NOTE 15—STOCK-BASED COMPENSATION

 

The Company's stock incentive plan (the "Plan") provides for issuance of up to 8,900,000 shares of the Company's Common Stock, of which 1,344,342 shares were available for future grants under the Plan at December 31, 2011. The Plan allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units and other stock-based awards. The Company uses original issuance shares to satisfy share-based payments.

 

Stock-based compensation expense consisted of the following (in thousands):

 

		Year Ended December 31,
		2011				2010				2009
Cost of sales		$	282			$	286			$	335
Selling, general, and administrative expense			7,588				6,444				6,018
Pre-tax stock-based compensation expense			7,870				6,730				6,353
Income tax benefits			(2,729	)			(2,162	)			(2,258	)
Total stock-based compensation expense, net of tax		$	5,141			$	4,568			$	4,095

 

No stock-based compensation costs were capitalized for the years ended December 31, 2011, 2010 or 2009.

 

The Company realized a tax benefit for the deduction from stock-based award transactions of $4,702,000, $1,909,000, and $851,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

 

Stock Options

 

Options to purchase the Company's common stock are granted at exercise prices equal to or greater than the fair market value of the Company's common stock on the date of grant. Options granted after 2000 and before 2009 generally vest and become exercisable over a period of four years (25 percent on the first anniversary date following the date of grant and monthly thereafter) and expire ten years from the date of the grant, with the exception of most options granted in 2005. Most options granted in 2005 vested and became exercisable one year from the date of grant and expire ten years from the date of grant. Options granted after 2008 generally vest and become exercisable ratably on an annual basis over a period of four years and expire ten years from the date of the grant.

The Company estimates the fair value of stock options using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of the Company's stock over the option's expected term, the risk-free interest rate over the option's expected term, and the Company's expected annual dividend yield. Assumptions are evaluated and revised as necessary to reflect changes in market conditions and the Company's experience. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by people who receive equity awards.

The following table presents the weighted average assumptions for the years ended December 31:

 

 

The following table summarizes stock option activity under the Plan:

 

		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life				Aggregate Intrinsic Value (in thousands)
Options outstanding at January 1, 2009			1,653,639			$	45.10				6.73			$	1,042
Granted			387,505				29.75
Cancelled			(252,303	)			44.90
Exercised			(28,668	)			24.76
Options outstanding at December 31, 2009			1,760,173				42.08				6.25				4,599
Granted			385,924				44.11
Cancelled			(77,481	)			46.04
Exercised			(196,402	)			37.34
Options outstanding at December 31, 2010			1,872,214				42.84				6.33				33,057
Granted			340,973				61.38
Cancelled			(40,396	)			43.68
Exercised			(253,695	)			43.32
Options outstanding at December 31, 2011			1,919,096			$	46.05				6.25			$	9,141
Options vested and expected to vest at December 31, 2011			1,857,797			$	45.81				6.17			$	8,994
Options exercisable at December 31, 2011			1,145,763			$	44.24				4.83			$	5,716

The aggregate intrinsic value in the table above represents pre-tax intrinsic value that would have been realized if all options had been exercised on the last business day of the period indicated, based on the Company's closing stock price on that day.

Total stock option compensation expense for the years ended December 31, 2011, 2010 and 2009 was $3,550,000, $3,348,000 and $2,861,000, respectively. At December 31, 2011, unrecognized costs related to stock options totaled approximately $6,018,000, before any related tax benefit. The unrecognized costs related to stock options are being amortized over the related vesting period using the straight-line attribution method. Unrecognized costs related to stock options at December 31, 2011 are expected to be recognized over a weighted average period of 2.33 years. The aggregate intrinsic value of stock options exercised was $4,906,000, $2,854,000 and $333,000 for the years ended December 31, 2011, 2010 and 2009, respectively. The total cash received as a result of stock option exercises for the years ended December 31, 2011, 2010 and 2009 was $10,991,000, $7,333,000 and $710,000, respectively.

 

Restricted Stock Units

 

Service-based restricted stock units are granted at no cost to key employees, and shares granted prior to 2009 generally vest over three years from the date of grant. Service-based restricted stock units granted after 2008 generally vest over a period of four years. Performance-based restricted stock units are granted at no cost to certain members of the Company's senior executive team, excluding the Chairman and the President and Chief Executive Officer. Performance-based restricted stock units granted prior to 2010 generally vest over a performance period of between two and one-half and three years with an additional required service period of one year. Performance-based restricted stock units granted after 2009 generally vest over a performance period of between two and one-half and three years. Restricted stock units vest in accordance with the terms and conditions established by the Compensation Committee of the Board of Directors, and are based on continued service and, in some instances, on individual performance and/or Company performance. For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that the Company pays in cash to the appropriate taxing authorities on behalf of its employees. For the years ended December 31, 2011, 2010 and 2009, the Company withheld 48,059, 18,721 and 19,819 shares, respectively, to satisfy $2,974,000, $853,000 and $624,000 of employees' tax obligations, respectively.

The fair value of service-based and performance-based restricted stock units is discounted by the present value of the estimated future stream of dividends over the vesting period using the Black-Scholes model. The relevant inputs and assumptions used in the Black-Scholes model to compute the discount are the vesting period, expected annual dividend yield and closing price of the Company's common stock on the date of grant.

The following table presents the weighted average assumptions for the years ended December 31:

 

		2011				2010				2009
Vesting period			3.96 years				3.75 years				3.82 years
Expected dividend yield			1.33%				1.56%				2.19%
Estimated average fair value per restricted stock unit granted		$	58.37			$	43.95			$	27.14

The following table summarizes the restricted stock unit activity under the Plan:

 

		Number of Shares				Weighted Average Grant Date Fair Value Per Share
Restricted stock units outstanding at January 1, 2009			260,509			$	46.32
Granted			136,327				27.14
Vested			(65,935	)			53.41
Forfeited			(44,381	)			41.22
Restricted stock units outstanding at December 31, 2009			286,520				36.35
Granted			128,525				43.95
Vested			(62,417	)			42.95
Forfeited			(23,833	)			42.44
Restricted stock units outstanding at December 31, 2010			328,795				37.63
Granted			145,768				58.37
Vested			(146,951	)			38.01
Forfeited			(30,860	)			41.79
Restricted stock units outstanding at December 31, 2011			296,752			$	47.19

Restricted stock unit compensation expense for the years ended December 31, 2011, 2010 and 2009 was $4,320,000, $3,382,000 and $3,492,000, respectively. At December 31, 2011, unrecognized costs related to restricted stock units totaled approximately $8,806,000, before any related tax benefit. The unrecognized costs related to restricted stock units are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs at December 31, 2011 are expected to be recognized over a weighted average period of 2.34 years. The total grant date fair value of restricted stock units vested during the year ended December 31, 2011, 2010 and 2009 was $5,586,000, $2,681,000 and $3,522,000, respectively.