Shareholders' Equity

12 Months Ended

Jun. 30, 2011

Shareholders' Equity

Shareholders' Equity

Note 10. Shareholders’ Equity

The Company has authorized one billion shares of common stock and 500,000 shares of preferred stock, each with zero par value.  No preferred stock has been issued.  At June 30, 2011 and 2010, the Company had approximately 40.3 million and 32.6 million shares, respectively, in treasury.  Treasury stock of $1.1 billion at June 30, 2011, and $838 million at June 30, 2010, is recorded at cost as a reduction of common stock.

The Company’s employee stock compensation plans provide for the granting of options to employees to purchase common stock of the Company pursuant to the Company’s 1999 Incentive Compensation Plan, 2002 Incentive Compensation Plan and 2009 Incentive Compensation Plan.  These options are issued at market value on the date of grant, vest incrementally over five to nine years, and expire ten years after the date of grant.

The Company’s 1999, 2002 and 2009 Incentive Compensation Plans provide for the granting of restricted stock and restricted stock units (Restricted Stock Awards) at no cost to certain officers and key employees.  In addition, the Company’s 2002 and 2009 Incentive Compensation Plans also provide for the granting of performance stock units (PSUs) at no cost to certain officers and key employees.  Restricted Stock Awards are made in common stock or stock units with equivalent rights and vest at the end of a three-year restriction period.  The awards for PSUs are made in common stock and vest at the end of a three-year vesting period subject to the attainment of certain future performance criteria.  During 2011, 2010, and 2009, 1.1 million, 1.0 million, and 1.1 million common stock or stock units, respectively, were granted as Restricted Stock Awards and PSUs.  At June 30, 2011, there were 28.1 million shares available for future grants pursuant to the 2009 plan.

Compensation expense for option grants, Restricted Stock Awards and PSUs granted to employees is generally recognized on a straight-line basis during the service period of the respective grant.  Certain of the Company’s option grants, Restricted Stock Awards and PSUs continue to vest upon the recipient’s retirement from the Company and compensation expense related to option grants and Restricted Stock Awards granted to retirement-eligible employees is recognized in earnings on the date of grant.  Total compensation expense for option grants, Restricted Stock Awards and PSUs recognized during 2011, 2010, and 2009 was $47 million, $45 million, and $65 million, respectively.

The fair value of each option grant is estimated as of the date of grant using the Black-Scholes single option pricing model.  The volatility assumption used in the Black-Scholes single option pricing model is based on the historical volatility of the Company’s stock.  The volatility of the Company’s stock was calculated based upon the monthly closing price of the Company’s stock for the period immediately prior to the date of grant corresponding to the average expected life of the grant.  The average expected life represents the period of time that option grants are expected to be outstanding.  The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of option grants.  The assumptions used in the Black-Scholes single option pricing model are as follows.

	2011		2010		2009
Dividend yield	2	%	2	%	2	%
Risk-free interest rate	2	%	2	%	3	%
Stock volatility	31	%	32	%	30	%
Average expected life (years)	8		8		8

A summary of option activity during 2011 is presented below:

	Shares		Weighted-Average Exercise Price
	(In thousands, except per share amounts)
Shares under option at June 30, 2010	11,260		$	27.12
Granted	1,693		30.71
Exercised	(1,191	)	20.30
Forfeited or expired	(39	)	21.93
Shares under option at June 30, 2011	11,723		$	28.35
Exercisable at June 30, 2011	5,726		$	27.42

The weighted-average remaining contractual term of options outstanding and exercisable at June 30, 2011, is 6 years and 5 years, respectively.  The aggregate intrinsic value of options outstanding and exercisable at          June 30, 2011, is $43 million and $16 million, respectively.  The weighted-average grant-date fair values of options granted during 2011, 2010, and 2009, were $8.82, $8.50, and $7.81, respectively.  The total intrinsic values of options exercised during 2011, 2010, and 2009, were $21 million, $11 million, and $17 million, respectively.  Cash proceeds received from options exercised during 2011, 2010, and 2009, were $21 million, $11 million, and $11 million, respectively.

At June 30, 2011, there was $18 million of total unrecognized compensation expense related to option grants.  Amounts to be recognized as compensation expense during the next four fiscal years are $9 million, $5 million, $3 million, and $1 million, respectively.

The fair value of Restricted Stock Awards is determined based on the market value of the Company’s shares on the grant date.  The fair value of PSUs is estimated at the date of grant using a lattice valuation model.  The weighted-average grant-date fair values of awards granted during 2011, 2010, and 2009 were $32.19, $26.55, and, $26.03, respectively.

A summary of Restricted Stock Awards and PSUs activity during 2011 is presented below:

	Restricted		Weighted Average
	Stock Awards and PSUs		Grant-Date Fair Value
	(In thousands, except per share amounts)
Non-vested at June 30, 2010	3,268		$	29.36
Granted	1,114		32.19
Vested	(1,236	)	34.39
Forfeited	(31	)	28.80
Non-vested at June 30, 2011	3,115		$	28.39

At June 30, 2011, there was $22 million of total unrecognized compensation expense related to Restricted Stock Awards and PSUs.  Amounts to be recognized as compensation expense during the next three fiscal years are $11 million, $8 million, and $3 million, respectively.  At the vesting date, the total fair value of Restricted Stock Awards vested during 2011 was $43 million.