Stockholders' Equity and Stock-based Compensation Arrangements

3 Months Ended

Mar. 31, 2012

Stockholders' Equity and Stock-based Compensation Arrangements

Stockholders' Equity and Stock-based Compensation Arrangements

(9)Stockholders’ Equity and Stock-based Compensation Arrangements

Stockholder Rights Plan — We adopted a Stockholder Rights Plan under which stockholders of record as of October 7, 2011 received rights to purchase shares of a new series of preferred stock. To effect the plan, the Board of Directors declared a dividend of one right on each outstanding share of the Company’s common stock. The rights become exercisable if any person or group acquires 10% or more (or, in certain instances, 35% or more) of our common stock.

If the rights become exercisable, each right will initially entitle the holder to acquire one one-hundredth (1/100) of a share of a new series of preferred stock at an exercise price of $75 per right. In addition, under certain circumstances, the rights will entitle the holders (other than the person or group triggering the rights) to buy shares of our common stock with a cumulative market value of two times the exercise price at a 50% discount off the then current price. Because the rights of any person or group acquiring the specified ownership percentage become void, that person or group would be subject to significant dilution in their holdings.

Until the rights become exercisable, they will not have any impact on our shares outstanding. The rights will expire on September 26, 2021, unless extended or earlier redeemed or exchanged by us pursuant to the terms of the plan.

Employee Stock Purchase Plan — We have an employee stock purchase plan under which substantially all employees may purchase Ordinary common stock through payroll deductions at a purchase price equal to 85% of the lower of the fair market values as of the beginning or end of each twelve-month offering period. Stock purchases under the Purchase Plan are limited to 5% of an employee’s annual base earnings. We have reserved 400,000 shares of common stock for issuance under this plan.

Stock Plans — The 2006 Stock Plan provides for the granting of 1,000,000 stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted shares and other stock awards to certain key employees, consultants and advisors. Our stock options generally have five-year vesting terms and ten-year option terms. Our restricted shares, if any, generally have three-year vesting terms.

Our 1996 Stock Plan has expired but still has vested options outstanding. We reached our registered share limitation in early 2007, and had previously reserved 721,750 treasury stock shares to issue under this plan. We have since issued 228,874 shares of treasury stock to cover options exercised, with 226,276 remaining options outstanding. Since in most instances the average cost of the treasury stock exceeded the price of the options exercised, the difference between the proceeds received and the average cost of the treasury stock issued resulted in a reduction of retained earnings. The reduction to retained earnings associated with options exercised during the three months ended March 31, 2012 was less than $0.1 million. There was no reduction to retained earnings associated with options exercised during the three months ended March 31, 2011.

The compensation cost and the income tax benefit recognized for these plans are as follows:

	Three Months Ended March 31,
	2012		2011
Compensation cost included in:
Basic income per share	$	0.01	$	0.03
Diluted income per share	$	0.01	$	0.03
Stock-based compensation expense	111		406
Income tax benefit	26		82

We measured the fair value of options on their grant date, including the valuation of the option feature implicit in our Purchase Plan, using the Black-Scholes option-pricing model. The risk-free interest rate is based on the weighted-average of U.S. Treasury rates over the expected life of the stock option or the contractual life of the option feature in the Purchase Plan.

The expected life of a stock option is based on historical data of similar option holders. We have segregated our employees into two groups based on historical exercise and termination behavior. The expected life of the option feature in the Purchase Plan is the same as its contractual life. Expected volatility is based on historical volatility of our stock over the expected life of the option, as our options are not readily tradable.

There were no options granted during the three months ended March 31, 2012 or 2011. The following table sets forth information regarding the Stock Plans:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2012	826,076		$	21.33
Granted	—		—
Exercised	(7,200	)	14.14
Forfeited	—		—
Outstanding, March 31, 2012	818,876		$	21.40	5.0	$	4,461
Exercisable, March 31, 2012	734,876		$	22.04	4.7	$	3,608

The total intrinsic value of the options exercised during the three month period ended March 31, 2012 was $0.1 million. The total intrinsic value of the options exercised during the three month period ended March 31, 2011 was nominal. As of March 31, 2012, there was $0.4 million of unrecognized compensation cost related to nonvested share-based compensation arrangements. This compensation is expected to be recognized over a weighted-average period of approximately two years. Cash received from option exercises under the Stock Plans for the three month periods ended March 31, 2012 and 2011 was $0.1 million and less than $0.1 million, respectively.

The following tables set forth information regarding the Purchase Plan:

	Three Months Ended March 31,
	2012	2011
Risk-free interest rate	0.2%	0.3%
Weighted-average expected life of option feature (in years)	1.0	1.0
Expected volatility of underlying stock	28.6%	28.3%
Expected dividends	n/a	n/a
Weighted-average fair value of option feature	$7.19	$4.81

	Number of Options		Weighted- Average Exercise Price		Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2012	10,503		$	24.70
Shares subscribed	6,408		24.70
Exercised	—		—
Forfeited	(936	)	24.70
Outstanding, March 31, 2012	15,975		$	24.70	0.3	$	12