Note 12. Shareholder’s 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 December 31, 2012 and June 30, 2012 and 2011, the Company had approximately 57.5 million, 57.5 million, and 40.3 million shares, respectively, in treasury. Treasury stock of $1.6 billion at December 31, 2012, $1.6 billion at June 30, 2012, and $1.1 billion at June 30, 2011, 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 2002 and 2009 Incentive Compensation Plans. 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 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.




	Six Months Ended
	December 31		Year Ended June 30
	2012		2012		2011		2010

Dividend yield	3	%	2	%	2	%	2	%
Risk-free interest rate	1	%	2	%	2	%	2	%
Stock volatility	30	%	32	%	31	%	32	%
Average expected life (years)	7		8		8		8

A summary of option activity during the transition period ended December 31, 2012 and the year ended June 30, 2012 is presented below:



		Weighted-Average
	Shares	Exercise Price
	(In thousands, except per share amounts)

Shares option at June 30, 2011	11,723	$	28.35
Granted	2,436		26.18
Exercised	(429)		19.61
Forfeited or expired	(238)		28.38
Shares under option at June 30, 2012	13,492	$	28.24
Granted	2,637		26.25
Exercised	(116)		18.18
Forfeited or expired	(160)		27.40
Shares under option at December 31, 2012	15,853	$	27.99

Exercisable at December 31, 2012	9,175	$	28.65

The weighted-average remaining contractual term of options outstanding and exercisable at December 31, 2012, is 6 years and 5 years, respectively. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2012, is $25 million and $20 million, respectively. The weighted-average grant-date fair values of options granted during the six months ended December 31, 2012 and the years ended June 30, 2012, 2011, and 2010, were $5.89, $6.98, $8.82, and $8.50, respectively. The total intrinsic values of options exercised during the six months ended December 31, 2012 and the years ended June 30, 2012, 2011, and 2010, were $1 million, $5 million, $21 million, and $11 million, respectively. Cash proceeds received from options exercised during the six months ended December 31, 2012 and the years ended June 30, 2012, 2011, and 2010, were $2 million, $7 million, $21 million, and $11 million, respectively.

At December 31, 2012, there was $21 million of total unrecognized compensation expense related to option grants. Amounts to be recognized as compensation expense during the next five years are $8 million, $6 million, $4 million, $2 million, and $1 million, respectively.

The Company’s 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 the six months ended December 31, 2012 and the years ended June 30, 2012, 2011, and 2010, 1.3 million, 1.2 million, 1.1 million, and 1.0 million common stock or stock units, respectively, were granted as Restricted Stock Awards and PSUs. At December 31, 2012, there were 20.8 million shares available for future grants pursuant to the 2009 plan.

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 the six months ended December 31, 2012 and the years ended June 30, 2012, 2011, and 2010 were $26.34, $26.75, $32.19, and, $26.55, respectively.

A summary of Restricted Stock Awards and PSUs activity during the six months ended December 31, 2012 and year ended June 30, 2012 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, 2011	3,115	$	28.39
Granted	1,249		26.75
Vested	(1,148)		26.34
Forfeited	(246)		20.50
Non-vested at June 30, 2012	2,970	$	29.16
Granted	1,319		26.34
Vested	(574)		29.18
Forfieted	(80)		27.43
Non-vested at December 31, 2012	3,635	$	28.17

At December 31, 2012, there was $37 million of total unrecognized compensation expense related to Restricted Stock Awards and PSUs. Amounts to be recognized as compensation expense during the next three years are $20 million, $12 million, and $5 million, respectively. At the vesting date, the total fair value of Restricted Stock Awards vested during the six months ended December 31, 2012 was $17 million.

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. Compensation expense for PSUs is based on the probability of meeting the performance criteria.

Total compensation expense for option grants, Restricted Stock Awards and PSUs recognized during the six months ended December 31, 2012 and 2011 and the years ended June 30, 2012, 2011, and 2010 was $31 million, $34 million, $48 million, $47 million, and $45 million, respectively.