

10.	Share-Based Compensation

Stock Incentive Plans

At December 31, 2012, there were stock options, non-vested shares and restricted stock units outstanding under our existing stock incentive plans. We maintain three plans: the 1996 Stock Incentive Plan; the 2001 Stock Incentive Plan; and the 2006 Equity Incentive Plan (“2006 Plan”). New options and other stock awards may only be granted under the 2006 Plan. At December 31, 2012, the sum of the shares previously issued pursuant to awards under the 2006 Plan and the shares of common stock remaining available for future issuance under the 2006 Plan to our employees, directors, consultants and those of our affiliates is 7,753,935 shares. The number of shares of common stock remaining available for future issuance under the 2006 Plan may increase by any shares of common stock underlying prior outstanding options that expire, are forfeited, canceled or terminate for any reason without having been exercised in full. The number of shares available for issuance at December 31, 2012 was 2,220,937. Outstanding options and non-vested shares granted under our plans typically vest over periods that range from three to six years, and outstanding options typically expire between five and ten years from the date of grant.

Stock Option Activity

A summary of our stock option activity for 2012 is as follows (in thousands, except weighted-average exercise price and weighted-average remaining contractual term):



	Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2010	3,323		$	16.45
Granted	894		$	15.98
Exercised	(395	)	$	10.12
Forfeited/Canceled	(46	)	$	23.25
Outstanding at December 31, 2011	3,776		$	16.92	2.3	$	10,699
Granted	462		$	18.94
Exercised	(966	)	$	9.87
Expired	(1,039	)	$	23.68
Forfeited/Canceled	(52	)	$	18.91
Outstanding at December 31, 2012	2,181		$	17.20	3.1	$	8,399
Exercisable at December 31, 2012	1,049		$	17.21	1.4	$	4,025
Vested and expected to vest at December 31, 2012.	2,151		$	17.22	3.1	$	8,246

There were 462,229 and 894,000 stock options granted during 2012 and 2011, respectively, which had an estimated weighted-average grant date fair value of approximately $5.48 and $5.21, respectively. There were no stock options granted during 2010. The aggregate intrinsic value of our stock options exercised during 2012, 2011 and 2010 was $9.9 million, $5.6 million and $3.3 million, respectively. The actual tax benefit realized on options exercised during 2012, 2011 and 2010 was $3.9 million, $2.2 million and $1.3 million, respectively. The total fair value of options vested during 2012, 2011 and 2010 was $3.1 million, $2.2 million and $2.1 million, respectively.

VCA Antech, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)



10.	Share-Based Compensation, continued

The following table summarizes information about the options outstanding at December 31, 2012 (in thousands, except per share amounts and the weighted-average remaining contractual life):



Options Outstanding				Options Exercisable
Exercise Price	Outstanding	Weighted-Avg. Remaining Contractual Life	Weighted-Avg. Exercise Price	Exercisable	Weighted-Avg. Exercise Price
$7.48	10,000	0.1	$7.48	10,000	$7.48
$15.33 - $30.70	2,171,252	3.1	$17.24	1,038,523	$17.31
	2,181,252			1,048,523

At December 31, 2012, there was $5.4 million of total unrecognized compensation cost related to our stock options. This cost is expected to be recognized over a weighted-average period of over 3.1 years.

Calculation of Fair Value

The fair value of our options is estimated on the date of grant using the Black-Scholes option pricing model. We amortize the fair value of our options on a straight-line basis over the requisite service period. The following weighted-average assumptions were used to determine the fair value of those options granted during 2012 and 2011, as there were no options granted during 2010:



	For Years Ended
	December 31,
	2012	2011
Expected volatility⁽¹⁾	34.1%	39.0%
Expected dividends	—%	—%
Expected term⁽²⁾	4.4 years	4.3 years
Risk-free rate⁽³⁾	0.62%	0.79%


⁽¹⁾	We estimated the volatility of our common stock on the date of grant based on both historical and implied volatility.


⁽²⁾	The expected term represents the period of time that we expect options to be outstanding. We estimated the expected term based upon the weighted-average of our historical experience.


⁽³⁾	The risk-free interest rate is based on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with equivalent remaining terms.

We use historical data to estimate pre-vesting option forfeitures. We recognize share-based compensation only for those awards that we expect to vest.

The compensation cost charged against income for stock options was $1.5 million, $1.6 million and $2.6 million for 2012, 2011 and 2010, respectively. The corresponding income tax benefit recognized in the income statement was $603,000, $636,000 and $1.0 million for 2012, 2011 and 2010, respectively.

VCA Antech, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)



10.	Share-Based Compensation, continued

Non-Vested Shares

Additionally, under our 2006 Plan, we have issued non-vested stock awards in our common stock to certain employees and members of our Board of Directors. The outstanding non-vested stock awards to employees and executives generally vest as follows: in three or four equal annual installments starting the first anniversary of the grant date. The non-vested stock awards to members of our Board of Directors generally vest in equal annual installments over three years from the date of grant. Total compensation expense related to non-vested stock awards was $11.4 million, $9.1 million and $6.7 million in 2012, 2011 and 2010, respectively. The corresponding income tax benefit recognized in the income statement was $4.4 million, $3.6 million and $2.6 million for 2012, 2011 and 2010, respectively. As of December 31, 2012 there was $18.5 million of unrecognized compensation cost related to these non-vested shares that will be recognized over a weighted-average period of 2.9 years. A summary of our non-vested stock activity for 2012 is as follows (in thousands, except weighted-average fair value per share:



	Shares		Grant Date Weighted- Average Fair Value Per Share
Outstanding at December 31, 2010	687		$	26.16
Granted	1,248		$	19.99
Vested	(336	)	$	28.81
Forfeited/Canceled	(83	)	$	21.33
Outstanding at December 31, 2011	1,516		$	20.76
Granted	400		$	19.23
Vested	(457	)	$	22.17
Forfeited/Canceled	(8	)	$	19.03
Outstanding at December 31, 2012	1,451		$	19.90

During 2012, we granted 399,900 shares of non-vested common stock. Of these awards, 385,592 shares were granted to employees and 14,308 shares were granted to our non-employee directors. The awards to employees will vest in equal annual installments over four years. The shares awarded to our non-employee directors will vest in three equal annual installments.

Restricted Stock Unit Activity

Pursuant to the terms of the 2006 Equity Incentive Plan, on August 27, 2012, we granted 307,989 performance based restricted stock units ("RSUs") to our executive officers representing the right to receive one share of common stock. These RSUs will be earned upon achievement of the applicable performance criteria during the performance periods, from the fourth quarter 2012 through December 31, 2014, as set forth in the 2012 Equity Performance Award Agreement. Assuming achievement of the required performance conditions and continued service through each vesting date, these awards will vest in four equal annual installments beginning August 2013 through August 2016. The RSUs had an estimated weighted-average grant date fair value of approximately $18.94.

Total compensation cost charged against income, related to RSU awards was $1.2 million for 2012. The corresponding income tax benefit recognized in the income statement for the same period was $468,000.

At December 31, 2012, there was $5.5 million of total unrecognized compensation cost related to our RSU awards. This cost is expected to be recognized over a weighted-average period of over 3.7 years.