Common Stock

The 2003 LTIP permits the granting of incentive or nonqualified stock options as well as stock appreciation rights, performance shares, RSUs and other stock-based awards. The 2003 LTIP permits the distribution of up to 11,000,000 shares of the Company's common stock, subject to increase for any shares forfeited under other equity compensation plans after the effective date of the 2003 LTIP. Shares issued under the 2003 LTIP may be authorized and unissued shares or treasury shares. This plan permits the award of non-qualified stock options and other stock-based awards to those members of the Board of Directors who are not employees of the Company. Under the 2003 LTIP for 2012 and prior years, a non-employee Director received (i) an initial option to purchase 20,000 shares of Company common stock on the date of his or her initial election as a Director, (ii) 1,200 shares of stock granted on the first business day in January and (iii) additional awards of options to purchase 10,000 shares on the day after each annual shareholders' meeting if the non-employee Director had served on the Board for at least six months. Beginning in 2013, the Board (i) reduced the initial option grant for new Directors to two times their annual cash retainer, (ii) reduced the amount of additional option awards to an amount equal to 60 percent of a director's annual equity grant award and (iii) provided the other 40 percent in time-based RSUs, each of which vest one-third on each grant date anniversary. Incentive and nonqualified stock options may not have an option exercise price of less than the fair market value of the shares at the date of the grant. Including shares forfeited or swapped, 999,368 shares of the Company's common stock remain available for award under the 2003 LTIP at December 31, 2013.

As of December 31, 2013, the Company expects $22 of unrecognized expense related to granted, but nonvested stock-based compensation arrangements to be incurred in future periods. This expense is expected to be recognized over a weighted average period of 1.5 years.

Stock-based compensation expense is included in SG&A. The stock-based compensation expense for the years ended December 31, 2013, 2012 and 2011 was $22, $17 and $18, respectively. The tax benefit related to this expense was $7 for the year ended December 31, 2013 and $6 for the years ended December 31, 2012 and 2011.

Stock Options. The Company measures the total fair value of options on the grant date using the Black-Scholes option-pricing model and recognizes each grant's fair value as compensation cost over the period that the option vests. Options generally become exercisable from one to three years following the grant date and expire ten years after the grant date. During the year ended December 31, 2013, the Company granted a total of 791,760 stock options under the 2003 LTIP.

The weighted-average assumptions under the Black-Scholes option-pricing model for stock option grants are as follows:



	2013	2012	2011
Expected term (years)	5.0	4.9	4.8
Expected volatility	31.86%	32.92%	30.68%
Risk-free interest rate	0.98%	0.80%	2.17%
Dividend yield	1.13%	1.11%	1.13%

Expected term—The expected term of the options represents the period of time between the grant date and the time the options are either exercised or forfeited, including an estimate of future forfeitures for outstanding options. In accordance with SEC Staff Accounting Bulletin No. 107, the Company has used the "simplified" method for "plain vanilla" options to estimate the expected term of options granted prior to 2008.

Expected volatility—The expected volatility is calculated based on an average of the historical volatility of the Company's stock price for a period approximating the expected term.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and a maturity that approximates the expected term.

Dividend yield—The dividend yield is based on the Company's authorized quarterly dividend, approved by the Board during the respective periods noted above, and the Company's expectation for dividend yields over the expected term.

A summary of the combined stock option activity and other data for the Company's stock option plans, including the 2003 LTIP, the Stock Option Plan of 2000 and the 1998 Directors' Non-Qualified Share Option Plans, for the year ended December 31, 2013 is as follows:



	Number of Stock Options		Wtd. Avg. Exercise Price Per Share		Wtd. Avg. Remaining Contractual Life	Aggregate Intrinsic Value
Stock Options outstanding, January 1, 2013	3,341,529		$	47.03
Granted	791,760		77.34
Exercised	(788,982	)	35.92
Forfeited	(38,010	)	68.07
Stock Options outstanding, December 31, 2013	3,306,297		56.70		70.34 months	$	123
Stock Options exercisable, December 31, 2013	2,214,272		47.83		52.89 months	$	102

The aggregate intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $35, $52 and $30, respectively.

The weighted average grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $20.11, $18.67 and $17.05 per share, respectively.

Performance Shares. Performance Share awards in 2013, 2012 and 2011 were 104,545, 224,560 and 220,305 shares, respectively. A summary of the criteria for the Performance Share awards can be found in the table below.



	2013 ⁽¹⁾	2012	2011
Service Period	Three years	Three years	Three years
Vesting Period	Cliff vest on December 31, 2015	Cliff vest on December 31, 2014	Cliff vest December 31, 2013
Payout Range ⁽²⁾	0 percent to 200 percent	0 percent to 200 percent	0 percent to 150 percent
Metrics / Performance Criteria	- 40 percent based upon the Company's yearly return on invested capital (calculated each year of the service period)	- 40 percent based upon the Company's three-year average return on equity ratio calculation	- 50 percent based upon the Company's three-year average return on equity ratio calculation
	- 40 percent based upon the Company's three-year average sales growth (adjusted for changes in foreign currency exchange rates)	- 40 percent based upon the Company's three-year average sales growth (adjusted for changes in foreign currency exchange rates)	- 50 percent based upon the Company's three-year average sales growth (adjusted for changes in foreign currency exchange rates)
	- 20 percent based on the Company's total shareholder return relative to certain competitors	- 20 percent based on the Company's total shareholder return relative to certain competitors

(1) Of the 104,545 Performance Shares awarded in 2013, 30,290 were awarded on September 3, 2013 and subject to different performance criteria than those noted within the table above. These Performance Shares have a three year performance period beginning July 1, 2013 and ending June 30, 2016, with 50 percent vesting on the three-year anniversary of the award date and 50 percent vesting on the five-year anniversary of the award date. Performance is measured by the Company achieving "Cumulative Free Cash Flow" during the performance period equal to or greater than $900. For these specific awards, the Company expenses the expected cost of the awards over the respective vesting periods beginning on the grant date with half ending on the three-year anniversary of the award date and half ending on the five-year anniversary of the award date.

(2) The payout range is determined at the end of the performance period.

Subject to meeting the performance criteria, the Performance Share grants will be paid in shares of the Company's common stock. Such shares do not pay or accumulate dividends, if any, during the vesting period. The Company expenses the expected cost of the awards over the vesting period beginning on the grant date and ending on December 31 of the third subsequent fiscal year, except for those discussed in note (1) above. The expense for the entire number of Performance Shares awarded is dependent upon the probability of achieving the specific financial targets and is recorded ratably over the vesting period.

A summary of the Company's nonvested Performance Shares as of December 31, 2013, and changes during the year then ended, is reflected in the table below.



	Number of Performance Units		Wtd. Avg. Grant Date Fair Value
Nonvested Performance Shares outstanding, January 1, 2013	320,485		$	67.97
Granted	104,545		75.00
Vested ⁽¹⁾	(136,282	)	63.95
Forfeited ⁽²⁾	(33,311	)	67.59
Nonvested Performance Shares outstanding, December 31, 2013	255,437		72.45


(1)	Represents the entire amount of Performance Shares which vested during the year ended December 31, 2013. Of these vested Performance Shares, 510 were paid out in 2013 and the remainder were outstanding as of December 31, 2013.


(2)	Includes reductions due to employee terminations and reductions as a result of the Company not meeting certain performance targets.

The weighted average grant date fair value of Performance Shares granted during the years ended December 31, 2013, 2012 and 2011 was $75.00, $71.73 and $63.89, respectively.

Stock Awards. On January 3, 2012 and 2011, each non-employee Director received 1,200 shares of Company common stock. The 2012 and 2011 stock awards were expensed in the first quarter of 2012 and 2011, respectively, based on the fair market value of the Company's common stock at the date of grant. In 2013, the Company began granting the Directors stock options and RSUs in lieu of common stock awards.

Restricted Stock Units. The Company measures the total fair value of RSUs on the grant date using the Company's stock price at the time of the grant less the present value of the expected dividend stream during the vesting period. During the year ended December 31, 2013, the Company granted a total of 98,165 RSUs. RSUs awarded during the year have a vesting period of three years with some awards vesting one-third each year and most awards cliff vesting at the end of the three year period. The awards are expensed over their respective vesting period.

A summary of the Company's nonvested RSUs as of December 31, 2013, and changes during the year then ended, is reflected in the table below.



	Number of RSUs		Wtd. Avg. Grant Date Fair Value
Nonvested RSUs outstanding, January 1, 2013	50,000		$	66.16
Granted	98,165		74.30
Vested⁽¹⁾	(17,862	)	66.02
Forfeited ⁽²⁾	(6,527	)	71.73
Nonvested RSUs outstanding, December 31, 2013	123,776		72.35


(1)	Represents the entire amount of RSUs that vested during the year ended December 31, 2013. Of the RSUs that vested, 17,862 were paid out in 2013.


(2)	Includes reductions due to employee terminations.

The weighted average grant date fair value of RSUs granted during the years ended December 31, 2013, 2012 and 2011 was $74.30, $71.45 and $61.24, respectively.