22.44
Vested	(598,543	)	22.27		(543,688	)	26.89
Forfeited	(120,733	)	18.75		(126,548	)	23.12
Restricted stock units outstanding at end of year	1,909,160		$	17.68	1,629,055		$	22.33

At December 31, 2012, there was $15 million of unrecognized compensation cost related to restricted stock units that is expected to be recognized over a weighted-average period of 2.2 years. The intrinsic value of restricted stock units outstanding at December 31, 2012 was $20 million. The intrinsic value of restricted stock units vested during 2012, 2011 and 2010 was $11 million, $13 million and $9 million, respectively.

Market Stock Units

In 2012, we issued market stock units to key executives and other eligible employees. Each market stock unit award reflects a base number of shares (Base Shares) that the recipient may receive before adjusting for performance and market conditions. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on the company's attainment of a specified income target and a market condition based on total shareholder return of our common stock (including dividends) over a three-year period, and may range from 50% to 200% of the Base Shares granted. The expense for these awards, net of estimated forfeitures, is recorded over the performance period based on the fair value of the award, determined on the grant date using a Monte Carlo simulation model.

The following table summarizes information about market stock units during 2012:



	Shares		Weighted average grant date fair value
Market stock units outstanding at January 1, 2012	—		$	—
Granted	205,013		17.91
Forfeited	(6,868	)	17.91
Market stock units outstanding at December 31, 2012	198,145		$	17.91

The fair value of market stock units was determined based on the following assumptions:



	Year Ended December 31, 2012
Expected dividend yield	6.7	%
Expected stock price volatility	29.7	%
Risk-free interest rate	0.4	%

At December 31, 2012, there was $1 million of unrecognized compensation cost related to market stock units that is expected to be recognized over a weighted-average period of 1.6 years.

Stock Options

Under our stock option plan, certain officers and employees are granted options at prices equal to the market value of our common shares at the date of grant. Options vest ratably over three or four years and expire ten years from the date of grant.

The following table summarizes information about stock option activity during 2012 and 2011:



	2012				2011
	Shares		Per share weighted average exercise prices		Shares		Per share weighted average exercise prices
Options outstanding at beginning of the year	14,471,464		$	36.42	14,506,522		$	37.38
Granted	600,000		15.71		1,312,910		26.07
Exercised	—		—		(55,484	)	25.15
Canceled	(525,361	)	36.15		(1,266,537	)	37.61
Forfeited	(892,858	)	40.20		(25,947	)	27.27
Options outstanding at the end of the year	13,653,245		$	35.28	14,471,464		$	36.42
Options exercisable at the end of the year	11,762,341		$	37.44	11,478,630		$	39.13

At December 31, 2012, there was $1 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.7 years. The options outstanding and exercisable at December 31, 2012 had no intrinsic value. There were no options exercised in 2012 or 2010 and the intrinsic value of options exercised in 2011 was less than $1 million.

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



	Options Outstanding					Options Exercisable
Range of per share exercise prices	Shares	Per share weighted-average exercise price		Weighted-average remaining contractual life		Shares	Per share weighted-average exercise price		Weighted-average remaining contractual life
$13.39 - $22.99	1,959,735	$	20.14	8.0	years	906,744	$	22.09	7.1	years
$23.00 - $30.99	2,471,949	25.42		7.1	years	1,634,036	25.09		6.6	years
$31.00 - $38.99	2,962,324	34.73		2.8	years	2,962,324	34.73		2.8	years
$39.00 - $48.03	6,259,237	44.17		2.4	years	6,259,237	44.17		2.4	years
	13,653,245	$	35.28	4.2	years	11,762,341	$	37.44	3.5	years

We estimate the fair value of stock options using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the volatility of our stock price, a risk-free interest rate, the expected dividend yield of our stock and expected life of the award. Expected stock price volatility is based on historical price changes of our stock. The risk-free interest rate is based on U.S. treasuries with a term equal to the expected option term. The expected life of the award and expected dividend yield are based on historical experience. The fair value of stock options granted during the year was determined using the following assumptions:



	Years Ended December 31,
	2012		2011		2010
Expected dividend yield	9.3	%	6.1	%	6.1	%
Expected stock price volatility	30.0	%	26.1	%	25.6	%
Risk-free interest rate	1.2	%	3.3	%	3.2	%
Expected life	7.9	years	7.4	years	7.3	years
Weighted-average fair value per option granted	$0.48		$3.45		$2.82

Employee Stock Purchase Plan

We maintain a non-compensatory Employee Stock Purchase Plan that enables substantially all U.S. and Canadian employees to purchase shares of our common stock at an offering price of 95% of the average market price on the offering date. At no time will the exercise price be less than the lowest price permitted under Section 423 of the Internal Revenue Code. Employees purchased 291,859 shares and 258,667 shares in 2012 and 2011, respectively. We have reserved 4,816,935 common shares for future purchase under the ESPP.

Directors' Stock Plan

Each non-employee director is granted shares of restricted stock on an annual basis. In 2012 and 2011, we granted 26,653 shares and 22,000 shares to non-employee directors, respectively.