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 (the “LTIP”) 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 17, 2013, the shareholders authorized an additional 2,000,000 shares for issuance under the LTIP. The total number of remaining shares at December 31, 2013 that may be issued under the LTIP was 4,328,678 and under the Directors’ Plan was 35,707. Awards under the LTIP 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 also has two employee stock purchase programs.

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


	2013			2012			2011
(dollars in millions)
Total cost of share-based compensation plans	$	61.5		$	52.0		$	55.4
Amounts capitalized in inventory and fixed assets		(1.8	)		(1.5	)		(1.5	)
Amounts charged against income for amounts previously capitalized in inventory and fixed assets		1.8			1.6			1.6

Amounts charged against income	$	61.5		$	52.1		$	55.5

Amount of related income tax benefit recognized in income	$	21.5		$	18.8		$	18.7

As of December 31, 2013, there were $112.8 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 three years. The company has sufficient shares to satisfy expected share-based payment arrangements in 2014.

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 subject to performance conditions, which were met. Summarized information regarding total stock option activity and amounts for the year ended December 31, 2013 is as follows:


Options	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (millions)
Outstanding - January 1		6,284,738		$	82.83
Granted		843,616			134.42
Exercised		(1,781,789	)		76.03
Canceled/forfeited		(116,996	)		90.18

Outstanding - December 31		5,229,569		$	93.30		6.7	$	214.4

Exercisable		3,326,580		$	83.19		5.3	$	168.8

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:


	2013			2012			2011
Dividend yield		0.7	%		0.8	%		0.8	%
Risk-free interest rate		1.6	%		0.9	%		1.03	%
Expected option life in years		6.5			7.0			7.0
Expected volatility		21	%		21	%		23	%
Option fair value	$	29.83		$	20.22		$	19.82

Compensation expense related to stock options was $15.9 million, $15.8 million and $19.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013, there were $35.2 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, 2013, 2012 and 2011, 946,698, 1,152,890 and 489,648 options, respectively, vested with a weighted-average fair value of $20.69, $21.49 and $22.80, respectively. The total intrinsic value of stock options exercised during 2013, 2012 and 2011 was $78.0 million, $42.1 million and $88.7 million, respectively.

Cash received from stock option exercises for the years ended December 31, 2013, 2012 and 2011 was $135.5 million, $89.6 million and $106.5 million, respectively. The actual tax benefit realized for the tax deductions from option exercises was $26.7 million, $14.5 million and $31.6 million for the years ended December 31, 2013, 2012 and 2011, 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 $20.0 million, $18.7 million and $22.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013, there were $41.1 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, 2013 is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding - January 1		1,055,625		$	87.76
Granted		189,031			134.73
Vested		(322,075	)		88.44
Forfeited		(50,948	)		96.94

Outstanding - December 31		871,633		$	98.34

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 $10.0 million, $5.1 million and $4.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013, there were $23.5 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 four years. The activity in the nonvested restricted stock unit awards for the year ended December 31, 2013 is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding - January 1		534,157		$	85.17
Granted		143,288			100.13
Vested		(107,177	)		87.16
Forfeited		(59,782	)		88.36

Outstanding - December 31		510,486		$	89.58

Performance Restricted Stock Units—In the first quarter of each of 2013 and 2012, the company granted performance restricted stock units to certain officers. These units have requisite service periods of three years and have no dividend rights. Compensation expense related to performance restricted stock units was $6.6 million and $2.6 million for the years ended December 31, 2013 and 2012, respectively. At December 31, 2013, there were $8.0 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 the three-year period based on pre-established targets over the period and a market condition modifier based on total shareholder return (“TSR”) compared to an industry peer group. The actual payout under these awards may exceed an officer’s target payout; however, compensation cost initially recognized assumes that the target payout level will be achieved and may be adjusted for subsequent changes in the expected outcome of the performance- related condition. The fair values of these units are based on the market price of the company’s stock on the date of the grant and use a Monte Carlo simulation model for the TSR component. The fair values of the TSR components of the 2013 and 2012 grants were estimated based on the following assumptions: risk-free interest rate of 0.42% and 0.41%, respectively; dividend yield of 0.81% and 0.85%, respectively; and expected life of 2.88 and 2.83 years, respectively. At December 31, 2013 and 2012, there were 182,103 and 95,969 nonvested performance restricted stock units outstanding, respectively.

Other Stock-Based Awards—The company grants stock awards to directors. Shares have been generally distributed to a director annually and have a requisite service period of three years. 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 $0.8 million, $0.9 million and $1.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013, there were $0.3 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 one year. At December 31, 2013 and 2012, nonvested other stock-based awards of 16,112 and 23,107 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, 2013 is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding - January 1		212,167		$	30.76
Purchased		51,524			36.34
Vested		(50,300	)		33.17
Forfeited		(6,928	)		31.87

Outstanding - December 31		206,463		$	31.53

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:


	2013			2012			2011
Dividend yield		0.8	%		0.9	%		0.8	%
Risk-free interest rate		0.10	%		0.16	%		0.12	%
Expected life in years		0.6			0.6			0.6
Expected volatility		15	%		20	%		16	%
Fair value	$	37.20		$	38.33		$	38.25

Compensation expense related to this program was $5.7 million, $6.2 million and $5.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013, there were $4.7 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 Employee Stock Purchase Plan of C. R. Bard, Inc. as Amended and Restated (“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 in the ESPP may elect to make after-tax payroll deductions of 1% to 10% of compensation as defined by the plan up to the stated maximum of $20,000 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, 2013, 505,896 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:


	2013			2012			2011
Dividend yield		0.8	%		0.9	%		0.8	%
Risk-free interest rate		0.11	%		0.11	%		0.16	%
Expected life in years		0.5			0.5			0.5
Expected volatility		16	%		26	%		17	%
Fair value	$	20.08		$	21.21		$	19.63

Compensation expense related to this plan was $2.5 million, $2.8 million and $2.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. For the years ended December 31, 2013 and 2012, employees purchased 138,520 and 147,858 shares, respectively.