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. See Note 9 for further information about the Company’s Employee Stock Ownership Plan.

Stock Repurchases

The Company repurchased its common stock at a cost of $1,943 during 2012 under a share repurchase program that was approved by the Board of Directors and publicly announced in September 2011 (the 2011 Program). The 2011 Program authorized 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, 2010	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

Common stock acquired	(19,365,301	)	19,365,301
Shares issued for stock options	6,108,615		(6,108,615	)
Shares issued for restricted stock and other	1,102,949		(1,102,949	)
Balance, December 31, 2012	467,864,338		264,988,842

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 $120, $122 and $121 for the years ended December 31, 2012, 2011 and 2010, respectively. The total income tax benefit recognized on stock-based compensation was approximately $37 for the year ended December 31, 2012 and approximately $40 for each of the years ended December 31, 2011 and 2010.

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, 2012, 2011 and 2010 was $13.46, $11.93 and $11.00, respectively. Fair value is estimated using the Black-Scholes option pricing model with the assumptions summarized in the following table:



	2012		2011		2010
Expected Term of Options	4.5 years		4.5 years		4.5 years
Expected Volatility Rate	20.8	%	21.3	%	22.5	%
Risk-Free Rate	0.6	%	0.8	%	1.3	%
Expected Dividend Yield	2.4	%	2.6	%	2.8	%

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 restricted stock units and vest at the end of the restriction period, which is generally three years. As of December 31, 2012, 8,650,000 shares of common stock were available for future restricted stock awards.

A summary of restricted stock award activity during 2012 is presented below:



	Shares (in thousands)		Weighted Average Grant Date Fair Value Per Award
Restricted stock awards as of January 1, 2012	3,037		$	76
Activity:
Granted	734		100
Vested	(1,062	)	66
Forfeited	(75	)	82
Restricted stock awards as of December 31, 2012	2,634		$	87

As of December 31, 2012, there was $70 of total unrecognized compensation expense related to nonvested restricted stock awards, which will be recognized over a weighted-average period of 2.3 years. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 was $63, $50 and $69, 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, 2012, 3,999,000 shares of common stock were available for future stock option grants.

A summary of stock option plan activity during 2012 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, 2012	22,294		$	76
Granted	5,261		104
Exercised	(6,217	)	68
Forfeited or expired	(167	)	85
Options outstanding, December 31, 2012	21,171		85		4	$	406
Options exercisable, December 31, 2012	11,635		$	77	3	$	322

As of December 31, 2012, there was $48 of total unrecognized compensation expense related to options, which will be recognized over a weighted-average period of 1.6 years. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $210, $162 and $133, 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, 2012, 2011 and 2010 was $60, $32 and $31, respectively, and was reported as a financing cash flow. Cash proceeds received from options exercised for the years ended December 31, 2012, 2011 and 2010 were $409, $332 and $211, respectively.