Share-Based Compensation

12 Months Ended

Sep. 30, 2012

Share-Based Compensation [Abstract]

Share-Based Compensation

18. Share-Based Compensation

We have various share-based compensation programs, which include stock options, deferred stock units, and restricted stock. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from treasury stock upon the exercise of stock options, the payout of deferred stock units, and the issuance of restricted stock awards. As of 30 September 2012, there were 3,956,486 shares available for future grant under our Long-Term Incentive Plan, which is shareholder approved.

Share-based compensation cost recognized in the consolidated income statement is summarized below:
		2012		2011		2010
Cost of sales	$	4.7	$	3.8	$	4.0
Selling and administrative		37.4		39.5		42.5
Research and development		1.3		1.5		2.1
Business restructuring and cost reduction plans		.4		-		-
Before-Tax Share-Based Compensation Cost		43.8		44.8		48.6
Income tax benefit		(15.7)		(17.1)		(18.3)
After-Tax Share-Based Compensation Cost	$	28.1	$	27.7	$	30.3

The amount of share-based compensation cost capitalized in 2012, 2011, and 2010 was not material.

Total before-tax share-based compensation cost by type of program was as follows:
		2012		2011		2010
Stock options	$	22.1	$	21.4	$	25.0
Deferred stock units		19.5		20.8		21.5
Restricted stock		2.2		2.6		2.1
Before-Tax Share-Based Compensation Cost	$	43.8	$	44.8	$	48.6

Stock Options

We have granted awards of options to purchase common stock to executives and selected employees. The exercise price of stock options equals the market price of our stock on the date of the grant. Options generally vest incrementally over three years, and remain exercisable for ten years from the date of grant.

Fair values of stock options granted prior to 1 October 2010 were estimated using a lattice-based valuation model. Beginning in fiscal 2011, we used the Black Scholes model to value stock option awards. The Black Scholes model is a widely used valuation technique that incorporates all the measurement objectives required by the share-based compensation accounting guidance. Additionally, the Black Scholes model incorporates assumptions that reflect all substantive characteristics of our program. We believe the Black Scholes model improves comparability and efficiency. The impact of the change in valuation models was not significant to the consolidated financial statements.

Fair value was determined using the assumptions noted in the table below. Expected volatility and expected dividend yield for fiscal year 2012 and 2011 valuations using the Black Scholes model are based on actual historical experience of our stock and dividends over the historical period equal to the expected life. Expected volatility and expected dividend yield for fiscal year 2010 valuations using the lattice-based valuation model were based on actual historical experience of our stock and dividends over the historical period equal to the option term. The expected life represents the period of time that options granted are expected to be outstanding based on an analysis of Company-specific historical exercise data. The range given below results from certain groups of employees exhibiting different behavior. Groups of employees that have similar historical exercise behavior were considered separately for valuation purposes. The risk-free rate is based on the U.S. Treasury Strips with terms equal to the expected time of exercise as of the grant date.

	2012		2011		2010
Expected volatility	29.0%–30.4	%	29.2%–30.0	%	32.6	%
Expected dividend yield	2.3	%	2.2	%	2.1	%
Expected life (in years)	7.3–9.0		7.0–8.7		6.8–8.0
Risk-free interest rate	1.7%–2.1	%	2.4%–2.9	%	2.9%–3.3	%

The weighted average grant-date fair value of options granted during 2012, 2011, and 2010 was $21.43, $23.83, and $25.94, per option, respectively.

A summary of stock option activity is presented below:
			Weighted Average
Stock Options		Shares (000)	Exercise Price
Outstanding at 30 September 2011		13,570		$	62.55
Granted		1,090			82.65
Exercised		(2,675)			46.15
Forfeited		(150)			87.41
Outstanding at 30 September 2012		11,835		$	67.79
Exercisable at 30 September 2012		9,907		$	64.57
		Weighted Average
	Remaining Contractual		Aggregate Intrinsic
Stock Options		Terms (in years)			Value
Outstanding at 30 September 2012		4.6		$	199
Exercisable at 30 September 2012		3.8		$	199

The aggregate intrinsic value represents the amount by which our closing stock price of $82.70 as of 28 September 2012 exceeds the exercise price multiplied by the number of in-the-money options outstanding or exercisable.

The total intrinsic value of stock options exercised during 2012, 2011, and 2010 was $110.6, $180.8, and $92.4, respectively.

Compensation cost is generally recognized over the stated vesting period consistent with the terms of the arrangement (i.e., either on a straight-line or graded-vesting basis). Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement. As of 30 September 2012, there was $9.4 of unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted average period of 2.0 years.

Cash received from option exercises during 2012 was $124.3. The total tax benefit realized from stock option exercises in 2012 was $38.1, of which $26.4 was the excess tax benefit.

Deferred Stock Units and Restricted Stock

The grant-date fair value of deferred stock units and restricted stock is estimated on the date of grant based on the market price of the stock, and compensation cost is generally amortized to expense on a straight-line basis over the vesting period during which employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement.

Deferred Stock Units

We have granted deferred stock units to executives, selected employees, and outside directors. These deferred stock units entitle the recipient to one share of common stock upon vesting, which is conditioned on continued employment during the deferral period and may also be conditioned on achieving certain performance targets. The deferral period for some units ends after death, disability, or retirement. The deferral period for other performance-based deferred stock units ends at the end of the performance period (one to three years). Additionally, we have granted deferred stock units, subject to a three-, four-, or five-year deferral period, to selected employees. Deferred stock units issued to directors are paid after service on the Board of Directors ends at the time elected by the director (not to exceed 10 years after service ends).

		Weighted Average
Deferred Stock Units	Shares (000)	Grant-Date Fair Value
Outstanding at 30 September 2011	1,505		$	68.85
Granted	264			82.97
Paid out	(271)			77.99
Forfeited/adjustments	(82)			79.98
Outstanding at 30 September 2012	1,416		$	69.09

Cash payments made for deferred stock units were $1.8, $1.0, and $1.4 in 2012, 2011, and 2010, respectively. As of 30 September 2012, there was $26.2 of unrecognized compensation cost related to deferred stock units. The cost is expected to be recognized over a weighted average period of 2.4 years. The total fair value of deferred stock units paid out during 2012, 2011, and 2010, including shares vested in prior periods, was $22.0, $26.3, and $26.2, respectively.

Restricted Stock

We have issued shares of restricted stock to certain officers. Participants are entitled to cash dividends and to vote their respective shares. Shares granted since 2007 vest in four years or upon earlier retirement, death, or disability. Shares granted prior to 2007 are subject to forfeiture if employment is terminated other than due to death, disability, or retirement. The shares are nontransferable while subject to forfeiture.

		Weighted Average
Restricted Stock	Shares (000)	Grant-Date Fair Value
Outstanding at 30 September 2011	154		$	74.59
Granted	34			82.64
Vested	(26)			93.19
Forfeited	(19)			70.89
Outstanding at 30 September 2012	143		$	73.61

As of 30 September 2012, there was $1.6 of unrecognized compensation cost related to restricted stock awards. The cost is expected to be recognized over a weighted average period of 2.5 years. The total fair value of restricted stock vested during 2012, 2011, and 2010 was $2.0, $1.6 and $1.0, respectively.