NOTE 14—Stock-based Compensation Expense:

Incentive Plans

We have various share-based compensation plans that authorize the granting of (i) stock options to purchase shares of our common stock, (ii) restricted common stock awards, (iii) performance unit awards and (iv) stock appreciation rights (SARs) to employees and non-employee directors. The plans provide for payment of incentive awards in one or more of the following at our option: cash, shares of our common stock, qualified and non-qualified stock options, SARs, restricted stock awards and performance unit awards. The share-based awards granted by us generally contain vesting provisions ranging from one to five years, and with respect to stock options granted by us, have a term of not more than ten years from the date of grant. Stock options granted to employees generally vest over three years and have a term of ten years. Restricted common stock awards vest in periods ranging from one to five years from the date of grant. Performance unit awards are earned at a level ranging from zero to 200% contingent upon the achievement of specific performance criteria over periods ranging from one to two years. Distribution of the earned units occurs generally 50% upon completion of a two-year measurement period with the remaining 50% of the earned units distributed one year thereafter.

We granted 401,500, 389,000 and 1,255,500 stock options during 2011, 2010 and 2009, respectively. There were no significant modifications made to any share-based grants during these periods.

On April 20, 2010, the maximum number of shares available for issuance to participants under the Albemarle Corporation 2008 Incentive Plan (the "Incentive Plan") increased by 4,470,000 shares to 7,470,000 shares. With respect to any awards, other than stock options or SARs, the number of shares available for awards under the Incentive Plan were reduced by 1.6 shares for each share covered by such award or to which such award related. Under the Albemarle Corporation 2008 Stock Compensation Plan for Non-Employee Directors (the "Non-Employee Directors Plan"), a maximum aggregate number of 100,000 shares of our common stock was authorized for issuance to the Company's non-employee directors. The fair market value of shares to be issued to each participant during a calendar year shall not exceed $100,000. At December 31, 2011, there were 4,723,670 shares available for grant under the Incentive Plan and 49,875 shares available for grant under the Non-Employee Directors Plan.

Total stock-based compensation expense associated with our incentive plans for the years ended December 31, 2011, 2010 and 2009 amounted to $27.1 million, $15.7 million and $0.3 million, respectively, and is included in cost of goods sold and selling, general and administrative, or SG&A, expenses on the consolidated statements of income. Total related recognized tax benefits for the years ended December 31, 2011, 2010 and 2009 amounted to $10.0 million, $5.8 million and $0.1 million, respectively. During 2009, we reduced certain of our stock-based compensation accruals in the amount of $7.8 million based on revised estimates of expected performance. This accrual reversal served to offset a significant portion of stock-based compensation expense for the year ended December 31, 2009.

The following table summarizes information about the Company's fixed-price stock options as of and for the year ended December 31, 2011:


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2010		1,972,522		$	24.17	7.2	$	62,357
Granted		401,500			56.34
Exercised		(169,350	)		13.17
Forfeited		(33,500	)		34.37

Outstanding at December 31, 2011		2,171,172		$	30.82	7.1	$	46,846

Exercisable at December 31, 2011		426,937		$	22.54	4.1	$	12,368

The fair value of each option granted during the years ended December 31, 2011, 2010 and 2009 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	Year Ended December 31,
	2011			2010			2009
Dividend yield		1.53	%		1.66	%		2.13	%
Volatility		33.04	%		33.13	%		32.94	%
Average expected life (years)		6			6			6
Risk-free interest rate		3.67	%		3.92	%		3.37	%
Fair value of options granted	$	18.42		$	13.76		$	6.70

Dividend yield is the average of historical yields and those estimated over the average expected life. The stock volatility is based on historical volatilities of our common stock. The average expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury strip rate with stripped coupon interest for the period equal to the contractual term of the share option grant in effect at the time of grant.

The intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $7.9 million, $15.1 million and $5.8 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

Total compensation cost not yet recognized for nonvested stock options outstanding as of December 31, 2011 is approximately $6.2 million and is expected to be recognized over a remaining weighted-average period of 1.3 years. Cash proceeds from stock options exercised and tax benefits related to stock options exercised were $2.2 million and $2.9 million for the year ended December 31, 2011, respectively. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted common stock awards.

The following table summarizes activity in performance unit awards:


	Year Ended December 31,
	2011					2010					2009
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested, beginning of period		184,196		$	41.88		7,500		$	38.41		1,263,500		$	30.04
Granted		190,700			56.14		198,700			41.94		—			—
Vested		(2,946	)		38.41		(2,947	)		38.41		(575,890	)		21.60
Forfeited		(1,800	)		48.26		(19,057	)		41.64		(680,110	)		37.10

Nonvested, end of period		370,150			49.23		184,196			41.88		7,500			38.41

Total compensation cost not yet recognized for nonvested performance unit awards outstanding as of December 31, 2011 is approximately $11.8 million and is expected to be recognized over a remaining weighted-average period of one year. Each performance unit represents one share of common stock. The fair value of the performance based restricted stock was estimated on the date of grant.

The following table summarizes activity in non-performance based restricted stock awards:


	Year Ended December 31,
	2011					2010					2009
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested, beginning of period		333,416		$	34.38		535,625		$	35.10		536,700		$	36.53
Granted		63,600			58.43		92,750			40.98		88,625			21.85
Vested		(159,751	)		35.94		(250,126	)		37.48		(69,700	)		28.98
Forfeited		(9,000	)		48.64		(44,833	)		39.43		(20,000	)		36.03

Nonvested, end of period		228,265			41.35		333,416			34.38		535,625			35.10

Total compensation cost not yet recognized for nonvested non-performance based restricted shares as of December 31, 2011 is approximately $4.3 million and is expected to be recognized over a remaining weighted-average period of 2.2 years. The fair value of the non-performance based restricted stock was estimated on the date of grant adjusted for a dividend factor, if necessary.

Deferred Directors' Compensation

Under the 1996 Directors' Deferred Compensation Plan (as amended and restated in 2005), a maximum aggregate number of 200,000 shares of our common stock is authorized for issuance to the Company's non-employee directors. In 2009, the Company made a discretionary allocation of 700 shares per director (5,600 common shares) to each director's deferral account with a one-year minimum deferral period.