Share-Based Compensation

12 Months Ended

Sep. 30, 2015

19. Share-Based Compensation

We have various share-based compensation programs, which include deferred stock units, stock options, 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 payout of deferred stock units, the exercise of stock options, and the issuance of restricted stock awards. As of 30 September 2015, there were 5,202,927 shares available for future grant under our Long-Term Incentive Plan, which is shareholder approved.

Share-based compensation cost recognized in the consolidated income statements is summarized below:

		2015		2014		2013
Before-Tax Share-Based Compensation Cost	$	45.7	$	44.0	$	43.5
Income tax benefit		(16.0)		(15.6)		(15.7)
After-Tax Share-Based Compensation Cost	$	29.7	$	28.4	$	27.8

Before-tax share-based compensation cost is primarily included in selling and administrative expense on our consolidated income statements. The amount of share-based compensation cost capitalized in 2015, 2014, and 2013 was not material.

Total before-tax share-based compensation cost by type of program was as follows:

		2015		2014		2013
Deferred stock units	$	28.8	$	20.2	$	19.6
Stock options		12.6		21.6		21.5
Restricted stock		4.3		2.2		2.4
Before-Tax Share-Based Compensation Cost	$	45.7	$	44.0	$	43.5

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, for employee recipients, on continued employment during the deferral period and may be conditioned on achieving certain performance targets. We grant deferred stock unit awards with a two to five year deferral period that is subject to payout upon death, disability, or retirement. Deferred stock units issued to outside 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). We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period; however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for vesting upon retirement.

During the twelve months ended 30 September 2015, we granted 119,272 market-based deferred stock units. The market-based deferred stock units vest as long as the employee continues to be employed by the Company and upon the achievement of the performance target. The performance target, which is approved by the Compensation Committee, is the Company’s total shareholder return (share price appreciation and dividends paid) in relation to a defined peer group over the three-year performance period beginning 1 October 2014 and ending 30 September 2017.

The market-based deferred stock units had an estimated grant-date fair value of $194.51 per unit. The grant-date fair value was estimated using a Monte Carlo simulation model as these equity awards were tied to a market condition. We generally expense the grant-date fair value of these awards on a straight line basis over the vesting period. The calculation of the fair value of market-based deferred stock units used the following assumptions:


Expected volatility	19.6	%
Risk-free interest rate	.9	%
Expected dividend yield	2.5	%

In addition, during the twelve months ended 30 September 2015, we granted 147,699 time-based deferred stock units at a weighted average grant-date fair value of $143.81.

		Weighted Average
Deferred Stock Units	Shares (000)	Grant-Date Fair Value
Outstanding at 30 September 2014	1,136		$	81.03
Granted	267			166.46
Paid out	(292)			77.07
Forfeited/adjustments	(55)			113.91
Outstanding at 30 September 2015	1,056		$	102.01

Cash payments made for deferred stock units were $9.6, $2.1, and $1.9 in 2015, 2014, and 2013, respectively. As of 30 September 2015, there was $37.6 of unrecognized compensation cost related to deferred stock units. The cost is expected to be recognized over a weighted average period of 2.3 years. The total fair value of deferred stock units paid out during 2015, 2014, and 2013, including shares vested in prior periods, was $35.5, $31.8, and $32.3, respectively.

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 were estimated using a Black Scholes model that used the assumptions noted in the table below. Expected volatility and expected dividend yield are based on actual historical experience of our stock and dividends over the historical period equal to the expected life. 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. Ranges are used when certain groups of employees exhibit different behavior, such as timing of exercise. 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.

	2015		2014		2013
Expected volatility	30.3	%	29.8%–31.1	%	28.6%–30.4	%
Expected dividend yield	2.6	%	2.4%–2.9	%	2.4	%
Expected life (in years)	7.5		6.5–8.4		7.3–9.1
Risk-free interest rate	2.2	%	2.0%–2.7	%	1.2%–1.5	%

The weighted average grant-date fair value of options granted during 2015, 2014, and 2013 was $37.19, $29.10, and $19.85, per option, respectively.

A summary of stock option activity is presented below:

			Weighted Average
Stock Options		Shares (000)	Exercise Price
Outstanding at 30 September 2014		7,284		$	83.14
Granted		181			144.09
Exercised		(1,671)			74.35
Forfeited		(69)			107.70
Outstanding at 30 September 2015		5,725		$	87.35
Exercisable at 30 September 2015		4,657		$	82.81

		Weighted Average
	Remaining Contractual		Aggregate Intrinsic
Stock Options		Terms (in years)			Value
Outstanding at 30 September 2015		5.3		$	233
Exercisable at 30 September 2015		4.6		$	209

The aggregate intrinsic value represents the amount by which our closing stock price of $127.58 as of 30 September 2015 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 2015, 2014, and 2013 was $115.5, $125.3, and $170.4, 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 2015, there was $5.8 of unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted average period of 1.7 years.

Cash received from option exercises during 2015 was $121.3. The total tax benefit realized from stock option exercises in 2015 was $40.1, of which $27.4 was the excess tax benefit.

Restricted Stock

The grant-date fair value of 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.

We have issued shares of restricted stock to certain officers. Participants are entitled to cash dividends and to vote their respective shares. Restrictions on shares lift in one to four years or upon earlier retirement, death, or disability. The shares are nontransferable while subject to forfeiture.

		Weighted Average
Restricted Stock	Shares (000)	Grant-Date Fair Value
Outstanding at 30 September 2014	73		$	110.75
Granted	20			144.09
Vested	(10)			90.67
Outstanding at 30 September 2015	83		$	121.17

As of 30 September 2015, there was $4.5 of unrecognized compensation cost related to restricted stock awards. The cost is expected to be recognized over a weighted average period of 3.3 years. The total fair value of restricted stock vested during 2015, 2014, and 2013 was $1.4, $12.1, and $4.4, respectively.