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CAPITAL STOCK

12 Months Ended

Dec. 28, 2019

EARNINGS PER SHARE — The following table reconciles net earnings attributable to common shareowners and the weighted-average shares outstanding used to calculate basic and diluted earnings per share for the fiscal years ended December 28, 2019, December 29, 2018, and December 30, 2017.



	2019		2018		2017
Numerator (in millions):
Net Earnings Attributable to Common Shareowners	$	955.8	$	605.2	$	1,227.3



Denominator (in thousands):
Basic weighted-average shares outstanding	148,365	148,919	149,629
Dilutive effect of stock contracts and awards	2,193	2,724	2,820
Diluted weighted-average shares outstanding	150,558	151,643	152,449



Earnings per share of common stock:
Basic	$	6.44	$	4.06	$	8.20
Diluted	$	6.35	$	3.99	$	8.05

The following weighted-average stock options were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive (in thousands):



	2019	2018	2017
Number of stock options	2,151	1,339	389

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2019 Equity Units”). Each unit initially consists of 750,000 shares of convertible preferred stock and forward stock purchase contracts. On and after November 15, 2022, the convertible preferred stock may be converted into common stock at the option of the holder. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. The conversion rate is initially 5.2263 shares of common stock per one share of convertible preferred stock, which is equivalent to an initial conversion price of approximately $191.34 per share of common stock. The convertible preferred stock is excluded from the denominator of the diluted earnings per share calculation on the basis that the convertible preferred stock will be settled in cash except to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference. Therefore, before any redemption or conversion, the common shares that would be required to settle the applicable conversion value in excess of the liquidation preference, if the Company elects to settle such excess in common shares, are included in the denominator of diluted earnings per share in periods in which they are dilutive. The shares related to the convertible preferred stock were anti-dilutive during November and December of 2019.

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2017 Equity Units”). Each unit initially consists of 750,000 shares of convertible preferred stock and forward stock purchase contracts. On and after May 15, 2020, the convertible preferred stock may be converted into common stock at the option of the holder. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof. The conversion rate was initially 6.1627 shares of common stock per one share of convertible preferred stock, which was equivalent to an initial conversion price of approximately $162.27 per share of common stock. As of December 28, 2019, due to the customary anti-dilution provisions, the conversion rate was 6.1954, equivalent to a conversion price of approximately $161.41 per share of common stock. The convertible preferred stock is excluded from the denominator of the diluted earnings per share calculation on the basis that the convertible preferred stock will be settled in cash except to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference. Therefore, before any redemption or conversion, the common shares that would be required to settle the applicable conversion value in excess of the liquidation preference, if the Company elects to settle such excess in common shares, are included in the denominator of diluted earnings per share in periods in which they are dilutive. The shares related to the convertible preferred stock were anti-dilutive during most of 2019.

See "Other Equity Arrangements" below for further details of the above transactions.

COMMON STOCK ACTIVITY — Common stock activity for 2019, 2018 and 2017 was as follows:



	2019		2018		2017
Outstanding, beginning of year	151,302,450		154,038,031		152,559,767
Issued from treasury	2,391,336		941,854		1,680,339
Returned to treasury	(187,377	)	(3,677,435	)	(202,075	)
Outstanding, end of year	153,506,409		151,302,450		154,038,031
Shares subject to the forward share purchase contract	(3,645,510	)	(3,645,510	)	(3,645,510	)
Outstanding, less shares subject to the forward share purchase contract	149,860,899		147,656,940		150,392,521

In April 2018, the Company repurchased 1,399,732 shares of common stock for approximately $200.0 million. In July 2018, the Company repurchased 2,086,792 shares of common stock for approximately $300.0 million.

In March 2015, the Company entered into a forward share purchase contract with a financial institution counterparty for 3,645,510 shares of common stock. The contract obligates the Company to pay $350.0 million, plus an additional amount related to the forward component of the contract. In February 2020, the Company amended the settlement date to April 2022, or earlier at the Company's option. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract in March 2015 and factored into the calculation of weighted-average shares outstanding at that time.

COMMON STOCK RESERVED — Common stock shares reserved for issuance under various employee and director stock plans at December 28, 2019 and December 29, 2018 are as follows:



	2019	2018
Employee stock purchase plan	1,593,759	1,606,224
Other stock-based compensation plans	11,330,531	14,277,893
Total shares reserved	12,924,290	15,884,117

On January 22, 2018, the Board of Directors adopted the 2018 Omnibus Award Plan (the "2018 Plan") and authorized the issuance of 16,750,000 shares of the Company's common stock in connection with the awards pursuant to the 2018 Plan. No further awards will be issued under the Company's 2013 Long-Term Incentive Plan.

STOCK-BASED COMPENSATION PLANS — The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock units and other stock-based awards.

The plans are generally administered by the Compensation and Talent Development Committee of the Board of Directors, consisting of non-employee directors.

Stock Option Valuation Assumptions:

Stock options are granted at the fair market value of the Company’s stock on the date of grant and have a 10-year term. Generally, stock option grants vest ratably over 4 years from the date of grant.

The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the strike price of the stock option; expected volatility is based on an average of the market implied volatility and historical volatility for the 5.25 year expected life; the risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option; and a seven percent forfeiture rate is assumed. The Company uses historical data in order to estimate forfeitures and holding period behavior for valuation purposes.

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used to value grants made in 2019, 2018 and 2017:



	2019			2018			2017
Average expected volatility	25.0		%	23.0		%	20.0		%
Dividend yield	1.8		%	2.0		%	1.5		%
Risk-free interest rate	1.5		%	2.9		%	2.2		%
Expected term	5.3 years			5.3 years			5.2 years
Fair value per option	$	30.09		$	26.54		$	30.71
Weighted-average vesting period	2.8 years			2.9 years			2.9 years

Stock Options:

The number of stock options and weighted-average exercise prices as of December 28, 2019 are as follows:



	Options		Price
Outstanding, beginning of year	7,352,263		$	107.36
Granted	1,225,750		150.69
Exercised	(1,851,761	)	78.17
Forfeited	(271,581	)	144.05
Outstanding, end of year	6,454,671		$	122.42
Exercisable, end of year	3,720,639		$	105.71

At December 28, 2019, the range of exercise prices on outstanding stock options was $57.50 to $168.78. Stock option expense was $27.7 million, $23.9 million and $21.3 million for the years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively. At December 28, 2019, the Company had $55.9 million of unrecognized pre-tax compensation expense for stock options. This expense will be recognized over the remaining vesting periods which are 1.8 years on a weighted-average basis.

During 2019, the Company received $144.7 million in cash from the exercise of stock options. The related tax benefit from the exercise of these options was $34.7 million. During 2019, 2018 and 2017, the total intrinsic value of options exercised was $143.7 million, $18.3 million and $72.7 million, respectively. When options are exercised, the related shares are issued from treasury stock.

An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option times the applicable tax rate represents the excess tax benefit. During 2019, 2018 and 2017, the excess tax benefit arising from tax deductions in excess of recognized compensation cost totaled $25.8 million, $2.3 million and 18.3 million, respectively, and was recorded in income tax expense.

Outstanding and exercisable stock option information at December 28, 2019 follows:



	Outstanding Stock Options				Exercisable Stock Options
Exercise Price Ranges	Options	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Options	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
$75.00 and below	991,566	1.64	$	64.69	991,566	1.64	$	64.69
$75.01 — $125.00	2,154,836	5.91	107.44		1,932,443	5.80	106.10
$125.01 and higher	3,308,269	8.97	149.48		796,630	8.13	155.84
	6,454,671	6.83	$	122.42	3,720,639	5.19	$	105.71

Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement eligible employees (those aged 55 and over and with 10 or more years of service) is recognized by the date they become retirement eligible, as such employees may retain their options for the 10 year contractual term in the event they retire prior to the end of the vesting period stipulated in the grant.

As of December 28, 2019, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $283.5 million and $225.5 million, respectively.

Employee Stock Purchase Plan:

The Employee Stock Purchase Plan (“ESPP”) enables eligible employees in the United States, Canada and Israel to purchase shares of the Company's common stock at the lower of 85.0% of the fair market value of the shares on the grant date ($110.80 per share for fiscal year 2019 purchases) or 85.0% of the fair market value of the shares on the last business day of each month. A maximum of 6,000,000 shares are authorized for subscription. In conjunction with the Company’s cost savings initiatives, the ESPP was temporarily suspended in 2019 and has been reinstated in 2020. During 2019, 2018 and 2017, 12,465 shares, 139,715 shares and 190,154 shares, respectively, were issued under the plan at average prices of $103.02, $121.00, and $103.35 per share, respectively, and the intrinsic value of the ESPP purchases was $0.3 million, $3.1 million and $8.7 million, respectively. For 2019, the Company received $1.3 million in cash from ESPP purchases, and there was no related tax benefit. The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. ESPP compensation cost is recognized ratably over the one year term based on actual employee stock purchases under the plan. The fair value of the employees’ purchase rights under the ESPP was estimated using the following assumptions for 2019, 2018 and 2017, respectively: dividend yield of 2.2%, 1.6% and 1.8%; expected volatility of 28.0%, 16.0% and 21.0%; risk-free interest rates of 2.5%, 1.6%, and 0.9%; and expected lives of one year. The weighted-average fair value of those purchase rights granted in 2019, 2018 and 2017 was $27.75, $43.69 and $35.70, respectively. Total compensation expense recognized for ESPP was de minimus in 2019, $6.6 million in 2018 and $6.7 million in 2017.

Restricted Share Units and Awards:

Compensation cost for restricted share units and awards, including restricted shares granted to French employees in lieu of RSUs, (collectively “RSUs”) granted to employees is recognized ratably over the vesting term, which varies but is generally 4 years. RSU grants totaled 282,598 shares, 413,838 shares and 304,976 shares in 2019, 2018 and 2017, respectively. The weighted-average grant date fair value of RSUs granted in 2019, 2018 and 2017 was $149.14, $133.90 and $160.04 per share, respectively.

Total compensation expense recognized for RSUs amounted to $41.2 million, $40.1 million and $31.7 million in 2019, 2018 and 2017, respectively. The actual tax benefit received related to the shares that were delivered in 2019 was $12.7 million. The excess tax benefit recognized was $3.4 million, $1.8 million, and $4.9 million in 2019, 2018 and 2017, respectively. As of December 28, 2019, unrecognized compensation expense for RSUs amounted to $80.9 million and will be recognized over a weighted-average period of 2 years.

A summary of non-vested restricted stock unit and award activity as of December 28, 2019, and changes during the twelve month period then ended is as follows:



	Restricted Share Units & Awards		Weighted-Average Grant Date Fair Value
Non-vested at December 29, 2018	1,074,735		$	129.65
Granted	282,598		149.14
Vested	(372,571	)	119.92
Forfeited	(118,242	)	136.62
Non-vested at December 28, 2019	866,520		$	139.23

The total fair value of shares vested (market value on the date vested) during 2019, 2018 and 2017 was $56.7 million, $46.8 million and $46.6 million, respectively.

Non-employee members of the Board of Directors received restricted share-based grants which must be cash settled and accordingly mark-to-market accounting is applied. The Company recognized $6.8 million of expense for these awards in 2019, $3.4 million of income in 2018, and expense of $7.0 million in 2017. Additionally, the Board of Directors were granted restricted share units for which compensation expense of $1.2 million, $1.2 million, and $1.0 million was recognized for 2019, 2018 and 2017, respectively.

Management Incentive Compensation Plan Performance Stock Units:

In 2019, the Company granted Performance Stock Units (collectively "MICP-PSUs") under the Management Incentive Compensation Plan ("MICP") to participating employees. Awards are payable in shares of common stock and generally no award is made if the employee terminates employment prior to the settlement dates. The ultimate delivery of the shares related to the 2019 MICP-PSU grant will occur ratably in March 2020, 2021, and 2022. The total shares to be delivered are based on actual 2019 performance in relation to the established goals.

Compensation cost for these performance awards is recognized ratably over the vesting term of 3 years. Total expense recognized in 2019 related to these MICP-PSUs approximated $9.5 million. The maximum number of shares that may be issued under the 2019 grant is 346,011 share units which remain non-vested as of December 28, 2019. The grant date fair value associated with the MICP-PSUs granted in 2019 is $127.27 per share.

Long-Term Performance Awards:

The Company has granted Long-Term Performance Awards (“LTIP”) under its 2018 Omnibus Award Plan and 2013 Long Term Incentive Plan to senior management employees for achieving Company performance measures. Awards are payable in shares of common stock, which may be restricted if the employee has not achieved certain stock ownership levels, and generally no award is made if the employee terminates employment prior to the settlement date. LTIP grants were made in 2017, 2018 and 2019. Each grant has separate annual performance goals for each year within the respective three year performance period. Earnings per share and cash flow return on investment represent 75% of the grant value. There is a third market-based metric, representing 25% of the total grant, which measures the Company’s common stock return relative to peers over the performance period. The ultimate delivery of shares will occur in 2020, 2021 and 2022 for the 2017, 2018 and 2019 grants, respectively. Share settlements are based on actual performance in relation to these goals.

Expense recognized for these performance awards amounted to $9.0 million in 2019, $4.7 million in 2018, and $18.0 million in 2017. With the exception of the market-based metric comprising 25% of the award, in the event performance goals are not met, compensation cost is not recognized and any previously recognized compensation cost is reversed.

A summary of the activity pertaining to the maximum number of shares that may be issued is as follows:



	Share Units		Weighted-Average Grant Date Fair Value
Non-vested at December 29, 2018	627,407		$	116.85
Granted	639,957		123.01
Vested	(154,217	)	86.56
Forfeited	(105,910	)	91.12
Non-vested at December 28, 2019	1,007,237		$	128.10

OTHER EQUITY ARRANGEMENTS

2019 Equity Units and Capped Call Transactions

In November 2019, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2019 Equity Units”). Each unit has a stated amount of $100 and initially consists of a three-year forward stock purchase contract (“2022 Purchase Contracts”) for the purchase of a variable number of shares of common stock, on November 15, 2022, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series D Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share (“Series D Preferred Stock”). The Company received approximately $735.0 million in net cash proceeds from the 2019 Equity Units net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series D Preferred Stock, recording $750.0 million in preferred stock. The proceeds were used for general corporate purposes, including repayment of short-term borrowings. The Company also used $19.2 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution as described in more detail below.

Convertible Preferred Stock

In November 2019, the Company issued 750,000 shares of Series D Preferred Stock, without par, with a liquidation preference of $1,000 per share. The convertible preferred stock will initially not bear any dividends and the liquidation preference of the convertible preferred stock will not accrete. The convertible preferred stock has no maturity date and will remain outstanding unless converted by holders or redeemed by the Company. Holders of shares of the convertible preferred stock will generally have no voting rights.

The Series D Preferred Stock is pledged as collateral to support holders’ purchase obligations under the 2022 Purchase Contracts and can be remarketed. In connection with any successful remarketing, the Company may (but is not required to) modify certain terms of the convertible preferred stock, including the dividend rate, the conversion rate, and the earliest

redemption date. After any successful remarketing in connection with which the dividend rate on the convertible preferred stock is increased, the Company will pay cumulative dividends on the convertible preferred stock, if declared by the Board of Directors, quarterly in arrears from the applicable remarketing settlement date.

On and after November 15, 2022, the Series D Preferred Stock may be converted into common stock at the option of the holder. The conversion rate is initially 5.2263 shares of common stock per one share of Series D Preferred Stock, which is equivalent to an initial conversion price of approximately $191.34 per share of common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof.

The Company may not redeem the Series D Preferred Stock prior to December 22, 2022. At the election of the Company, on or after December 22, 2022, the Company may redeem for cash, all or any portion of the outstanding shares of the Series D Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series D Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date.

2022 Purchase Contracts

The 2022 Purchase Contracts obligate the holders to purchase, on November 15, 2022, for a price of $100 in cash, a maximum number of 4.7 million shares of the Company’s common stock (subject to customary anti-dilution adjustments). The 2022 Purchase Contract holders may elect to settle their obligation early, in cash. The Series D Preferred Stock is pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the 2022 Purchase Contracts. The initial settlement rate determining the number of shares that each holder must purchase will not exceed the maximum settlement rate, and is determined over a market value averaging period immediately preceding November 15, 2022.

The initial maximum settlement rate of 0.6272 was calculated using an initial reference price of $159.45, equal to the last reported sale price of the Company's common stock on November 7, 2019. If the applicable market value of the Company's common stock is less than or equal to the reference price, the settlement rate will be the maximum settlement rate; and if the applicable market value of common stock is greater than the reference price, the settlement rate will be a number of shares of the Company's common stock equal to $100 divided by the applicable market value. Upon settlement of the 2022 Purchase Contracts, the Company will receive additional cash proceeds of $750 million.

The Company will pay the holders of the 2022 Purchase Contracts quarterly payments (“Contract Adjustment Payments”) at a rate of 5.25% per annum, payable quarterly in arrears on February 15, May 15, August 15 and November 15, which will commence on February 15, 2020. The $114.2 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity at inception. As each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment and the present value will accrete to interest expense, approximately $1.3 million per year over the three-year term. As of December 28, 2019, the present value of the Contract Adjustment Payments was $114.4 million.

The holders can settle the purchase contracts early, for cash, subject to certain exceptions and conditions in the prospectus supplement. Upon early settlement of any purchase contracts, the Company will deliver the number of shares of its common stock equal to 85% of the number of shares of common stock that would have otherwise been deliverable.

Capped Call Transactions

In order to offset the potential economic dilution associated with the common shares issuable upon conversion of the Series D Preferred Stock, to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference, the Company entered into capped call transactions with three major financial institutions.

The capped call transactions have a term of approximately three years and are intended to cover the number of shares issuable upon conversion of the Series D Preferred Stock. Subject to customary anti-dilution adjustments, the capped call has an initial lower strike price of $191.34, which corresponds to the minimum 5.2263 settlement rate of the Series D Preferred Stock, and an upper strike price of $207.29, which is approximately 30% higher than the closing price of the Company's common stock on November 7, 2019.

The capped call transactions may be settled by net share settlement (the default settlement method) or, at the Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The number of shares the Company will receive will be determined by the terms of the contracts using a volume-weighted average price calculation for the market value of the Company's common stock, over an averaging period. The market value determined will then be

measured against the applicable strike price of the capped call transactions. The Company expects the capped call transactions to offset the potential dilution upon conversion of the Series D Preferred Stock if the calculated market value is greater than the lower strike price but less than or equal to the upper strike price of the capped call transactions. Should the calculated market value exceed the upper strike price of the capped call transactions, the dilution mitigation will be limited based on such capped value as determined under the terms of the contracts.

With respect to the impact on the Company, the capped call transactions and 2019 Equity Units, when taken together, result in the economic equivalent of having the conversion price on the 2019 Equity Units at $207.29, the upper strike price of the capped call as of December 28, 2019.

The Company paid $19.2 million, or an average of $4.90 per option, to enter into capped call transactions on 3.9 million shares of common stock. The $19.2 million premium paid was a reduction of Shareowners’ Equity. The aggregate fair value of the options at December 28, 2019 was $19.2 million.

2018 Capped Call Transactions

In March 2018, the Company purchased from a financial institution "at-the money" capped call options with an approximate term of three years, on 3.2 million shares of its common stock (subject to customary anti-dilution adjustments) for an aggregate premium of $57.3 million, or an average of $17.96 per share. The premium paid was recorded as reduction of Shareowners' equity. The purpose of the capped call options was to hedge the risk of stock price appreciation between the lower and upper strike prices of the capped call options for a future share repurchase.

The capped call had an initial lower strike price of $156.86 and an upper strike price of $203.92, which was approximately 30% higher than the closing price of the Company's common stock on March 13, 2018. As of December 28, 2019, due to the customary anti-dilution provisions, the capped call transactions had an adjusted lower strike price of $156.59 and an adjusted upper strike price of $203.57. The aggregate fair value of the options at December 28, 2019 was $56.4 million.

The capped call transactions may be settled by net-share settlement (the default settlement method) or, at the Company's option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The number of shares the Company will receive will be determined by the terms of the contracts using a volume-weighted average price calculation for the market value of the Company's common stock, over an average period. The market value determined will then be measured against the applicable strike price of the capped call transactions.

2017 Equity Units and Capped Call Transactions

In May 2017, the Company issued 7,500,000 Equity Units with a total notional value of $750.0 million (“2017 Equity Units”). Each unit has a stated amount of $100 and initially consists of a three-year forward stock purchase contract (“2020 Purchase Contracts”) for the purchase of a variable number of shares of common stock, on May 15, 2020, for a price of $100, and a 10% beneficial ownership interest in one share of 0% Series C Cumulative Perpetual Convertible Preferred Stock, without par, with a liquidation preference of $1,000 per share (“Series C Preferred Stock”). The Company received approximately $726.0 million in net cash proceeds from the 2017 Equity Units net of offering expenses and underwriting costs and commissions, and issued 750,000 shares of Series C Preferred Stock, recording $750.0 million in preferred stock. The proceeds were used for general corporate purposes, including repayment of short-term borrowings. The Company also used $25.1 million of the proceeds to enter into capped call transactions utilized to hedge potential economic dilution as described in more detail below.

Convertible Preferred Stock

In May 2017, the Company issued 750,000 shares of Series C Preferred Stock, without par, with a liquidation preference of $1,000 per share. The convertible preferred stock will initially not bear any dividends and the liquidation preference of the convertible preferred stock will not accrete. The convertible preferred stock has no maturity date, and will remain outstanding unless converted by holders or redeemed by the Company. Holders of shares of the convertible preferred stock will generally have no voting rights.

The Series C Preferred Stock is pledged as collateral to support holders’ purchase obligations under the 2020 Purchase Contracts and can be remarketed. In connection with any successful remarketing, the Company may (but is not required to) modify certain terms of the convertible preferred stock, including the dividend rate, the conversion rate, and the earliest redemption date. After any successful remarketing in connection with which the dividend rate on the convertible preferred

stock is increased, the Company will pay cumulative dividends on the convertible preferred stock, if declared by the Board of Directors, quarterly in arrears from the applicable remarketing settlement date.

On and after May 15, 2020, the Series C Preferred Stock may be converted into common stock at the option of the holder. The initial conversion rate was 6.1627 shares of common stock per one share of Series C Preferred Stock, which was equivalent to an initial conversion price of approximately $162.27 per share of common stock. As of December 28, 2019, due to the customary anti-dilution provisions, the conversion rate was 6.1954, equivalent to a conversion price of approximately $161.41 per share of common stock. At the election of the Company, upon conversion, the Company may deliver cash, common stock, or a combination thereof.

The Company may not redeem the Series C Preferred Stock prior to June 22, 2020. At the election of the Company, on or after June 22, 2020, the Company may redeem for cash, all or any portion of the outstanding shares of the Series C Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends. If the Company calls the Series C Preferred Stock for redemption, holders may convert their shares immediately preceding the redemption date.

2020 Purchase Contracts

The 2020 Purchase Contracts obligate the holders to purchase, on May 15, 2020, for a price of $100 in cash, a maximum number of 5.4 million shares of the Company’s common stock (subject to customary anti-dilution adjustments). The 2020 Purchase Contract holders may elect to settle their obligation early, in cash. The Series C Preferred Stock is pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the 2020 Purchase Contracts. The initial settlement rate determining the number of shares that each holder must purchase will not exceed the maximum settlement rate, and is determined over a market value averaging period immediately preceding May 15, 2020.

The initial maximum settlement rate of 0.7241 was calculated using an initial reference price of $138.10, equal to the last reported sale price of the Company's common stock on May 11, 2017. As of December 28, 2019, due to the customary anti-dilution provisions, the maximum settlement rate was 0.7279, equivalent to a reference price of $137.38. If the applicable market value of the Company's common stock is less than or equal to the reference price, the settlement rate will be the maximum settlement rate; and if the applicable market value of common stock is greater than the reference price, the settlement rate will be a number of shares of the Company's common stock equal to $100 divided by the applicable market value. Upon settlement of the 2020 Purchase Contracts, the Company will receive additional cash proceeds of $750 million.

The Company pays the holders of the 2020 Purchase Contracts quarterly payments (“Contract Adjustment Payments”) at a rate of 5.375% per annum, payable quarterly in arrears on February 15, May 15, August 15 and November 15, which commenced August 15, 2017. The $117.1 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity at inception. As each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment and the present value accretes to interest expense, approximately $1.3 million per year over the three-year term. As of December 28, 2019, the present value of the Contract Adjustment Payments was $19.7 million.

Capped Call Transactions

In order to offset the potential economic dilution associated with the common shares issuable upon conversion of the Series C Preferred Stock, to the extent that the conversion value of the convertible preferred stock exceeds its liquidation preference, the Company entered into capped call transactions with three major financial institutions.

The capped call transactions have a term of approximately three years and are intended to cover the number of shares issuable upon conversion of the Series C Preferred Stock. Subject to customary anti-dilution adjustments, the capped call has an initial lower strike price of $162.27, which corresponds to the minimum 6.1627 settlement rate of the Series C Preferred Stock, and an upper strike price of $179.53, which is approximately 30% higher than the closing price of the Company's common stock on May 11, 2017. As of December 28, 2019, due to the customary anti-dilution provisions, the capped call transactions had an adjusted lower strike price of $161.41 and an adjusted upper strike price of $178.58.

The capped call transactions may be settled by net-share settlement (the default settlement method) or, at the Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The number of shares the Company will receive will be determined by the terms of the contracts using a volume-weighted average price calculation

for the market value of the Company's common stock, over an averaging period. The market value determined will then be measured against the applicable strike price of the capped call transactions. The Company expects the capped call transactions to offset the potential dilution upon conversion of the Series C Preferred Stock if the calculated market value is greater than the lower strike price but less than or equal to the upper strike price of the capped call transactions. Should the calculated market value exceed the upper strike price of the capped call transactions, the dilution mitigation will be limited based on such capped value as determined under the terms of the contracts.

With respect to the impact on the Company, the capped call transactions and 2017 Equity Units, when taken together, result in the economic equivalent of having the conversion price on the 2017 Equity Units at $178.58, the upper strike price of the capped call as of December 28, 2019.

The Company paid $25.1 million, or an average of $5.43 per option, to enter into capped call transactions on 4.6 million shares of common stock. The $25.1 million premium paid was a reduction of Shareowners’ Equity. The aggregate fair value of the options at December 28, 2019 was $36.0 million.