Note H – Incentive Plans

The costs resulting from all share-based payment transactions are recognized as an expense in the financial statements using a fair value-based measurement method over the periods that the awards vest.

At the Company’s annual stockholders’ meeting held on May 9, 2012, shareholders approved replacement of the 2007 Annual Incentive Plan (2007 Annual Plan) and the 2007 Long-Term Incentive Plan (2007 Long-Term Plan) with the 2012 Annual Incentive Plan (2012 Annual Plan) and 2012 Long-Term Incentive Plan (2012 Long-Term Plan), respectively. The new plans can be found in the Company’s Definitive Proxy statement (Definitive 14A) dated March 29, 2012. All awards on or after May 9, 2012 will be made under the respective 2012 plans.

The 2012 Annual Plan and the 2007 Annual Plan authorize the Executive Compensation Committee (the Committee) to establish specific performance goals associated with annual cash awards that may be earned by officers, executives and other key employees. Cash awards under the 2012 Annual Plan and 2007 Annual Plan are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee. The 2012 Long-Term Plan and the 2007 Long-Term Plan authorize the Committee to make grants of the Company’s Common Stock to employees. These grants may be in the form of stock options (nonqualified or incentive), stock appreciation rights (SAR), restricted stock, restricted stock units, performance units, performance shares, dividend equivalents and other stock-based incentives. The 2012 Long-Term Plan expires in 2022. A total of 8,700,000 shares are issuable during the life of the 2012 Long-Term Plan, with annual grants limited to 1% of Common shares outstanding. The Company has an Employee Stock Purchase Plan that permits the issuance of up to 980,000 shares through September 30, 2017. The Company also has a Stock Plan for Non-Employee Directors that permits the issuance of restricted stock and stock options or a combination thereof to the Company’s Directors.

On January 31, 2012, the Committee granted stock options for 1,643,000 shares to certain employees at an exercise price of $59.655 per share under the 2007 Long-Term Plan. The Black-Scholes valuation for these awards was $17.74 per option. The Committee also granted 653,356 performance-based restricted stock units to certain employees on that date under the 2007 Long-Term Plan. The fair value of the performance-based restricted stock units, using a Monte Carlo valuation model, ranged from $54.90 to $63.64 per unit. On February 1, 2012, the Committee granted 40,260 shares of time-based restricted stock units to the Company’s Directors under the Non-employee Director Plan. These shares vest on the third anniversary of the date of grant. The fair value of these awards was estimated based on the fair market value of the Company’s stock on the date of grant, which was $59.33 per share.

On June 20, 2012, stock options for 227,500 shares were granted to two senior company officers under the 2012 Long-Term Plan. The exercise price of these stock options was $45.70 per share. These stock options vest and become exercisable in periods ranging between six months and three years. The fair value of these stock options using a Black-Scholes valuation model ranged from $12.37 to $13.10 per share. Additionally, on August 1, 2012, the Committee granted 1,996 shares of time-based restricted stock units to a newly elected Company Director. These shares vest on February 1, 2015 and were valued at the fair market value on the date of grant, which was $54.40 per share.

Cash received from options exercised under all share-based payment arrangements for the nine-month periods ended September 30, 2012 and 2011 was $11.1 million and $8.2 million, respectively. The actual income tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements totaled $3.3 million and $7.4 million for the nine-month periods ended September 30, 2012 and 2011, respectively.

Amounts recognized in the financial statements with respect to share-based plans are as follows:


	Nine Months Ended September 30,
(Thousands of dollars)	2012		2011
Compensation charged against income before tax benefit	$	33,952		32,885
Related income tax benefit recognized in income		8,007		9,883