Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation

Stock-Based Compensation

Note 11 — Stock-Based Compensation

The following table details the stock-based compensation expense by type of award for the years ended December 31, 2012, 2011 and 2010:

	Year Ended December 31,
(In millions, except per share data)	2012		2011		2010
Non-qualified stock options	$	4.5	$	4.1	$	3.9
Restricted stock, service based (“RSUs”)	6.5		5.0		4.9
Restricted stock, performance based (“PRSUs”)	4.6		4.7		3.5
Employee stock purchase plan	0.2		0.1		0.1
Stock-based compensation expense	$	15.8	$	13.9	$	12.4
Tax benefit from stock options exercised during the period	$	6.8	$	8.5	$	3.9

Non-Qualified Stock Options

Non-qualified stock options have been granted to our employees and directors under our stock compensation plan.  Options granted generally vest over three years and expire ten years from the date of grant.

A summary of option activity under the plan for the three years ended December 31, 2012 is as follows:

	Number of Options (In millions)		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)
Outstanding at December 31, 2009	4.1		$	10.67	5.06
Options granted	0.9		$	10.92
Options exercised	(0.4	)	$	8.54
Options expired or forfeited	(0.1	)	$	14.68
Outstanding at December 31, 2010	4.5		$	10.84	5.16
Options granted	0.6		$	19.19
Options exercised	(1.6	)	$	8.17
Options expired or forfeited	(0.1	)	$	12.93
Outstanding at December 31, 2011	3.4		$	13.55	6.45
Options granted	0.5		$	25.03
Options exercised	(0.6	)	$	10.41
Options expired or forfeited	—		$	21.82
Outstanding at December 31, 2012	3.3		$	15.67	6.26

	Year Ended December 31,
(In millions, except weighted average exercise price)	2012		2011
Aggregate intrinsic value of outstanding options	$	37.4	$	38.0
Aggregate intrinsic value of exercisable options	$	29.5	$	21.9
Total intrinsic value of options exercised	$	9.1	$	22.7
Total number of options exercisable	2.2		2.1
Weighted average exercise price of options exercisable	$	13.57	$	13.38
Total unrecognized compensation cost on nonvested options (a)	$	2.1	$	2.1

(a) Unrecognized compensation cost relates to nonvested stock options and is expected to be recognized over the remaining vesting period ranging from one year to three years.

The following table summarizes information about non-qualified stock options outstanding as of December 31, 2012:

		Options Outstanding				Options Exercisable
Range of Exercise Prices		Number of Options Outstanding (a)	Weighted Average Remaining Life (in Years)	Weighted Average Exercise Price		Number of Options Exercisable (a)	Weighted Average Exercise Price
$	6.68 – 10.90	1.4	6.30	$	9.35	1.1	$	8.98
$	14.51 – 21.11	1.3	5.66	$	18.44	0.9	$	17.71
$	22.00 – 25.84	0.6	7.41	$	24.18	0.2	$	22.03
$	6.68 – 25.84	3.3	6.26	$	15.67	2.2	$	13.57

(a) in millions

Valuation Assumptions in Estimating Fair Value

We estimated the fair value of stock options at the grant date using the Black-Scholes option pricing model with the following assumptions for the years ended December 31, 2012, 2011 and 2010:

	2012			2011			2010
Risk-free interest rate	0.83		%	1.88		%	2.40		%
Expected option life (in years) Executive	5.44			4.84			5.51
Expected option life (in years) Non-Executive	4.45			4.71			4.40
Dividend yield	—		%	—		%	—		%
Volatility	45.76		%	44.08		%	49.20		%
Weighted-average fair value per option granted	$	10.24		$	7.65		$	4.95

We determine the expected option life for each grant based on ten years of historical option activity for two separate groups of employees (executive and non-executive).  The weighted-average expected life (“WAEL”) is derived from the average midpoint between the vesting and the contractual term and considers the effect of both the inclusion and exclusion of post-vesting cancellations during the ten-year period.  Expected volatility is calculated based on a blend of both historic volatility of our common stock and implied volatility of our traded options.  We weigh both volatility inputs equally and utilize the average as the volatility input for the Black-Scholes calculation.  The risk-free interest rate for the expected term is based on the U.S. Treasury yield curve in effect at the time of grant and corresponding to the expected term.  No dividends were paid in either period; furthermore, we do not plan to pay any dividends in the future.

Restricted Stock Units — Service Based

As of December 31, 2012, a total of 840,280 shares of service based restricted stock (“RSUs”) were outstanding, which vest based on years of service under the 2003 incentive stock plan.  RSUs are granted to key employees, executives and directors of the Company.  The fair value of the RSU is based on the closing market price of the Company’s common stock on the date of grant and is amortized on a straight line basis over the requisite service period.  The stock-based compensation expense recognized is based on an estimate of shares ultimately expected to vest, and therefore it has been reduced for estimated forfeitures.

The table presented below provides a summary of the Company’s RSU activity for the years ended December 31, 2012,2011 and 2010:

	Number of RSUs (In millions)		Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2009	0.9		$	12.21
RSUs granted	0.4		$	11.41
RSUs issued	(0.3	)	$	12.91
Outstanding at December 31, 2010	1.0		$	11.76
RSUs granted	0.3		$	20.63
RSUs issued	(0.4	)	$	12.51
Outstanding at December 31, 2011	0.9		$	14.49
RSUs granted	0.3		$	25.26
RSUs issued	(0.4	)	$	12.10
Outstanding at December 31, 2012	0.8		$	18.90

As of December 31, 2012, there was total unrecognized compensation cost related to nonvested RSUs of $4.9 million, which is to be recognized over the remaining vesting period ranging from one year to three years.

Restricted Stock Units — Performance Based

As of December 31, 2012, a total of 508,319 shares of performance based restricted stock (“PRSUs”) were outstanding under the 2003 incentive stock plan.  The total amount of PRSUs that will ultimately vest is based on the achievement of various financial performance targets set forth by the Company’s Compensation Committee on the date of grant.  PRSUs are based on a three year performance period.  Based on current projections and performance targets, it is estimated that an additional 0.4 million performance shares may be issuable for the 2010, 2011 and 2012 awards.  The fair value of the PRSU is based on the closing market price of the Company’s common stock on the date of grant and is amortized straight-line over the total three year period.  A change in the performance measure expected to be achieved is recorded as an adjustment in the period in which the change occurs.

The table presented below provides a summary, of the Company’s PRSU activity, at original grant amounts, for the years ended December 31, 2012, 2011 and 2010:

	Number of PRSUs (In millions)		Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2009	0.5		$	11.18
PRSUs granted	0.3		$	10.95
PRSUs issued	(0.1	)	$	17.03
PRSUs forfeited	(0.1	)	$	7.37
Outstanding at December 31, 2010	0.6		$	9.77
PRSUs granted	0.1		$	19.02
Outstanding at December 31, 2011	0.7		$	11.53
PRSUs granted	0.1		$	25.03
PRSUs additional performance shares	0.2		$	8.00
PRSUs issued	(0.5	)	$	8.28
Outstanding at December 31, 2012	0.5		$	16.93

As of December 31, 2012, there was total unrecognized compensation cost related to nonvested PRSUs of $3.9 million, which is to be recognized over the remaining vesting period ranging from one year to three years.  The final amount of compensation cost to be recognized is dependent upon our financial performance.

Stock-Based Compensation Cash Activity

During 2012, cash received from stock option exercises and from employee stock purchases was $5.5 million.  We used $8.0 million in cash related to the shares withheld to satisfy employee tax obligations for NQOs exercised and RSUs converted during the year ended December 31, 2012.  We realized a tax benefit of $6.8 million in connection with stock options exercised and RSUs converted during 2012.

We classify the cash flows resulting from these tax benefits as financing cash flows.  We either issue new shares of our common stock or utilize treasury shares upon the exercise of stock options or the conversion of stock units.

Shares Authorized for Grant

As of December 31, 2012, an aggregate of 1.2 million shares were authorized for future grant under our stock plan, which covers stock options, RSUs, PRSUs and at the discretion of Hexcel, could result in the issuance of other types of stock-based awards.

Employee Stock Purchase Plan (“ESPP”)

The Company offers an ESPP, which allows for eligible employees to contribute up to 10% of their base earnings toward the quarterly purchase of our common stock at a purchase price equal to 85% of the fair market value of the common stock.  There were 31,448 and 30,585 ESPP shares purchased in 2012 and 2011, respectively.