Shareholders' Equity and Stock Incentive Plans

12 Months Ended

Dec. 31, 2011

Shareholders Equity And Stock Incentive Plans [Abstract]

Shareholders' Equity And Stock Incentive Plans

Note 10. Shareholders' Equity and Stock Incentive Plans

The following tables summarize our common stock and other shareholders' equity activity:

	Company Shareholders' Equity
			Paid-in
			Capital in									Accumulated			Noncontrolling
			Excess									Other			Interest in
	Common		of Par			Treasury			Retained			Comprehensive			Consolidated
Millions of dollars	Shares		Value			Stock			Earnings			Income (Loss)			Subsidiaries		Total
Balance at December 31, 2008	$	2,666	$	484		$	(5,251	)	$	10,041		$	(215	)	$	19	$	7,744
Cash dividends paid		-		-			-			(324	)		-			-		(324	)
Stock plans		3		(51	)		266			-			-			-		218
Common shares purchased		-		-			(17	)		-			-			-		(17	)
Tax loss from exercise of options and
restricted stock		-		(22	)		-			-			-			-		(22	)
Other		-		-			-			1			-			-		1
Total dividends and other transactions with
shareholders		3		(73	)		249			(323	)		-			-		(144	)
Comprehensive income (loss):
Net income		-		-			-			1,145			-			10		1,155
Other comprehensive income (loss):
Cumulative translation adjustment		-		-			-			-			(5	)		-		(5	)
Defined benefit and other postretirement
plans, net		-		-			-			-			2			-		2
Net unrealized gains on investments, net of
tax provision of $3		-		-			-			-			5			-		5
Total comprehensive income		-		-			-			1,145			2			10		1,157
Balance at December 31, 2009	$	2,669	$	411		$	(5,002	)	$	10,863		$	(213	)	$	29	$	8,757
Cash dividends paid		-		-			-			(327	)		-			-		(327	)
Stock plans		5		(37	)		252			-			-			-		220
Common shares purchased		-		-			(141	)		-			-			-		(141	)
Tax loss from exercise of
options and restricted stock		-		(18	)		-			-			-			-		(18	)
Other		-		-			-			-			-			(21)		(21	)
Total dividends and other transactions
with shareholders		5		(55	)		111			(327	)		-			(21)		(287	)
Treasury shares issued for acquisition		-		(17	)		120			-			-			-		103
Comprehensive income (loss):
Net income		-		-			-			1,835			-			7		1,842
Other comprehensive income (loss):
Cumulative translation adjustment		-		-			-			-			(1	)		-		(1	)
Defined benefit and other postretirement
plans adjustments, net		-		-			-			-			(26	)		(1)		(27	)
Total comprehensive income		-		-			-			1,835			(27	)		6		1,814
Balance at December 31, 2010	$	2,674	$	339		$	(4,771	)	$	12,371		$	(240	)	$	14	$	10,387
Cash dividends paid		-		-			-			(330	)		-			-		(330	)
Stock plans		9		82			267			-			-			-		358
Common shares purchased		-		-			(43	)		-			-			-		(43	)
Tax loss from exercise of
options and restricted stock		-		34			-			-			-			-		34
Total dividends and other transactions
with shareholders		9		116			224			(330	)		-			-		19
Comprehensive income (loss):
Net income		-		-			-			2,839			-			5		2,844
Other comprehensive income (loss):
Defined benefit and other postretirement
plans adjustments, net		-		-			-			-			(33	)		(1)		(34	)
Total comprehensive income		-		-			-			2,839			(33	)		4		2,810
Balance at December 31, 2011	$	2,683	$	455		$	(4,547	)	$	14,880		$	(273	)	$	18	$	13,216

Accumulated other comprehensive loss	December 31
Millions of dollars	2011			2010			2009
Cumulative translation adjustment	$	(66	)	$	(66	)	$	(65	)
Defined benefit and other postretirement liability adjustments (a)		(208	)		(175	)		(149	)
Unrealized gains on investments		1			1			1
Total accumulated other comprehensive loss	$	(273	)	$	(240	)	$	(213	)

 (a)Included net actuarial losses for our international pension plans of $184 million at December 31, 2011, $170 million at December 31, 2010, and $149 million at December 31, 2009.

Shares of common stock	December 31
Millions of shares	2011			2010			2009
Issued		1,073			1,069			1,067
In treasury		(152	)		(159	)		(165	)
Total shares of common stock outstanding		921			910			902

Our stock repurchase program has an authorization of $5.0 billion, of which $1.7 billion remained available at December 31, 2011. The program does not require a specific number of shares to be purchased and the program may be effected through solicited or unsolicited transactions in the market or in privately negotiated transactions. The program may be terminated or suspended at any time. From the inception of this program in February 2006 through December 31, 2011, we have repurchased approximately 96 million shares of our common stock for approximately $3.3 billion at an average price per share of $34.22. There were no stock repurchases under the program in 2011.

Preferred Stock

Our preferred stock consists of five million total authorized shares at December 31, 2011, of which none are issued.

Stock Incentive Plans

The following table summarizes stock-based compensation costs for the years ended December 31, 2011, 2010 and 2009.

	Year Ended December 31
Millions of dollars	2011			2010			2009
Stock-based compensation cost	$	198		$	158		$	143
Tax benefit	$	(61	)	$	(50	)	$	(46	)
Stock-based compensation cost, net of tax	$	137		$	108		$	97

Our Stock and Incentive Plan, as amended (Stock Plan), provides for the grant of any or all of the following types of stock-based awards:

- stock options, including incentive stock options and nonqualified stock options;

- restricted stock awards;

- restricted stock unit awards;

-  stock appreciation rights; and

-  stock value equivalent awards.

There are currently no stock appreciation rights or stock value equivalent awards outstanding.

Under the terms of the Stock Plan, approximately 133 million shares of common stock have been reserved for issuance to employees and non-employee directors. At December 31, 2011, approximately 14 million shares were available for future grants under the Stock Plan. The stock to be offered pursuant to the grant of an award under the Stock Plan may be authorized but unissued common shares or treasury shares.

In addition to the provisions of the Stock Plan, we also have stock-based compensation provisions under our Restricted Stock Plan for Non-Employee Directors and our Employee Stock Purchase Plan (ESPP).

Each of the active stock-based compensation arrangements is discussed below.

Stock options

The majority of our options are generally issued during the second quarter of the year. All stock options under the Stock Plan are granted at the fair market value of our common stock at the grant date. Employee stock options vest ratably over a three- or four-year period and generally expire 10 years from the grant date. Compensation expense for stock options is generally recognized on a straight line basis over the entire vesting period. No further stock option grants are being made under the stock plans of acquired companies.

The following table represents our stock options activity during 2011.

			Weighted		Weighted
			Average		Average		Aggregate
	Number		Exercise		Remaining		Intrinsic
	of Shares		Price		Contractual		Value
Stock Options	(in millions)		per Share		Term (years)		(in millions)
Outstanding at January 1, 2011		15.8	$	26.79
Granted		3.4		43.87
Exercised		(3.9)		22.05
Forfeited/expired		(0.4)		33.54
Outstanding at December 31, 2011		14.9	$	31.74		6.7	$	94
Exercisable at December 31, 2011		8.5	$	29.07		5.3	$	68

The total intrinsic value of options exercised was $102 million in 2011, $38 million in 2010, and $10 million in 2009. As of December 31, 2011, there was $55 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately 2 years.

Cash received from option exercises was $160 million during 2011, $102 million during 2010, and $74 million during 2009.

The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility of options granted was a blended rate based upon implied volatility calculated on actively traded options on our common stock and upon the historical volatility of our common stock. The expected term of options granted was based upon historical observation of actual time elapsed between date of grant and exercise of options for all employees. The assumptions and resulting fair values of options granted were as follows:

	Year Ended December 31
	2011		2010		2009
Expected term (in years)		5.20		5.27		5.18
Expected volatility		40%		40%		53%
Expected dividend yield		0.69 - 1.01%		0.99 - 1.71%		1.23 - 2.55%
Risk-free interest rate		0.93 - 2.29%		1.20 - 2.78%		1.38 - 2.47%
Weighted average grant-date fair value per share	$	15.61	$	9.94	$	9.36

Restricted stock

Restricted shares issued under the Stock Plan are restricted as to sale or disposition. These restrictions lapse periodically over an extended period of time not exceeding 10 years. Restrictions may also lapse for early retirement and other conditions in accordance with our established policies. Upon termination of employment, shares on which restrictions have not lapsed must be returned to us, resulting in restricted stock forfeitures. The fair market value of the stock on the date of grant is amortized and charged to income on a straight-line basis over the requisite service period for the entire award.

Our Restricted Stock Plan for Non-Employee Directors (Directors Plan) allows for each non-employee director to receive an annual award of 800 restricted shares of common stock as a part of their compensation. These awards have a minimum restriction period of six months, and the restrictions lapse upon the earlier of mandatory director retirement at age 72 or early retirement from the Board after four years of service. The fair market value of the stock on the date of grant is amortized over the lesser of the time from the grant date to age 72 or the time from the grant date to completion of four years of service on the Board. We reserved 200,000 shares of common stock for issuance to non-employee directors, which may be authorized but unissued common shares or treasury shares. At December 31, 2011, 145,600 shares had been issued to non-employee directors under this plan. There were 7,200 shares, 8,000 shares, and 8,000 shares of restricted stock awarded under the Directors Plan in 2011, 2010, and 2009. In addition, during 2011, our non-employee directors were awarded 19,395 shares of restricted stock under the Stock Plan, which are included in the table below.

The following table represents our Stock Plan and Directors Plan restricted stock awards and restricted stock units granted, vested, and forfeited during 2011.

			Weighted Average
	Number of Shares		Grant-Date Fair
Restricted Stock	(in millions)		Value per Share
Nonvested shares at January 1, 2011		13.3	$	28.10
Granted		5.4		43.35
Vested		(3.7)		28.81
Forfeited		(0.8)		32.59
Nonvested shares at December 31, 2011		14.2	$	33.45

The weighted average grant-date fair value of shares granted during 2010 was $29.39 and during 2009 was $22.90. The total fair value of shares vested during 2011 was $165 million, during 2010 was $100 million, and during 2009 was $59 million. As of December 31, 2011, there was $352 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock, which is expected to be recognized over a weighted average period of 4 years.

Employee Stock Purchase Plan

Under the ESPP, eligible employees may have up to 10% of their earnings withheld, subject to some limitations, to be used to purchase shares of our common stock. Unless the Board of Directors shall determine otherwise, each six-month offering period commences on January 1 and July 1 of each year. The price at which common stock may be purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock on the commencement date or last trading day of each offering period. Under this plan, 44 million shares of common stock have been reserved for issuance. They may be authorized but unissued shares or treasury shares. As of December 31, 2011, 25.3 million shares have been sold through the ESPP.

The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. The expected volatility was a one-year historical volatility of our common stock. The assumptions and resulting fair values were as follows:

	Offering period July 1 through December 31
	2011			2010			2009
Expected term (in years)		0.5			0.5			0.5
Expected volatility		34	%		43	%		80	%
Expected dividend yield		0.70	%		1.44	%		1.74	%
Risk-free interest rate		0.10	%		0.21	%		0.33	%
Weighted average grant-date fair value per share	$	12.57		$	6.72		$	7.66

	Offering period January 1 through June 30
	2011			2010			2009
Expected term (in years)		0.5			0.5			0.5
Expected volatility		43	%		48	%		71	%
Expected dividend yield		0.88	%		1.15	%		1.85	%
Risk-free interest rate		0.20	%		0.19	%		0.27	%
Weighted average grant-date fair value per share	$	10.99		$	8.81		$	6.69