Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

3. SHARE-BASED COMPENSATION

Our share-based payments primarily consist of stock options, restricted stock, restricted stock units (RSUs), and an employee stock purchase plan. Share-based compensation expense is as follows (in millions):

For the Years Ended December 31,	2011			2010			2009
Stock options	$	41.7		$	47.6		$	61.9
RSUs and other		18.8			14.4			13.4
Total expense, pre-tax		60.5			62.0			75.3
Tax benefit related to awards		(17.8	)		(16.2	)		(20.9	)
Total expense, net of tax	$	42.7		$	45.8		$	54.4

Share-based compensation cost capitalized as part of inventory for the years ended December 31, 2011, 2010 and 2009 was $8.8 million, $12.2 million, and $17.2 million, respectively. As of December 31, 2011 and 2010, approximately $4.8 million and $6.6 million of capitalized costs remained in finished goods inventory.

Stock Options

We had two equity compensation plans in effect at December 31, 2011: the 2009 Stock Incentive Plan (2009 Plan) and the Stock Plan for Non-Employee Directors. The 2009 Plan succeeds the 2006 Stock Incentive Plan (2006 Plan) and the TeamShare Stock Option Plan (TeamShare Plan). Following stockholder approval of the 2009 Plan in May 2009, no further awards were granted under the 2006 Plan or under the TeamShare Plan, and shares remaining available for grant under those plans have been merged into the 2009 Plan. Vested and unvested stock options and unvested restricted stock and RSUs previously granted under the 2006 Plan, the TeamShare Plan and another prior plan, the 2001 Stock Incentive Plan, remained outstanding as of December 31, 2011. We have reserved the maximum number of shares of common stock available for award under the terms of each of these plans. We have registered 57.9 million shares of common stock under these plans. The 2009 Plan provides for the grant of nonqualified stock options and incentive stock options, long-term performance awards in the form of performance shares or units, restricted stock, RSUs and stock appreciation rights. The Compensation and Management Development Committee of the Board of Directors determines the grant date for annual grants under our equity compensation plans. The date for annual grants under the 2009 Plan to our executive officers is expected to occur in the first quarter of each year following the earnings announcements for the previous quarter and full year. The Stock Plan for Non-Employee Directors provides for awards of stock options, restricted stock and RSUs to non-employee directors. It has been our practice to issue shares of common stock upon exercise of stock options from previously unissued shares, except in limited circumstances where they are issued from treasury stock. The total number of awards which may be granted in a given year and/or over the life of the plan under each of our equity compensation plans is limited. At December 31, 2011, an aggregate of 10.6 million shares were available for future grants and awards under these plans.

Stock options granted to date under our plans generally vest over four years and generally have a maximum contractual life of 10 years. As established under our equity compensation plans, vesting may accelerate upon retirement after the first anniversary date of the award if certain criteria are met. We recognize expense related to stock options on a straight-line basis over the requisite service period, less awards expected to be forfeited using estimated forfeiture rates. Due to the accelerated retirement provisions, the requisite service period of our stock options range from one to four years. Stock options are granted with an exercise price equal to the market price of our common stock on the date of grant, except in limited circumstances where local law may dictate otherwise.

A summary of stock option activity for the year ended December 31, 2011 is as follows (options in thousands):

						Weighted
				Weighted		Average
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Stock Options			Price		Life		(in millions)
Outstanding at January 1, 2011		17,438		$	66.76
Options granted		1,617			60.07
Options exercised		(1,137	)		35.21
Options cancelled		(416	)		59.32
Options expired		(754	)		75.21
Outstanding at December 31, 2011		16,748		$	68.04		5.4	$	27.2
Vested or expected to vest as of December 31, 2011		16,224		$	68.40		5.3	$	26.0
Exercisable at December 31, 2011		12,608		$	71.30		4.5	$	16.5

We use a Black-Scholes option-pricing model to determine the fair value of our stock options. Expected volatility was derived from the implied volatility of traded options on our stock that were actively traded around the grant date of the stock options with exercise prices similar to the stock options and maturities of over one year. The expected term of the stock options has been derived from historical employee exercise behavior. The risk-free interest rate is determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options. We used a dividend yield of zero percent as we had not paid any dividends since becoming a public company in 2001. In December 2011, we declared our first dividend and, accordingly, we will take our new dividend policy into consideration in our assumptions for future grants.

The following table presents information regarding the weighted average fair value for stock options granted, the assumptions used to determine fair value, and the intrinsic value of options exercised in the indicated year:

For the Years Ended December 31,	2011			2010			2009
Dividend yield		–	%		–	%		–	%
Volatility		26.1	%		26.3	%		41.6	%
Risk-free interest rate		2.2	%		2.8	%		1.7	%
Expected life (years)		6.1			5.9			5.4
Weighted average fair value of options granted	$	18.33		$	18.17		$	16.02
Intrinsic value of options exercised (in millions)	$	27.5		$	8.5		$	3.3

As of December 31, 2011, there was $45.3 million of unrecognized share-based payment expense related to nonvested stock options granted under our plans. That expense is expected to be recognized over a weighted average period of 2.3 years.

RSUs

We have awarded RSUs to our employees. The terms of the awards have been either four or five years with vesting occurring ratably on the anniversary date of the award. However, based upon meeting certain criteria, as established under our equity compensation plans, these awards may accelerate upon retirement after the first anniversary date of the award. Accordingly, the requisite service period used for share-based payment expense ranges from one to five years.

A summary of nonvested RSU activity for the year ended December 31, 2011 is as follows (in thousands):

				Weighted Average
				Grant Date
	RSUs			Fair Value
Outstanding at January 1, 2011		948		$	52.30
Granted		651			60.14
Vested		(195	)		48.18
Forfeited		(217	)		58.95
Outstanding at December 31, 2011		1,187			56.25

The fair value of the awards was determined based upon the fair market value of our common stock on the date of grant. We are required to estimate the number of RSUs that will vest and recognize share-based payment expense on a straight-line basis over the requisite service period. As of December 31, 2011, we estimate that approximately 1,067,000 outstanding RSUs will vest. If our estimate were to change in the future, the cumulative effect of the change in estimate will be recorded in that period. Based upon the number of RSUs that we expect to vest, the unrecognized share-based payment expense as of December 31, 2011 was $38.0 million and is expected to be recognized over a weighted average period of 2.7 years. The fair value of RSUs vesting during the years ended December 31, 2011, 2010 and 2009 based upon our stock price on the date of vesting was $11.8 million, $3.2 million and $7.0 million, respectively.