CAPITAL STOCK

EARNINGS PER SHARE — The following table reconciles net earnings attributable to common shareowners and the weighted average shares outstanding used to calculate basic and diluted earnings per share for the fiscal years ended December 31, 2016, January 2, 2016, and January 3, 2015.

Earnings per Share Computation:



	2016		2015			2014
Numerator (in millions):
Net earnings from continuing operations attributable to common shareowners	$	965.3	$	903.8		$	857.2
Net loss from discontinued operations	—		(20.1		)	(96.3		)
Net earnings attributable to common shareowners	$	965.3	$	883.7		$	760.9



	2016	2015	2014
Denominator (in thousands):
Basic earnings per share –– weighted-average shares	146,041	148,234	156,090
Dilutive effect of stock options and awards	2,166	4,472	3,647
Diluted earnings per share –– weighted-average shares	148,207	152,706	159,737



	2016		2015			2014
Earnings (loss) per share of common stock:
Basic earnings (loss) per share of common stock:
Continuing operations	$	6.61	$	6.10		$	5.49
Discontinued operations	—		(0.14		)	(0.62		)
Total basic earnings per share of common stock	$	6.61	$	5.96		$	4.87
Diluted earnings (loss) per share of common stock:
Continuing operations	$	6.51	$	5.92		$	5.37
Discontinued operations	—		(0.13		)	(0.60		)
Total dilutive earnings per share of common stock	$	6.51	$	5.79		$	4.76

The following weighted-average stock options were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive (in thousands):



	2016	2015	2014
Number of stock options	734	646	634

As described in detail below, under "Other Equity Arrangements," the Company issued Equity Units in December 2013 comprised of $345.0 million of Notes and Equity Purchase Contracts, which obligated the holders to purchase on November 17, 2016, for $100, between 1.0122 and 1.2399 shares of the Company’s common stock. The shares related to the Equity Purchase Contracts were anti-dilutive during 2014 and certain months in 2015 and 2016. Upon the November 17, 2016 settlement date, the Company issued 3,504,165 shares of common stock and received cash proceeds of $345.0 million.

COMMON STOCK ACTIVITY — Common stock activity for 2016, 2015 and 2014 was as follows:



	2016		2015		2014
Outstanding, beginning of year	153,944,291		157,125,450		155,479,230
Issued from treasury	4,870,761		6,046,405		1,986,796
Returned to treasury	(6,255,285	)	(9,227,564	)	(340,576	)
Outstanding, end of year	152,559,767		153,944,291		157,125,450
Shares subject to the forward share purchase contract	(3,645,510	)	(5,249,332	)	(1,603,822	)
Outstanding, less shares subject to the forward share purchase contract	148,914,257		148,694,959		155,521,628

In 2016, the Company repurchased 3,940,087 shares of common stock for approximately $374.1 million. Additionally, the Company net-share settled capped call options on its common stock and received 711,376 shares during 2016.

In November 2016, the Company issued 3,504,165 shares of common stock to settle the purchase contracts of the 2013 Equity Units.

In December 2015, the Company issued 2,869,169 shares of common stock to settle the conversion feature of the Convertible Preferred Stock issued and redeemed through a combination settlement.

See "Other Equity Arrangements" below for further details of the above transactions.

In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350.0 million, plus an additional amount related to the forward component of the contract. In November 2016, the Company amended the settlement date to April 2019, or earlier at the Company's option. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract in March 2015 and factored into the calculation of weighted average shares outstanding at that time.

In October 2014, the Company entered into a forward share purchase contract on its common stock. The contract obligated the Company to pay $150.0 million, plus an additional amount related to the forward component of the contract, to the financial institution counterparty not later than October 2016, or earlier at the Company’s option, for the 1,603,822 shares purchased. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract in October 2014 and factored into the calculation of weighted average shares outstanding at that time. In October 2016, the Company physically settled the contract, receiving 1,603,822 shares for a settlement amount of $147.4 million. These shares are reflected as "Returned to treasury" in the table above.

COMMON STOCK RESERVED — Common stock shares reserved for issuance under various employee and director stock plans at December 31, 2016 and January 2, 2016 are as follows:



	2016	2015
Employee stock purchase plan	1,936,093	2,104,326
Other stock-based compensation plans	4,998,983	7,994,342
Total shares reserved	6,935,076	10,098,668

PREFERRED STOCK PURCHASE RIGHTS — Prior to March 10, 2016, each outstanding share of common stock had a 1 share purchase right. Each purchase right could be exercised to purchase one two-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $220.00, subject to adjustment. The rights, which did not have voting rights, expired on March 10, 2016. There were no outstanding rights or shares of Series A Junior Participating Preferred Stock as of December 31, 2016.

STOCK-BASED COMPENSATION PLANS — The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock units and other stock-based awards.

The plans are generally administered by the Compensation and Organization Committee of the Board of Directors, consisting of non-employee directors.

Stock Option Valuation Assumptions:

Stock options are granted at the fair market value of the Company’s stock on the date of grant and have a 10-year term. Generally, stock option grants vest ratably over 4 years from the date of grant.

The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the strike price of the stock option; expected volatility is based on an average of the market implied volatility and historical volatility for the 5.25 year expected life; the risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option; and a seven percent forfeiture rate is assumed. The Company uses historical data in order to estimate forfeitures and holding period behavior for valuation purposes.

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used to value grants made in 2016, 2015 and 2014.



	2016			2015			2014
Average expected volatility	24.1		%	25.0		%	27.0		%
Dividend yield	2.0		%	2.0		%	2.2		%
Risk-free interest rate	2.0		%	1.9		%	1.8		%
Expected term	5.3 years			5.3 years			5.3 years
Fair value per option	$	23.41		$	21.94		$	19.98
Weighted average vesting period	2.4 years			2.8 years			2.8 years

Stock Options:

The number of stock options and weighted-average exercise prices as of December 31, 2016 are as follows:



	Options		Price
Outstanding, beginning of year	6,042,839		$	77.36
Granted	1,250,198		118.97
Exercised	(718,275	)	65.98
Forfeited	(141,176	)	95.15
Outstanding, end of year	6,433,586		$	86.33
Exercisable, end of year	3,897,279		$	71.21

At December 31, 2016, the range of exercise prices on outstanding stock options was $30.03 to $121.63. Stock option expense was $22.8 million, $16.7 million and $16.5 million for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively. At December 31, 2016, the Company had $36.2 million of unrecognized pre-tax compensation expense for stock options. This expense will be recognized over the remaining vesting periods which are 2.4 years on a weighted average basis.

During 2016, the Company received $47.4 million in cash from the exercise of stock options. The related tax benefit from the exercise of these options was $13.0 million. During 2016, 2015 and 2014, the total intrinsic value of options exercised was $35.9 million, $102.7 million and $33.7 million, respectively. When options are exercised, the related shares are issued from treasury stock.

ASC 718, “Compensation — Stock Compensation,” requires the benefit arising from tax deductions in excess of recognized compensation cost to be classified as a financing cash flow. To quantify the recognized compensation cost on which the excess tax benefit is computed, both actual compensation expense recorded and pro-forma compensation cost reported in disclosures are considered. An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option times the applicable tax rate represents the excess tax benefit. In 2016, 2015 and 2014, the Company reported $9.1 million, $21.2 million and $7.3 million, respectively, of excess tax benefits as a financing cash flow within the proceeds from issuance of common stock caption.

Outstanding and exercisable stock option information at December 31, 2016 follows:



	Outstanding Stock Options				Exercisable Stock Options
Exercise Price Ranges	Options	Weighted- average Remaining Contractual Life	Weighted- average Exercise Price		Options	Weighted- average Remaining Contractual Life	Weighted- average Exercise Price
$35.00 and below	56,460	1.96	$	33.00	56,460	1.96	$	33.00
$35.01 — 50.00	93,799	2.75	48.65		93,799	2.75	48.65
$50.01 — higher	6,283,327	6.90	87.37		3,747,020	5.41	72.35
	6,433,586	6.79	$	86.33	3,897,279	5.30	$	71.21

Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement eligible employees (those aged 55 and over and with 10 or more years of service) is recognized by the date they become retirement eligible, as such employees may retain their options for the 10 year contractual term in the event they retire prior to the end of the vesting period stipulated in the grant.

As of December 31, 2016, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $187.8 million and $169.5 million, respectively.

Employee Stock Purchase Plan:

The Employee Stock Purchase Plan (“ESPP”) enables eligible employees in the United States and Canada to subscribe at any time to purchase shares of common stock on a monthly basis at the lower of 85.0% of the fair market value of the shares on the grant date ($86.87 per share for fiscal year 2016 purchases) or 85.0% of the fair market value of the shares on the last business day of each month. A maximum of 6,000,000 shares are authorized for subscription. During 2016, 2015 and 2014, 168,233 shares, 182,039 shares and 128,144 shares, respectively, were issued under the plan at average prices of $84.46, $71.80, and $71.69 per share, respectively, and the intrinsic value of the ESPP purchases was $4.8 million, $5.4 million and $1.9 million, respectively. For 2016, the Company received $14.2 million in cash from ESPP purchases, and there was no related tax benefit. The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. ESPP compensation cost is recognized ratably over the one-year term based on actual employee stock purchases under the plan. The fair value of the employees’ purchase rights under the ESPP was estimated using the following assumptions for 2016, 2015 and 2014, respectively: dividend yield of 2.1%, 2.2% and 2.5%; expected volatility of 20.0%, 19.0% and 25.0%; risk-free interest rates of 0.5%, 0.1%, and 0.1%; and expected lives of one year. The weighted average fair value of those purchase rights granted in 2016, 2015 and 2014 was $29.68, $31.41 and $17.10, respectively. Total compensation expense recognized for ESPP amounted to $4.7 million for 2016, $5.4 million for 2015, and $2.1 million for 2014.

Restricted Share Units and Awards:

Compensation cost for restricted share units and awards, including restricted shares granted to French employees in lieu of RSUs, (collectively “RSUs”) granted to employees is recognized ratably over the vesting term, which varies but is generally 4 years. RSU grants totaled 445,155 shares, 349,768 shares and 559,955 shares in 2016, 2015 and 2014, respectively. The weighted-average grant date fair value of RSUs granted in 2016, 2015 and 2014 was $118.20, $107.43 and $93.67 per share, respectively.

Total compensation expense recognized for RSUs amounted to $32.6 million, $30.9 million and $26.0 million in 2016, 2015 and 2014, respectively. The actual tax benefit received in the period the shares were delivered was $11.4 million. The excess tax benefit recognized was $2.4 million, $7.0 million, and $3.5 million in 2016, 2015 and 2014, respectively. As of December 31, 2016, unrecognized compensation expense for RSUs amounted to $79.8 million and this cost will be recognized over a weighted-average period of 2.2 years.

A summary of non-vested restricted stock unit and award activity as of December 31, 2016, and changes during the twelve month period then ended is as follows:



	Restricted Share Units & Awards		Weighted Average Grant Date Fair Value
Non-vested at January 2, 2016	1,086,669		$	88.19
Granted	445,155		118.20
Vested	(315,766	)	117.19
Forfeited	(84,034	)	103.95
Non-vested at December 31, 2016	1,132,024		$	100.53

The total fair value of shares vested (market value on the date vested) during 2016, 2015 and 2014 was $37.0 million, $72.2 million and $64.5 million, respectively.

Non-employee members of the Board of Directors received restricted share-based grants which must be cash settled and accordingly mark-to-market accounting is applied. Additionally, the Board of Directors were granted restricted share units for which compensation expense of $1.1 million was recognized for 2016, 2015 and 2014.

Long-Term Performance Awards:

The Company has granted Long Term Performance Awards (“LTIPs”) under its 2009 and 2013 Long Term Incentive Plans to senior management employees for achieving Company performance measures. Awards are payable in shares of common stock, which may be restricted if the employee has not achieved certain stock ownership levels, and generally no award is made if the employee terminates employment prior to the payout date. LTIP grants were made in 2014, 2015 and 2016. Each grant has separate annual performance goals for each year within the respective three year performance period. Earnings per share and cash flow return on investment represent 75% of the share payout of each grant. There is a third market-based element, representing 25% of the total grant, which measures the Company’s common stock return relative to peers over the performance period. The ultimate delivery of shares will occur in 2017, 2018 and 2019 for the 2014, 2015 and 2016 grants, respectively. Total payouts are based on actual performance in relation to these goals.

Expense recognized for these performance awards amounted to $20.0 million in 2016, $13.8 million in 2015, and $11.4 million in 2014. With the exception of the market-based award, in the event performance goals are not met, compensation cost is not recognized and any previously recognized compensation cost is reversed.

A summary of the activity pertaining to the maximum number of shares that may be issued is as follows:



	Share Units		Weighted Average Grant Date Fair Value
Non-vested at January 2, 2016	842,541		$	78.83
Granted	261,081		86.56
Vested	(162,136	)	71.42
Forfeited	(140,412	)	72.11
Non-vested at December 31, 2016	801,074		$	84.03

OTHER EQUITY ARRANGEMENTS

In November 2013, the Company purchased from certain financial institutions “out-of-the-money” capped call options on 12.2 million shares of its common stock (subject to customary anti-dilution adjustments) for an aggregate premium of $73.5 million, or an average of $6.03 per share. The purpose of the capped call options is to hedge the risk of stock price appreciation between the lower and upper strike prices of the capped call options for a future share repurchase. The premium paid was recorded as a reduction of Shareowners’ equity. The contracts for the options provide that they may, at the Company’s election, subject to certain conditions, be cash settled, physically settled, modified-physically settled, or net-share settled (the default settlement method). The capped call options had various expiration dates and initially had an average lower strike price of $86.07 and an average upper strike price of $106.56, subject to customary market adjustments. In February 2015, the Company net-share settled 9.1 million of the 12.2 million capped call options on its common stock and received 911,077 shares using an average reference price of $96.46 per common share. Additionally, the Company purchased directly from the counterparties participating in the net-share settlement, 3,381,162 shares for $326.1 million, equating to an average price of $96.46 per share. In February 2016, the Company net-share settled the remaining 3.1 million capped call options on its common stock and received 293,142 shares using an average reference price of $94.34 per common share. Additionally, the Company purchased 1,316,858 shares directly from the counterparty participating in the net-share settlement for $124.2 million. The Company also repurchased 2,446,287 shares of common stock in February 2016 for $230.9 million, equating to an average price of $94.34.

Equity Units and Capped Call Transactions

As described more fully in Note H, Long-Term Debt and Financing Arrangements, in December 2013, the Company issued Equity Units comprised of $345.0 million of Notes and Equity Purchase Contracts. The Equity Purchase Contracts obligated the holders to purchase on November 17, 2016, for $100, between 1.0122 and 1.2399 shares of the Company’s common stock, which are equivalent to an initial settlement price of $98.80 and $80.65, respectively, per share of common stock.

In accordance with the Equity Purchase Contracts, on November 17, 2016, the Company issued 3,504,165 shares of common shares and received additional cash proceeds of $345.0 million. The conversion rate used in calculating the average of the daily volume-weighted average price of common stock during the market value averaging period, was 1.0157 (equivalent to the minimum settlement rate and a conversion price of $98.45 per common share) on November 17, 2016.

Contemporaneously with the issuance of the Equity Units described above, the Company paid $9.7 million, or an average of $2.77 per option, to enter into capped call transactions on 3.5 million shares of common stock with a major financial institution. The purpose of the capped call transactions is to offset the potential economic dilution associated with the common shares issuable upon the settlement of the Equity Purchase Contracts. Refer to Note H, Long-Term Debt and Financing Arrangements, for further discussion. The $9.7 million premium paid was recorded as a reduction to equity.

The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares equal to the number of shares issuable upon settlement of the Equity Purchase Contracts at the 1.0122 minimum settlement rate. The capped call transactions had a term of approximately three years and initially had a lower strike price of $98.80, which corresponded to a minimum settlement rate of the Equity Purchase Contracts, and an upper strike price of $112.91, which was approximately 40% higher than the closing price of the Company’s common stock on November 25, 2013, subject to customary anti-dilution adjustments. In October and November 2016, the Company’s capped call options on its common stock expired and were net-share settled resulting in the Company receiving 418,234 shares using an average reference price of $117.84 per common share.

Convertible Preferred Units and Equity Option

As described more fully in Note H, Long-Term Debt and Financing Arrangements, in November 2010, the Company issued Convertible Preferred Units comprised of $632.5 million of Notes due November 17, 2018 and Purchase Contracts. The Purchase Contracts obligated the holders to purchase, on November 17, 2015, 6.3 million shares, for $100 per share, of the Company’s 4.75% Series B Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”).

In accordance with the Purchase Contracts, on November 17, 2015, the Company issued 6.3 million shares of Convertible Preferred Stock resulting in cash proceeds to the Company of $632.5 million. On November 18, 2015, the Company informed holders that it would redeem all outstanding shares of Convertible Preferred Stock on December 24, 2015 (the “Redemption Date”) at $100.49 per share in cash (the “Redemption Price”), which is equal to the liquidation preference of $100 per share of Convertible Preferred Stock, plus accrued and unpaid dividends thereon to, but excluding, the Redemption Date.

The Company settled all conversions on December 24, 2015 by paying cash for the $100 par value, or $632.5 million in total, and issuing 2.9 million common shares for the excess value of the conversion feature above the $100 face value per share of Convertible Preferred Stock. The conversion rates used in calculating the Daily Conversion during the observation period, were 1.3763 (equivalent to a conversion price set at $72.66 per common share) prior to December 2, 2015 and 1.3789 (equivalent to a conversion price set at $72.52 per common share) on and after December 2, 2015.

In November 2010, contemporaneously with the issuance of the Convertible Preferred Units described above, the Company paid $50.3 million, or an average of $5.97 per option, to enter into capped call transactions (equity options) on 8.4 million shares of common stock with certain major financial institutions. The purpose of the capped call transactions was to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock. Refer to Note H, Long-Term Debt and Financing Arrangements, for further discussion. The $50.3 million premium paid was recorded as a reduction to equity.

The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the Purchase Contracts. Each of the capped call transactions had a term of approximately five years and initially had a lower strike price of $75.00, which corresponded to the initial conversion price of the Convertible Preferred Stock, and an upper strike price of $97.95, which was approximately 60% higher than the closing price of the common stock on November 1, 2010. On August 5, 2015, the Company net-share settled the capped call options on its common stock and received 1,692,778 shares using an average reference price of $103.97 per common share.