11. Share-Based Compensation Plans

The company may grant a variety of share-based payments under the 2012 Long Term Incentive Plan of C. R. Bard, Inc., as amended and restated (formerly the 2003 Long Term Incentive Plan of C. R. Bard, Inc., as amended and restated) (the “Plan”) and the 2005 Directors’ Stock Award Plan of C. R. Bard, Inc., as amended and restated (the “Directors’ Plan”) to certain directors, officers and employees. At the company’s Annual Meeting of Shareholders on April 18, 2012, the shareholders authorized an additional 2,750,000 shares for issuance under the Plan. In addition, shareholders approved an amendment modifying the structure of the Plan so that each stock option granted will reduce the number of total shares available under the Plan by one share, and each full-value share-based award will reduce the number of total shares available under the Plan by 2.87 shares. The total number of remaining shares at December 31, 2012 that may be issued under the Plan was 4,507,271 and under the Directors’ Plan was 39,259. Awards under the Plan may be in the form of stock options, stock appreciation rights, limited stock appreciation rights, restricted stock, unrestricted stock and other stock-based awards. Awards under the Directors’ Plan may be in the form of stock awards, stock options or stock appreciation rights. The company has two employee stock purchase programs. On April 18, 2012, the shareholders authorized an additional 750,000 shares for issuance under the Employee Stock Purchase Plan of C. R. Bard, Inc., as amended and restated (formerly the 1998 Employee Stock Purchase Plan of C. R. Bard, Inc., as amended and restated).

Amounts recognized for share-based compensation for the following years ended December 31 are:


	2012			2011			2010
(dollars in millions)
Total cost of share-based compensation plans	$	52.0		$	55.4		$	58.1
Amounts capitalized in inventory and fixed assets		(1.5	)		(1.5	)		(1.5	)
Amounts charged against income for amounts previously capitalized in inventory and fixed assets		1.6			1.6			1.6

Amounts charged against income	$	52.1		$	55.5		$	58.2

Amount of related income tax benefit recognized in income	$	18.8		$	18.7		$	21.4

As of December 31, 2012, there were $101.9 million of unrecognized compensation costs related to share-based payment arrangements. These costs are expected to be recognized over a weighted-average period of approximately two years. The company has sufficient shares to satisfy expected share-based payment arrangements in 2013.

Stock Options—The company grants stock options to certain employees and may grant stock options to directors with exercise prices equal to the average of the high and low prices of the company’s common stock on the date of grant. These stock option awards generally have requisite service periods of up to four years, and ten-year contractual terms. Certain stock option awards granted in prior years provided for accelerated vesting after a minimum of two years if certain performance conditions are met. Summarized information regarding total stock option activity and amounts for the year ended December 31, 2012 is as follows:


Options	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (millions)
Outstanding - January 1		6,890,866		$	77.75
Granted		945,711			97.41
Exercised		(1,343,074	)		66.73
Canceled/forfeited		(208,765	)		84.91

Outstanding - December 31		6,284,738		$	82.83		6.5	$	93.8

Exercisable		4,129,293		$	78.78		5.1	$	78.3

The company uses a binomial-lattice option valuation model to estimate the fair value of stock options. The assumptions used to estimate the fair value of the company’s stock option grants for the following years ended December 31 are:


	2012			2011			2010
Dividend yield		0.8	%		0.8	%		0.9	%
Risk-free interest rate		0.9	%		1.03	%		1.29	%
Expected option life in years		7.0			7.0			7.2
Expected volatility		21	%		23	%		23	%
Option fair value	$	20.22		$	19.82		$	21.34

Compensation expense related to stock options was $15.8 million, $19.7 million and $22.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, there were $27.9 million of total unrecognized compensation costs related to nonvested stock options. These costs are expected to be recognized over a weighted-average period of approximately two years. During the years ended December 31, 2012, 2011 and 2010, 1,152,890, 489,648 and 1,105,398 options, respectively, vested with a weighted-average fair value of $21.49, $22.80 and $29.40, respectively. The total intrinsic value of stock options exercised during 2012, 2011 and 2010 was $42.1 million, $88.7 million and $21.3 million, respectively.

Cash received from stock option exercises for the years ended December 31, 2012, 2011 and 2010 was $89.6 million, $106.5 million and $34.3 million, respectively. The actual tax benefit realized for the tax deductions from option exercises was $14.5 million, $31.6 million and $7.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Restricted Stock and Units—Restricted stock awards entitle employees to voting and dividend rights. Restricted stock units entitle employees to dividend rights. Certain restricted stock awards have performance features. Restricted stock and unit grants have requisite service periods of between four to seven years. Compensation expense related to restricted stock and units was $18.7 million, $22.1 million and $21.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, there were $39.9 million of total unrecognized compensation costs related to nonvested restricted stock and unit awards. These costs are expected to be recognized over a weighted-average period of approximately two years. The activity in the nonvested restricted stock and unit awards for the year ended December 31, 2012 is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding - January 1		1,121,765		$	84.97
Granted		260,775			96.52
Vested		(239,819	)		85.24
Forfeited		(87,096	)		84.88

Outstanding - December 31		1,055,625		$	87.76

Other Restricted Stock Units—Certain other restricted stock units have requisite service periods of between four and seven years. No voting or dividend rights are associated with these grants until the underlying shares are issued upon vesting. Compensation expense related to these awards was $5.1 million, $4.6 million and $4.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, there were $22.5 million of total unrecognized compensation costs related to these nonvested restricted stock unit awards. These costs are expected to be recognized over a weighted-average period of approximately three years. The activity in the nonvested restricted stock unit awards for the year ended December 31, 2012 is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding - January 1		547,272		$	82.36
Granted		152,128			90.38
Vested		(71,230	)		76.30
Forfeited		(94,013	)		83.87

Outstanding - December 31		534,157		$	85.17

Performance Restricted Stock Units—In the first quarter of 2012, the company granted performance restricted stock units to certain officers. Performance restricted stock units have requisite service periods of three years and have no dividend rights. Compensation expense related to performance restricted stock units was $2.6 million for the year ended December 31, 2012. At December 31, 2012, there were $6.3 million of total unrecognized compensation costs related to nonvested performance restricted stock units. These costs are expected to be recognized over a weighted-average period of approximately two years. The actual payout of these units varies based on the company’s performance over a three-year period against pre-established targets, including a performance condition based on average earnings per share growth over the period and a market condition modifier based on total shareholder return (“TSR”) compared to an industry peer group. The actual payout may vary from zero to 200% of an officer’s target payout. Compensation cost initially recognized assumes that the target payout level will be achieved and is adjusted for subsequent changes in the expected outcome of the performance-related condition. The fair value of these units is based on the market price of the company’s stock on the date of grant and uses a Monte Carlo simulation model for the TSR component. The fair value of the TSR component was estimated based on the following assumptions: risk-free interest rate of 0.41%; dividend yield of 0.85%; and expected life of 2.83 years.

Other Stock-Based Awards—The company grants stock awards to directors. Shares have been generally distributed to a director in his or her year of election and vest on a pro rata basis in each year of his or her term, although additional awards may be granted with other terms. The fair value of these awards is charged to compensation expense over the directors’ terms. Restrictions limit the sale or transfer of these awards until the awarded stock vests and for certain awards until an additional two-year period lapses. There are voting and dividend rights associated with these awards. Compensation expense related to these stock awards was $0.9 million, $1.0 million and $1.2 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, there were $0.5 million of total unrecognized compensation costs related to nonvested other stock-based awards. These costs are expected to be recognized over a weighted-average period of approximately two years. At December 31, 2012 and 2011, nonvested other stock-based awards of 23,107 and 20,867 shares, respectively, were outstanding.

Management Stock Purchase Program—The company maintains a management stock purchase program under the Plan (together with a predecessor stock purchase plan, the “MSPP”). Under the MSPP, employees at a specified level may purchase, with their eligible annual bonus, common stock units at a 30% discount from the lower of the price of the common stock on July 1 of the previous year or on the date of purchase, which occurs on the date bonuses are approved by the Board of Directors. Employees make an election on or before June 30 of the previous year as to the percentage of their eligible annual bonus that will be used to purchase common stock units under the MSPP. The company’s predecessor plan provided for the purchase of shares of the company’s common stock. Employees are required to allocate at least 25% of their eligible annual bonuses to purchase common stock units under the MSPP to the extent they have not satisfied certain stock ownership guidelines. MSPP shares or units are restricted from sale or transfer for four years from the purchase date. Only shares or units corresponding to the 30% discount are forfeited if the employee’s employment terminates prior to the end of the four-year vesting period. Dividends or dividend-equivalents are paid on MSPP shares or units, and the participant has the right to vote all MSPP shares. The activity in the MSPP for the year ended December 31, 2012 is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding - January 1		217,952		$	30.38
Purchased		59,471			32.20
Vested		(49,523	)		31.15
Forfeited		(15,733	)		29.80

Outstanding - December 31		212,167		$	30.76

The company uses the Black-Scholes model, as a result of the option-like features of the MSPP, to estimate the expense associated with anticipated MSPP purchases. Compensation expense is recognized over a period that will end four years after purchase. The assumptions used for the following years ended December 31 are:


	2012			2011			2010
Dividend yield		0.9	%		0.8	%		0.9	%
Risk-free interest rate		0.16	%		0.12	%		0.22	%
Expected life in years		0.6			0.6			0.6
Expected volatility		20	%		16	%		20	%
Fair value	$	38.33		$	38.25		$	27.42

Compensation expense related to this program was $6.2 million, $5.6 million and $6.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. At December 31, 2012, there were $4.8 million of total unrecognized compensation costs related to nonvested MSPP shares and units. These costs are expected to be recognized over a weighted-average period of approximately three years.

Employee Stock Purchase Plan—Under the 1998 Employee Stock Purchase Plan of C. R. Bard, Inc. (“ESPP”), domestic employees and certain foreign employees can purchase Bard stock at a 15% discount to the lesser of the market price on the beginning or ending date of the six-month periods ending June 30 and December 31 of each year. Participants may elect to make after tax payroll deductions of 1% to 10% of compensation as defined by the plan up to a maximum of $25,000 per year. The ESPP is intended to meet the requirements of Section 423 of the Internal Revenue Code of 1986, as amended. At December 31, 2012, 644,416 shares were available for purchase under the ESPP. Employee payroll deductions are for six-month periods beginning each January 1 and July 1. Shares of the company’s common stock are purchased on June 30 or December 31 or the following business day, unless either the purchase of such shares was delayed at the election of the participant or the participant’s employment was terminated. Purchased shares are restricted for sale or transfer for a six-month period. All participant funds received prior to the ESPP purchase dates are held as company liabilities without interest or other increment. No dividends are paid on employee contributions until shares are purchased.

The company values the ESPP purchases utilizing the Black-Scholes model. The weighted average assumptions used for the following years ended December 31 are:


	2012			2011			2010
Dividend yield		0.9	%		0.8	%		0.9	%
Risk-free interest rate		0.11	%		0.16	%		0.20	%
Expected life in years		0.5			0.5			0.5
Expected volatility		26	%		17	%		20	%
Fair value	$	21.21		$	19.63		$	15.70

Compensation expense related to this plan was $2.8 million, $2.5 million and $2.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. For the years ended December 31, 2012 and 2011, employees purchased 147,858 and 139,596 shares, respectively.