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Share-Based Compensation
9 Months Ended
Sep. 30, 2012
Share-Based Compensation
12. Share-Based Compensation

The following table sets forth information with regard to the income statement recognition of share-based compensation for the three and nine-month periods ended September 30, 2012, and 2011 (in thousands):

 

     Three-Month      Three-Month      Nine-Month      Nine-Month  
     Period Ended      Period Ended      Period Ended      Period Ended  
     September 30,      September 30,      September 30,      September 30,  
     2012      2011      2012      2011  

Cost of revenue

   $ 139       $ 200       $ 382       $ 442   

Selling, general and administrative

     2,196         1,734         6,136         5,164   

Research and development

     67         95         261         254   
  

 

 

    

 

 

    

 

 

    

 

 

 

Share-based compensation

   $ 2,402       $ 2,029       $ 6,779       $ 5,860   
  

 

 

    

 

 

    

 

 

    

 

 

 

No share-based compensation cost was capitalized during the nine-month periods ended September 30, 2012, and 2011.

Stock Options

Stock options awarded to employees under the Company’s 2008 Equity Compensation Plan (“2008 Plan”) generally vest annually over a three-year period, have a 10-year term and have an exercise price equal to the fair market value of the Company’s common stock at the date of grant. Compensation expense for stock options is recognized on a straight-line basis over the vesting period using the fair value of each stock option estimated as of the grant date.

For the three-month period ended September 30, 2012 and 2011, the number of stock options granted was 108,871 and 81,001, respectively, and the weighted-average exercise price for those stock options granted was $36.07 and $34.83, respectively. For the nine-month periods ended September 30, 2012 and 2011, the number of stock options granted was 215,337 and 154,226, respectively, and the weighted-average exercise price for those stock options granted was $35.07 and $39.21, respectively.

As of September 30, 2012, there was $3.4 million in total unrecognized compensation cost related to unvested stock options. This aggregate unrecognized cost is expected to be recognized over a weighted-average remaining period of 2.3 years. The weighted-average exercise price and weighted-average remaining contractual term for outstanding stock options as of September 30, 2012, were $34.01 and 5.4 years, respectively.

Service and Performance Award Units

Service award units. The Company’s unvested service award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) vest in four equal annual installments beginning on the first anniversary date of the grant, and (iii) expire without vesting if the employee is no longer employed by the Company. Compensation expense for service award units is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant.

As of September 30, 2012, there was $2.6 million of total unrecognized compensation cost related to unvested service award units. This aggregate unrecognized cost for service award units is expected to be recognized over a weighted-average period of approximately 3.0 years.

 

Additional information for the three and nine-month periods ended September 30, 2012, and 2011, is noted in the following table (dollars in thousands, except per share amounts):

 

     Three-Month      Three-Month      Nine-Month      Nine-Month  
     Period Ended      Period Ended      Period Ended      Period Ended  
     September 30,      September 30,      September 30,      September 30,  
     2012      2011      2012      2011  

Number of service award shares granted during the period

     45,402         —           49,985         18,434   

Weighted average grant-date fair value per share granted during the period

   $ 36.10         —         $ 36.04       $ 42.72   

Fair value of service award shares vested during the period

   $ 266       $ 322       $ 2,006       $ 2,536   

Service award units to Board of Directors (“Board”). Beginning in 2012, the Board members have the right to elect to receive all or a portion of their annual 2012 compensation as Board service award units. These Board service award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, and (ii) vest on the anniversary date of the grant. Compensation expense for Board service award units is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant.

During the three-month period ended September 30, 2012, no Board service award units were granted. During the nine-month period ended September 30, 2012, the Company granted 5,640 Board service award units at a weighted average grant-date fair value per share of $35.46. As of September 30, 2012, there was $0.1 million of total unrecognized compensation cost related to unvested Board service award units. This aggregate unrecognized cost for service award units is expected to be recognized over a weighted-average period of 0.6 years.

Performance award units. During the nine-month periods ended September 30, 2012 and 2011, the Company granted performance award units under the 2008 Plan. These performance award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12%, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12%, vest in four equal annual installments beginning with the first anniversary date of the grant, and (iv) for any unvested units, expire without vesting if the recipient is no longer employed by the Company.

Compensation expense for performance award units is recognized on an accelerated basis using the fair market value of the Company’s common stock on the date of grant. The Company recognizes expense for these performance award units under the assumption that the performance ROIC target will be achieved. If it appears such performance ROIC target will not be met, the Company will stop recognizing any further compensation cost and any previously recognized compensation cost would be reversed. As of September 30, 2012, there was $1.8 million of total unrecognized compensation cost related to unvested performance award units. This aggregate unrecognized cost is expected to be recognized over a weighted-average period of 2.7 years.

 

Additional information for the three and nine-month periods ended September 30, 2012, and 2011, is noted in the following table (dollars in thousands, except per share amounts):

 

     Three-Month      Three-Month      Nine-Month      Nine-Month  
     Period Ended      Period Ended      Period Ended      Period Ended  
     September 30,      September 30,      September 30,      September 30,  
     2012      2011      2012      2011  

Number of performance award shares granted during the period

     —           29,992         34,229         52,503   

Weighted average grant-date fair value per share granted during the period

     —         $ 41.52       $ 33.87       $ 42.77   

Fair value of performance award shares vested during the period

   $ 236         —         $ 1,083       $ 804   

Deferred Stock Units

Service DSU grants to CEO. During the nine-month periods ended September 30, 2012 and 2011, the Company granted service-based deferred stock unit awards (“Service DSUs”) under the 2008 Plan to its CEO. Service DSUs are issued at the fair market value of the Company’s stock on the date of grant, and generally vest annually over a four-year period on each anniversary date of the grant. Service DSUs also include dividend equivalent DSUs, which vest immediately upon the date of grant.

Compensation expense for Service DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. The Service DSUs provide for accelerated vesting upon termination without cause or the CEO’s retirement as defined in his employment agreement. As of September 30, 2012, there was no unrecognized compensation cost related to Service DSUs.

 

The Service DSUs will be convertible into shares of the Company’s common stock following the holder’s termination of employment. No Service DSUs were converted into shares of the Company’s common stock during the nine-month periods ended September 30, 2012, and 2011. Additional information for the three and nine-month periods ended September 30, 2012, and 2011, is noted in the following table (dollars in thousands, except per share amounts):

 

     Three-Month      Three-Month      Nine-Month      Nine-Month  
     Period Ended      Period Ended      Period Ended      Period Ended  
     September 30,      September 30,      September 30,      September 30,  

Service DSU’s Granted to CEO

   2012      2011      2012      2011  

Number of shares granted during the period

     —           —           1,181         900   

Weighted-average grant date fair value per share granted during the period

     —           —         $ 33.87       $ 44.44   

Fair value of shares vested during the period

     —           —         $ 568       $ 704   

Performance DSU grants to CEO. During the nine-month periods ended September 30, 2012 and 2011, the Company granted performance-based deferred stock unit awards (“Performance DSUs”) under the 2008 Plan to its CEO. These Performance DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s ROIC for the annual performance period does not exceed 12%, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12%, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) provide for accelerated vesting upon termination without cause or the CEO’s retirement as defined in his employment agreement. These Performance DSUs, if vested, will be convertible into shares of the Company’s common stock, subsequent to termination of employment.

Compensation expense for Performance DSUs is recognized on an accelerated basis using the fair market value of the Company’s common stock on the date of grant. The Company recognizes expense for these Performance DSUs under the assumption that the performance target will be achieved. If it appears such performance target will not be met, the Company will stop recognizing any further compensation cost and any previously recognized compensation cost would be reversed. As of September 30, 2012, there was $0.8 million of total unrecognized compensation cost related to Performance DSUs. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 0.3 years.

Additional information for the three and nine-month periods ended September 30, 2012, and 2011, is noted in the following table (dollars in thousands, except per share amounts):

 

     Three-Month      Three-Month      Nine-Month      Nine-Month  
     Period Ended      Period Ended      Period Ended      Period Ended  
     September 30,      September 30,      September 30,      September 30,  

Performance DSU’s Granted to CEO

   2012      2011      2012      2011  

Number of shares granted during the period

     —           —           59,049         24,122   

Weighted-average grant date fair value per share granted during the period

     —           —         $ 33.87       $ 44.44   

Fair value of shares vested during the period

     —           —         $ 396       $ 227   

 

Service DSU grants to Board. The Company issues deferred stock units to its Board of Directors (“Board DSUs”) under the 2008 Plan. These Board DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant and (ii) if vested, will be convertible to shares of the Company’s common stock subsequent to termination of service as a director. Beginning in 2012, the Board members have the right to elect to receive all or a portion of their annual 2012 compensation as Board DSUs that vest completely on the first anniversary date of the grant. For 2011 and 2010, annual grants were issued to the Board as Board DSUs that vest annually in three equal installments over a three-year period.

In addition, the Board members have the right to elect to receive all or a portion of their retainer and meeting attendance fees as Board DSUs, which vest immediately. Board DSUs are only granted to nonemployee Directors. Board DSUs also include dividend equivalent DSUs, which vest immediately upon the date of grant.

Compensation expense for Board DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of September 30, 2012, there was $1.2 million of total unrecognized compensation cost related to Board DSUs granted to nonemployee directors. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 1.1 years.

Additional information for the three and nine-month periods ended September 30, 2012, and 2011, is noted in the following table (dollars in thousands, except per share amounts):

 

     Three-Month      Three-Month      Nine-Month      Nine-Month  
     Period Ended      Period Ended      Period Ended      Period Ended  
     September 30,      September 30,      September 30,      September 30,  
     2012      2011      2012      2011  

Number of shares granted during the period

     1,298         6,232         23,866         28,798   

Weighted-average grant date fair value per share granted during the period

   $ 38.06       $ 38.78       $ 35.63       $ 40.19   

Fair value of shares vested during the period

   $ 158       $ 113       $ 818       $ 624