SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

As of June 30, 2014, approximately 1.3 million shares were reserved for future issuance under the Company’s stock plans. A maximum of 0.6 million of these shares can be granted as non-vested restricted stock units (“RSUs”).

Stock Option Plans

A summary of stock option activity under all stock plans for the six months ended June 30, 2014, is presented as follows (in millions, except per share amounts):



	Stock Options Outstanding
	Number Outstanding		Weighted Average Exercise Price Per Share
Balance at December 31, 2013	5.6		$	380.71
Options granted	0.4		$	435.91
Options exercised	(0.3	)	$	288.27
Options forfeited/expired	(0.2	)	$	477.51
Balance at June 30, 2014	5.5		$	384.72

As of June 30, 2014, options to purchase an aggregate of 3.5 million shares of common stock were exercisable at a weighted-average price of $341.80 per share.

Restricted Stock Units

Beginning in 2014, equity awards granted to employees include a mix of stock options and RSUs. RSUs vest in one-quarter increments over a four-year period. The number of shares issued on the date the RSUs vest is net of the minimum statutory tax withholdings, which are paid in cash to the appropriate taxing authorities on behalf of the Company's employees.

A summary of RSU activity for the six months ended June 30, 2014, is presented as follows (in millions, except per share amounts):



	Shares	Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2013	—	$	—
Granted	0.2	$	439.61
Vested	—	$	—
Canceled	—	$	—
Unvested balance at June 30, 2014	0.2	$	439.61

The fair value of RSUs is determined based on the closing quoted price of the Company's common stock on the day of the grant.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately 0.1 million shares for $17.5 million and 0.1 million shares for $16.4 million during the six months ended June 30, 2014, and 2013, respectively.

Share-based Compensation

The following table summarizes share-based compensation expense for the three and six months ended June 30, 2014, and 2013 (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Cost of sales - products	$	4.6	$	4.1	$	9.0	$	8.0
Cost of sales - services	3.3		3.0		6.4		5.9
Total cost of sales	7.9		7.1		15.4		13.9
Selling, general and administrative	25.2		23.0		49.3		46.0
Research and development	8.8		8.6		18.0		17.0
Share-based compensation expense before income taxes	41.9		38.7		82.7		76.9
Income tax benefit	13.2		12.4		26.2		24.6
Share-based compensation expense after income taxes	$	28.7	$	26.3	$	56.5	$	52.3

The fair value of each option grant and the fair value of the option component of the ESPP shares were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions, assuming no expected dividends:



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Stock Option Plans
Risk free interest rate	1.7		%	0.8		%	1.5		%	0.9		%
Expected term (in years)	4.4			4.4			4.5			4.6
Expected volatility	32		%	31		%	31		%	29		%
Weighted average fair value at grant date	$	111.74		$	132.88		$	122.55		$	141.68
Employee Stock Purchase Plan
Risk free interest rate	—			—			0.2		%	0.2		%
Expected term (in years)	—			—			1.3			1.3
Expected volatility	—			—			33		%	33		%
Weighted average fair value at grant date	—			—			$	128.87		$	170.51

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References+ Details