STOCK TRANSACTIONS AND STOCK-BASED COMPENSATION

In May 2012, the Company's shareholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock of the Company from 1 billion shares to 2 billion shares, $0.01 par value per share, which was filed and became effective on May 10, 2012.

On May 11, 2010, the Company's Board of Directors (the "Board") authorized the repurchase of up to 20 million shares of the Company's common stock from time to time on the open market or in privately negotiated transactions. There is no expiration date for the Company's repurchase program. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time. Any repurchased shares will be available for use in connection with the Company's equity compensation plans (or any successor plan) and for other corporate purposes.

Pursuant to the stock repurchase program, during the three months ended September 28, 2012, the Company repurchased approximately 5 million shares of Company common stock in open market transactions at a cost of $258 million. At September 28, 2012, the Company had approximately 15 million shares remaining for stock repurchases under the existing Board authorization.

The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for all equity awards granted, including stock options, restricted stock units (“RSUs”) and restricted shares, based on the fair value of the award as of the grant date. The Company recognizes the compensation expense over the requisite service period, which is generally the vesting period. The fair value for RSU and restricted stock awards is calculated using the closing price of the Company’s common stock on the date of grant. The fair value of the options granted is calculated using a Black-Scholes Merton option pricing model (“Black-Scholes”).

For a full description of the Company’s stock-based compensation, reference is made to Note 17 of the Company’s financial statements as of and for the year ended December 31, 2011 included in the Company’s 2011 Annual Report on Form 10-K. As of September 28, 2012, approximately 16 million shares of the Company’s common stock were reserved for issuance under the 2007 Stock Incentive Plan.

The following summarizes the assumptions used in the Black-Scholes model to value options granted during the nine months ended September 28, 2012:



Risk-free interest rate	0.7 – 1.7%
Weighted average volatility	30.4%
Dividend yield	0.2%
Expected years until exercise	6.0 to 8.5

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest for periods within the contractual life of the option is based on a zero-coupon U.S. government instrument whose maturity period equals or approximates the option’s expected term. Expected volatility is based on implied volatility from traded options on the Company’s stock and historical volatility of the Company’s stock. The dividend yield is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date. To estimate the option exercise timing to be used in the valuation model, in addition to considering the vesting period and contractual term of the option, the Company analyzes and considers actual historical exercise data for previously granted options. The Company stratifies its employee population into multiple groups for option valuation and attribution purposes based upon distinctive patterns of forfeiture rates and option holding periods.

The amount of stock-based compensation expense recognized during a period is also based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of awards as of the grant date that actually vest.

The following table summarizes the components of the Company’s stock-based compensation program recorded as expense ($ in millions):



	Three Months Ended						Nine Months Ended
	September 28, 2012			September 30, 2011			September 28, 2012			September 30, 2011
RSUs and restricted shares:
Pre-tax compensation expense	$	16.0		$	13.6		$	43.2		$	34.0
Income tax benefit	(4.9		)	(5.1		)	(14.1		)	(12.7		)
RSU and restricted share expense, net of income taxes	$	11.1		$	8.5		$	29.1		$	21.3
Stock options:
Pre-tax compensation expense	$	13.0		$	12.1		$	36.2		$	37.6
Income tax benefit	(4.0		)	(3.6		)	(11.0		)	(10.9		)
Stock option expense, net of income taxes	$	9.0		$	8.5		$	25.2		$	26.7
Total stock-based compensation expense:
Pre-tax compensation expense	$	29.0		$	25.7		$	79.4		$	71.6
Income tax benefit	(8.9		)	(8.7		)	(25.1		)	(23.6		)
Total stock-based compensation expense, net of income taxes	$	20.1		$	17.0		$	54.3		$	48.0

Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings. As of September 28, 2012, $145 million of total unrecognized compensation cost related to RSUs and restricted shares is expected to be recognized over a weighted average period of approximately two years. As of September 28, 2012, $141 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately two years. Both amounts will be adjusted for any future changes in estimated forfeitures.

Option activity under the Company’s stock plans during the nine months ended September 28, 2012 was as follows (in thousands; except exercise price and number of years):



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2011	32,454		$	32.98
Granted	3,939		$	52.20
Exercised	(5,903	)	$	25.32
Cancelled / forfeited	(979	)	$	39.86
Outstanding as of September 28, 2012	29,511		$	36.85	6	$	540,044
Vested and Expected to Vest as of September 28, 2012 (1)	28,656		$	36.56	6	$	532,836
Exercisable as of September 28, 2012	16,745		$	31.81	4	$	390,864


(1)	The “Expected to Vest” options are the net unvested options that remain after applying the pre-vesting forfeiture rate assumption to total unvested options.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 28, 2012. The amount of aggregate intrinsic value will change based on the price of the Company’s common stock.

The aggregate intrinsic value of options exercised during the nine months ended September 28, 2012 and September 30, 2011 was $161 million and $73 million, respectively. Exercise of options during the first nine months of 2012 and 2011 resulted in cash receipts of $146 million and $76 million, respectively. The Company realized a tax benefit of approximately $10 million and $54 million in the three and nine months ended September 28, 2012, respectively, related to the exercise of employee stock options. The net income tax benefit in excess of the expense recorded for financial reporting purposes (the “excess tax benefit”) has been recorded as an increase to additional paid-in capital. Excess tax benefits related to all equity awards are reflected as financing cash inflows in the accompanying Consolidated Condensed Statements of Cash Flows.

The following table summarizes information on unvested RSUs and restricted shares activity during the nine months ended September 28, 2012:



	Number of RSUs / Restricted Shares (in thousands)		Weighted-Average Grant-Date Fair Value
Unvested as of December 31, 2011	5,979		$	37.72
Granted	1,639		$	52.15
Vested	(1,553	)	$	33.26
Forfeited	(393	)	$	39.45
Unvested as of September 28, 2012	5,672		$	42.99

The Company realized a tax benefit of approximately $6 million and $28 million in the three and nine months ended September 28, 2012, respectively, related to the vesting of RSUs. The excess tax benefits attributable to RSUs and restricted stock have been recorded as an increase to additional paid-in capital.

In connection with the exercise of certain stock options and the vesting of RSUs and restricted shares previously issued by the Company, a number of shares sufficient to fund minimum tax withholding requirements has been withheld from the total shares issued or released to the award holder (though under the terms of the applicable plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the first nine months of 2012, approximately 1 million shares with an aggregate value of approximately $62 million were withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying Consolidated Condensed Statement of Stockholders’ Equity.