STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12. STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which shares were available for grant at September 30, 2011: the Hansen Natural Corporation 2011 Omnibus Incentive Plan (the “2011 Omnibus Incentive Plan”) and the 2009 Hansen Natural Corporation Stock Incentive Plan for Non-Employee Directors (the “2009 Directors Plan”).

The Company recorded $4.9 million and $4.3 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units (restricted stock units were granted to non-employee directors under the 2009 Directors Plan) during the three-months ended September 30, 2011 and 2010, respectively. The Company recorded $12.8 million of compensation expense relating to outstanding options, restricted stock awards, stock appreciation rights and restricted stock units (granted to non-employee directors under the 2009 Directors Plan) for both the nine-months ended September 30, 2011 and 2010, respectively.

Stock Options

Under the Company’s stock-based compensation plans, all stock options granted as of September 30, 2011 were granted at prices based on the fair value of the Company’s common stock on the date of grant. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company records compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes-Merton option pricing formula with the assumptions included in the table below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options.

The following weighted-average assumptions were used to estimate the fair value of options granted during:

	Three-Months Ended September 30,		Nine-Months Ended September 30,
	2011	2010	2011	2010
Dividend yield	0.0 %	0.0 %	0.0 %	0.0 %
Expected volatility	52.7 %	58.2 %	54.1 %	58.9 %
Risk-free interest rate	1.3 %	1.7 %	1.7 %	2.1 %
Expected term	5.7 Years	5.9 Years	5.9 Years	5.8 Years

Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupon yield curve in effect at the time of grant for the expected term of the option.

Expected Term: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

The following table summarizes the Company’s activities with respect to stock options as follows:

Options	Number of Shares (In Thousands)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance at January 1, 2011	9,749		$	17.18	5.2	$	342,241
Granted 01/01/11 - 03/31/11	59		$	57.61
Granted 04/01/11 - 06/30/11	52		$	70.00
Granted 07/01/11 - 09/30/11	55		$	80.90
Exercised	(524	)	$	34.03
Cancelled or forfeited	(66	)	$	37.25
Outstanding at September 30, 2011	9,325		$	17.02	4.4	$	655,335
Vested and expected to vest in the future at September 30, 2011	8,972		$	16.06	4.2	$	639,106
Exercisable at September 30, 2011	6,959		$	9.43	3.2	$	541,884

The weighted-average grant-date fair value of options granted during the three-months ended September 30, 2011 and 2010 was $39.58 per share and $22.59 per share, respectively. The weighted-average grant-date fair value of options granted during the nine-months ended September 30, 2011 and 2010 was $35.27 per share and $22.13 per share, respectively. The total intrinsic value of options exercised during the three-months ended September 30, 2011 and 2010 was $9.9 million and $11.9 million, respectively. The total intrinsic value of options exercised during the nine-months ended September 30, 2011 and 2010 was $19.4 million and $33.1 million, respectively.

Cash received from option exercises under all plans for the three-months ended September 30, 2011 and 2010 was approximately $6.5 million and $5.9 million, respectively. Cash received from option exercises under all plans for the nine-months ended September 30, 2011 and 2010 was approximately $17.8 million and $10.9 million, respectively. The excess tax benefit realized for tax deductions from non-qualified stock option exercises and disqualifying dispositions of incentive stock options for the three-months ended September 30, 2011 and 2010 was $2.2 million and $3.5 million, respectively. The excess tax benefit realized for tax deductions from non-qualified stock option exercises and disqualifying dispositions of incentive stock options for the nine-months ended September 30, 2011 and 2010 was $3.4 million and $10.2 million, respectively.

At September 30, 2011, there was $42.9 million of total unrecognized compensation expense related to non-vested options and stock appreciation rights granted to both employees and non-employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock Awards and Restricted Stock Units

Stock-based compensation cost for restricted stock awards and restricted stock units is measured based on the closing fair market value of the Company’s common stock at the date of grant. In the event that the Company has the option and intent to settle a restricted stock unit in cash, the award is classified as a liability and revalued at each balance sheet date. Total cash paid to settle restricted stock unit liabilities and the increase in the liabilities for future cash settlements during the nine-months ended September 30, 2011 and 2010 were not material.

The following table summarizes the Company’s activities with respect to non-vested restricted stock awards and non-vested restricted stock units as follows:

	Number of Shares (in thousands)		Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2011	6		$	38.40
Granted 01/01/11 - 03/31/11	-		$	-
Granted 04/01/11 - 06/30/11	28		$	71.76
Granted 07/01/11 - 09/30/11	328		$	84.08
Vested	(8	)	$	69.66
Forfeited/cancelled	-		$	-
Non-vested at September 30, 2011	354		$	83.19

At September 30, 2011, total unrecognized compensation expense relating to non-vested restricted stock awards and non-vested restricted stock units was $28.5 million, which is expected to be recognized over a weighted-average period of 3.0 years.