Capital Stock and Stock-Based Compensation Plans

Preference Stock

The Company has the authority to issue 50,000,000 shares of Preference stock. In 1989, the Company approved the issuance of 6,315,149 shares of Series B Convertible Preference stock (the Preference stock) without par value. Each share of Preference stock, which was convertible into eight shares of common stock, had a redemption price of $65 per share and paid cumulative dividends equal to the higher of $2.44 or the current dividend paid on eight common shares for the comparable six-month period. As a result of rules issued by the IRS related to employer stock held in defined contribution plans, the Company issued a notice of redemption with respect to the 2,405,192 shares of Preference stock outstanding on December 29, 2010. At the direction of the Company’s Employee Stock Ownership Plan trustee, the shares of Preference Stock were converted into 19,241,536 shares of common stock. The common stock for the conversion was issued from treasury shares. As of December 31, 2011 and 2010, there were 17,102,005 and 19,225,073 shares of common stock, respectively, outstanding and issued to the Company’s Employee Stock Ownership Plan. See Note 8 for further information about the Company’s Employee Stock Ownership Plan.

Stock Repurchases

The Company repurchased its common stock at a cost of $1,806 during 2011 under share repurchase programs that were approved by the Board of Directors and publicly announced in September 2011 and February 2010 (the 2011 Program and the 2010 Program, respectively). Under the 2010 Program, the Company was authorized to purchase up to 40 million shares of the Company’s common stock. The 2011 Program, which replaced the 2010 Program, authorizes the Company to repurchase up to 50 million shares of its common stock. The Board also has authorized share repurchases on an ongoing basis to fulfill certain requirements of the Company’s compensation and benefit programs. The shares may be repurchased in open market or privately negotiated transactions at the Company’s discretion, subject to market conditions, customary blackout periods and other factors.

The Company may use either authorized and unissued shares or treasury shares to meet share requirements resulting from the exercise of stock options and the vesting of restricted stock awards.

A summary of common stock and treasury stock activity for the three years ended December 31, is as follows:



	Common Stock Outstanding		Treasury Stock
Balance, January 1, 2009	501,412,580		231,440,600

Common stock acquired	(14,916,340	)	14,916,340
Shares issued for stock options	5,455,317		(5,455,317	)
Shares issued for restricted stock and other	800,388		(800,388	)
Preference stock conversion	1,413,072		(1,413,072	)
Balance, December 31, 2009	494,165,017		238,688,163

Common stock acquired	(25,401,785	)	25,401,785
Shares issued for stock options	4,233,775		(4,233,775	)
Shares issued for restricted stock and other	993,132		(993,132	)
Preference stock conversion	20,860,328		(20,860,328	)
Balance, December 31, 2010	494,850,467		238,002,713

Common stock acquired	(21,320,936	)	21,320,936
Shares issued for stock options	5,758,879		(5,758,879	)
Shares issued for restricted stock and other	729,665		(729,665	)
Balance, December 31, 2011	480,018,075		252,835,105

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant. The value of restricted stock awards, based on market prices, is amortized on a straight-line basis over the requisite service period. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Awards to employees eligible for retirement prior to the award becoming fully vested are recognized as compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award.

The Company has two types of stock-based compensation plans, which are described below. The total stock-based compensation expense charged against pretax income for these plans was $122, $121 and $117 for the years ended December 31, 2011, 2010 and 2009, respectively. The total income tax benefit recognized on stock-based compensation was approximately $40 for each of the years ended December 31, 2011, 2010 and 2009.

Stock-based compensation expense is recorded within Selling, general and administrative expenses in the Corporate segment as these amounts are not included in internal measures of segment operating performance.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock-option awards. The weighted-average estimated fair value of stock options granted in the years ended December 31, 2011, 2010 and 2009 was $11.93, $11.00 and $12.06, respectively. Fair value is estimated using the Black-Scholes option pricing model with the assumptions summarized in the following table:



	2011		2010		2009
Expected Term of Options	4.5 years		4.5 years		4.5 years
Expected Volatility Rate	21.3	%	22.5	%	22.1	%
Risk-Free Rate	0.8	%	1.3	%	2.3	%
Expected Dividend Yield	2.6	%	2.8	%	2.4	%

The weighted-average expected term of options granted each year was determined with reference to historical exercise and post-vesting cancellation experience, the vesting period of the awards and contractual term of the awards, among other factors. Expected volatility incorporates implied share-price volatility derived from exchange traded options on the Company’s common stock. The risk-free rate for the expected term of the option is based on the U.S. Treasury implied yield at the time of grant.

Incentive Stock Plan

The Company has a plan that provides for grants of restricted stock awards for officers and other employees. The Personnel and Organization Committee of the Board of Directors, comprised entirely of independent directors, administers the plan. Awards are made in common stock and vest at the end of the restriction period, which is generally three years. As of December 31, 2011, 9,310,000 shares of common stock were available for future restricted stock awards.

A summary of restricted stock award activity during 2011 is presented below:



	Shares (in thousands)		Weighted Average Grant Date Fair Value Per Award
Restricted stock awards as of January 1, 2011	2,777		$	73
Activity:
Granted	986		84
Vested	(690	)	76
Forfeited	(36	)	71
Restricted stock awards as of December 31, 2011	3,037		76

As of December 31, 2011, there was $65 of total unrecognized compensation expense related to nonvested restricted stock awards, which will be recognized over a weighted-average period of 2.2 years. The total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009 was $50, $69 and $48, respectively.

Stock Option Plans

The Company’s stock option plans provide for the issuance to directors, officers and other employees of non-qualified stock options that generally have a contractual term of six years and vest over three years. As of December 31, 2011, 9,092,000 shares of common stock were available for future stock option grants.

A summary of stock option plan activity during 2011 is presented below:



	Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Value of Unexercised In-the-Money Options
Options outstanding, January 1, 2011	24,517		$	69
Granted	4,841		90
Exercised	(6,846	)	62
Forfeited or expired	(218	)	78
Options outstanding, December 31, 2011	22,294		76		4	$	360
Options exercisable, December 31, 2011	13,121		$	71	3	$	276

As of December 31, 2011, there was $40 of total unrecognized compensation expense related to options, which will be recognized over a weighted-average period of 1.5 years. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $162, $133 and $120, respectively.

The benefits of tax deductions in excess of grant date fair value resulting from the exercise of stock options and vesting of restricted stock awards for the years ended December 31, 2011, 2010 and 2009 was $32, $31 and $16, respectively, and was reported as a financing cash flow. Cash proceeds received from options exercised for the years ended December 31, 2011, 2010 and 2009 were $332, $211 and $284, respectively.