SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2014

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

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

As of September 30, 2014, approximately 1.1 million shares were reserved for future issuance under the Company’s stock plans. A maximum of 0.5 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 nine months ended September 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	0.7		$	445.03
Options exercised	(0.5	)	$	283.59
Options forfeited/expired	(0.4	)	$	477.21
Balance at September 30, 2014	5.4		$	392.24

As of September 30, 2014, options to purchase an aggregate of 3.5 million shares of common stock were exercisable at a weighted-average price of $353.95 per share.

Restricted Stock Units

Beginning in 2014, equity awards granted to employees include a mix of stock options and RSUs. The RSUs vest in 25% increments annually 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 nine months ended September 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	$	438.90
Vested	—	$	—
Canceled	0.0	$	443.14
Unvested balance at September 30, 2014	0.2	$	438.63

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 $29.4 million and 0.1 million shares for $28.8 million during the nine months ended September 30, 2014, and 2013, respectively.

Share-based Compensation

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

	Three Months Ended   September 30,				Nine Months Ended   September 30,
	2014		2013		2014		2013
Cost of sales - products	$	5.1	$	5.2	$	14.1	$	13.2
Cost of sales - services	3.7		3.6		10.1		9.5
Total cost of sales	8.8		8.8		24.2		22.7
Selling, general and administrative	26.3		30.6		75.6		76.6
Research and development	10.1		11.0		28.1		28.0
Share-based compensation expense before income taxes	45.2		50.4		127.9		127.3
Income tax benefit	14.9		16.5		41.1		41.1
Share-based compensation expense after income taxes	$	30.3	$	33.9	$	86.8	$	86.2

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   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Stock Option Plans
Risk free interest rate	1.6		%	1.5		%	1.5		%	1.2		%
Expected term (in years)	4.1			4.5			4.3			4.5
Expected volatility	30		%	31		%	31		%	30		%
Weighted average fair value at grant date	$	121.04		$	110.81		$	121.85		$	126.87
Employee Stock Purchase Plan
Risk free interest rate	0.2		%	0.2		%	0.2		%	0.2		%
Expected term (in years)	1.2			1.3			1.3			1.3
Expected volatility	33		%	35		%	33		%	34		%
Weighted average fair value at grant date	$	131.70		$	115.84		$	130.37		$	153.33