Stock Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

STOCK- BASED COMPENSATION

NOTE 3. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the employee’s service period, which is generally the vesting period of the equity grant. Additionally, compensation cost is recognized based on awards ultimately expected to vest; therefore, we have reduced the cost for estimated forfeitures based on historical forfeiture rates. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures.

The following table summarizes stock-based compensation costs for the years ended December 31, 2011, 2010 and 2009. There were no stock-based compensation costs capitalized as the amounts were not material.

	2011			2010			2009
Stock-based compensation cost	$	108		$	87		$	88
Tax benefit		(22	)		(18	)		(15	)
Stock-based compensation cost, net of tax	$	86		$	69		$	73

For our stock options and restricted stock awards and units, we currently have 32.5 million shares authorized for issuance and as of December 31, 2011, approximately 12 million shares were available for future grants. Our policy is to issue new shares for exercises of stock options, when restricted stock awards are granted, at vesting of restricted stock units, and issuances under the employee stock purchase plan.

Stock Options

Our stock option plans provide for the issuance of stock options to directors, officers and other key employees at an exercise price equal to the fair market value of the stock at the date of grant. Although subject to the terms of the stock option agreement, substantially all of the stock options become exercisable in three equal annual installments, beginning a year from the date of grant, and generally expires ten years from the date of grant. The stock option plans provide for the acceleration of vesting upon the employee’s retirement; therefore, the service period is reduced for employees that are or will become retirement eligible during the vesting period and, accordingly, the recognition of compensation expense for these employees is accelerated. Compensation cost related to stock options is recognized on a straight-line basis over the vesting or service period and is net of forfeitures.

The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. The following table presents the weighted average assumptions used in the option pricing model for options granted. The expected life of the options represents the period of time the options are expected to be outstanding. The expected life is based on our historical exercise trends and post-vest termination data incorporated into a forward-looking stock price model. The expected volatility is based on our implied volatility, which is the volatility forecast that is implied by the prices of our actively traded options to purchase our stock observed in the market. The risk-free interest rate is based on the observed U.S. Treasury yield curve in effect at the time the options were granted. The dividend yield is based on our history of dividend payouts.

	2011			2010			2009
Expected life (years)		5.0			5.0			6.0
Risk-free interest rate		1.8	%		2.2	%		2.6	%
Volatility		40.8	%		39.8	%		41.2	%
Dividend yield		0.9	%		1.2	%		1.8	%
Weighted average fair value per share at grant date	$	24.20		$	16.24		$	12.66

The following table presents the changes in stock options outstanding and related information (in thousands, except per option prices):

	Number of Options	Weighted Average Exercise Price Per Option
Outstanding at December 31, 2010	10,902	$        50.72
Granted	1,281	68.94
Exercised	(2,636)	43.05
Forfeited	(78)	52.29
Expired	(37)	59.10
Outstanding at December 31, 2011	9,432	$        55.34

The total intrinsic value of stock options (defined as the amount by which the market price of our common stock on the date of exercise exceeds the exercise price of the option) exercised in 2011, 2010 and 2009 was $74 million, $18 million and $0.4 million, respectively. The income tax benefit realized from stock options exercised was $20 million, $0.9 million and $0.1 million in 2011, 2010 and 2009, respectively.

The total fair value of options vested in 2011, 2010 and 2009 was $22 million, $20 million and $17 million, respectively. As of December 31, 2011, there was $14 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of two years.

The following table summarizes information about stock options outstanding at December 31, 2011 (in thousands, except per option prices and remaining life):

			Outstanding				Exercisable
Range of Exercise Prices			Number of Options		Weighted Average Remaining Contractual Life (In years)	Weighted Average Exercise Price Per Option	Number of Options		Weighted Average Remaining Contractual Life (In years)	Weighted Average Exercise Price Per Option
$ 14.79    -	$	16.78		3	1.8	$    15.84		3	1.8	$      15.84
22.88   -		33.32		1,536	6.1	28.76		1,274	5.9	28.69
34.45   -		50.94		2,841	7.1	43.73		1,578	6.3	42.10
51.73   -		77.41		3,930	6.6	67.14		2,704	5.3	66.01
77.84   -		86.50		1,122	4.6	79.91		1,122	4.6	79.91
Total				9,432	6.4	$    55.34		6,681	5.5	$      55.56

The total intrinsic value of stock options outstanding at December 31, 2011 was $45 million, of which $36 million relates to options vested and exercisable. The intrinsic value for stock options outstanding is calculated as the amount by which the quoted price of $48.64 of our common stock as of the end of 2011 exceeds the exercise price of the options.

Restricted Stock Awards and Units

In addition to stock options, officers, directors and key employees may be granted restricted stock awards (“RSA”), which is an award of common stock with no exercise price, or restricted stock units (“RSU”), where each unit represents the right to receive, at the end of a stipulated period, one unrestricted share of stock with no exercise price. RSAs and RSUs are subject to cliff or graded vesting, generally ranging over a three to five year period. We determine the fair value of restricted stock awards and restricted stock units based on the market price of our common stock on the date of grant. Compensation cost for RSAs and RSUs is primarily recognized on a straight-line basis over the vesting period and is net of forfeitures.

The following table presents the changes in RSAs and RSUs and related information (in thousands, except per share/unit prices):

	RSA Number of Shares			Weighted Average Grant Date Fair Value Per Share	RSU Number of Units			Weighted Average Grant Date Fair Value Per Unit
Unvested balance at December 31, 2010		1,399		$    43.05		1,098		$    46.60
Granted		698		62.85		351		63.33
Vested		(691	)	46.24		(421	)	47.38
Forfeited		(94	)	49.72		(88	)	51.06
Unvested balance at December 31, 2011		1,312		$    51.43		940		$    52.08

The weighted average grant date fair value per share for RSAs granted in 2011, 2010 and 2009 was $62.85, $47.68 and $31.18, respectively. The weighted average grant date fair value per unit for RSUs granted in 2011, 2010 and 2009 was $63.33, $47.30 and $31.54, respectively.

The total fair value of RSAs and RSUs vested in 2011, 2010 and 2009 was $52 million, $36 million and $18 million, respectively. As of December 31, 2011, there was $40 million and $29 million of total unrecognized compensation cost related to unvested RSAs and RSUs, respectively, which is expected to be recognized over a weighted average period of two years.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“ESPP”) provides for eligible employees to purchase shares on an after-tax basis in an amount between 1% and 10% of their annual pay: (i) on June 30 of each year at a 15% discount of the fair market value of our common stock on January 1 or June 30, whichever is lower, and (ii) on December 31 of each year at a 15% discount of fair market value of our common stock on July 1 or December 31, whichever is lower. An employee may not purchase more than $5,000 in either of the six-month measurement periods described above or $10,000 annually.

We currently have 22.5 million shares authorized for issuance, and at December 31, 2011, there were 4.1 million shares reserved for future issuance. Compensation cost for the years ended December 31, was calculated using the Black-Scholes option pricing model with the following assumptions:

	2011			2010			2009
Expected life (years)		1.0			1.0			1.0
Risk-free interest rate		0.1	%		0.2	%		0.3	%
Volatility		36.6	%		44.2	%		69.5	%
Dividend yield		1.0	%		1.5	%		1.9	%
Fair value per share of the 15% cash discount		$    9.62			$    6.16			$    4.81
Fair value per share of the look-back provision		6.50			4.98			8.44
Total weighted average fair value per share at grant date		$  16.12			$  11.14			$  13.25

We calculated estimated volatility using historical daily prices based on the expected life of the stock purchase plan. The risk-free interest rate is based on the observed U.S. Treasury yield curve in effect at the time the ESPP shares were granted. The dividend yield is based on our history of dividend payouts.