Note 12 – STOCK-BASED COMPENSATION

On April 27, 2010, shareholders of the company approved the 2010 Stock Incentive Plan (2010 Plan) to provide equity awards to key employees and directors. The 2010 Plan provides for the granting of up to 3,000,000 common shares in the form of stock appreciation rights, restricted and unrestricted shares and share units (collectively referred to as “full-value awards”), and options to buy common shares, of which no more than 1,500,000 can be settled as full-value awards. After the 1,500,000 limit has been reached, full-value awards are counted in a 3-to-1 ratio against the 3,000,000 limit. Options become exercisable 50% one year after date of grant, 75% after two years, 100% after three years and expire 10 years after grant. The 2010 Plan terminates with respect to new grants by its own terms on April 1, 2015.

Previously, the company utilized the 2005 Stock Incentive Plan (2005 Plan) to provide equity awards to key employees and directors. The 2005 Plan provided for the granting of up to 4,000,000 common shares in the form of full-value awards and options to buy common shares. Options became exercisable 50% one year after date of grant, 75% after two years, 100% after three years and expire 10 years after grant. The 2005 Plan terminated with respect to new grants by its own terms on April 1, 2010.

Under the company’s long-term incentive program, dollar-based target awards for three-year performance periods are determined by the organization and compensation committee of the board of directors. The target awards correspond to pre-determined three-year cumulative earnings per share growth rates. The dollar-based target awards are converted into a combination of stock options and performance-based share units based on the fair value of the respective awards on the date of grant.

The fair value of stock options is estimated using the Black-Scholes option pricing model. There were 77,500 and 91,800 stock options granted during the six months ended June 30, 2011 and 2010, respectively. Options have been granted to employees at fair market value on the date of grant. The assumptions used to value the options granted were as follows:


	Six Months Ended June 30,
	2011		2010
Risk-free interest rate		2.4%		3.3%
Dividend yield		1.5%		1.6%
Expected volatility		31.7%		30.3%
Expected life (years)		5.4		6.5
Fair value per option	$	30.87	$	23.84

The fair value of performance-based share units is based on the closing price of the company’s common shares on the date of grant. The company granted 82,150 and 106,500 performance-based share units during the six months ended June 30, 2011 and 2010, respectively. There are no voting or dividend rights associated with the performance-based share units until the end of the performance period and a distribution of shares, if any, is made.

Nonvested performance-based share units at June 30, 2011, and changes during the six months ended June 30, 2011, were as follows:


	Share Units		Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2010		855,134	$	43.25
Granted		82,150	$	109.35
Vested		(83,480)	$	58.45
Forfeited		(17,500)	$	51.29

Nonvested at June 30, 2011		836,304	$	48.06

The following table identifies the number of shares expected to be issued based on current expectations of performance and the fair value on the date of grant for the nonvested performance-based share units outstanding at June 30, 2011:


Performance Period	Expected Number of Units to be Issued		Grant Date Fair Value
2009-2011		550,394	$	27.77
2010-2012		203,900	$	78.18
2011-2013		82,010	$	109.35

The company uses previously purchased treasury shares for all shares issued for option exercises and performance-based and restricted share units. The company received $9.1 million and $16.7 million of proceeds from the exercise of stock options during the six months ended June 30, 2011 and 2010, respectively. The company realized $11.7 million and $9.7 million of excess tax benefits related to the exercise of stock options and awards during the six months ended June 30, 2011 and 2010, respectively. The award for the 2008-2010 performance period was distributed during the six months ended June 30, 2011, resulting in the issuance of 178,081 shares and the deferral of 26,179 shares into a deferred compensation plan. The award for the 2007-2009 performance period was distributed during the six months ended June 30, 2010, resulting in the issuance of 213,960 shares and the deferral of 20,576 shares into a deferred compensation plan.

The terms of the performance-based share units granted to international employees state that payment will be in cash at the end of the performance period. In addition, some international employees received stock-based awards in prior years that are similar to stock appreciation rights. As such, liability accounting is used for both of these awards and compensation expense is calculated based on the company’s common share price. Compensation expense recognized in the consolidated statements of income related to these stock-based liability awards was $0.8 million and $4.6 million for the three and six months ended June 30, 2011, respectively. Compensation (credit) expense recognized in the consolidated statements of income related to these stock-based liability awards was $(1.5) million and $1.9 million for the three and six months ended June 30, 2010, respectively.

Total stock-based compensation expense recognized in the consolidated statements of income was $4.7 million and $12.6 million for the three and six months ended June 30, 2011, respectively, compared with $3.7 million and $11.0 million for the three and six months ended June 30, 2010, respectively. The related tax benefit was $1.7 million and $4.4 million for the three and six months ended June 30, 2011, respectively, compared with $1.3 million and $3.8 million for the three and six months ended June 30, 2010, respectively. Based on the grant date fair value of the awards and the company’s common share price at June 30, 2011, there was $24.1 million of total pre-tax unrecognized compensation cost related to all unvested stock-based awards. That cost is expected to be recognized over a weighted-average period of 1.8 years.