Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

Note 7 - Share-Based Compensation

Share-Based Plans

Current Plan

In May 2007, our stockholders approved the 2007 Long-Term Incentive Plan (the 2007 LTIP), which authorizes the Compensation Committee of our Board of Directors (the Board) to grant non-qualified stock options and restricted stock awards to employees, directors, consultants or advisors.  The 2007 LTIP replaced the 2002 Plan and the Director Plan, both of which are discussed below.  In May 2009, our stockholders approved the Amended and Restated 2007 Long-Term Incentive Plan (the Amended 2007 LTIP).  The amendment increased the number of shares that may be issued from 1,515,000 shares under the 2007 LTIP to 5,415,000 shares under the Amended 2007 LTIP.  As of December 31, 2011, we had 2,313,891 shares available for future issuance including 686,028 shares that may be issued as restricted stock.

Granted stock options have an exercise price equal to our stock’s closing market price on the grant date and expire ten years from the grant date. Restricted stock awards granted under the Amended 2007 LTIP are issued at no cost to the grantee.  Both stock options and restricted stock awards vest over time depending on an employee’s length of service with the Company.  Share-based awards generally vest either five years from the grant date or on a three/five year split vest schedule, where half of the awards vest three years from the grant date and the remainder of the awards vest five years from the grant date.  Share-based awards to directors, excluding our chief executive officer, vest one year from the grant date.

Preceding Plans

In May 2002, our stockholders approved the 2002 Long-Term Incentive Plan (the 2002 Plan), which authorized the Board to grant stock options and restricted stock awards to employees, agents, consultants or independent contractors. In May 2004, our stockholders approved an amendment to increase the number of shares authorized for issuance under the 2002 Plan from 1,575,000 to 2,700,000 shares.  Granted stock options have an exercise price equal to our stock’s market price on the grant date. These options generally vest either five years from the grant date or on a three/five year split vest schedule, as described above. These options expire ten years from the grant date.  In May 2007, the Board suspended the 2002 Plan. Options granted prior to the suspension were not affected by this action.

The SCP Pool Corporation Non-Employee Directors Equity Incentive Plan (the Director Plan) permitted the Board to grant stock options to each non-employee director. No more than 1,350,000 shares were authorized to be issued under this plan. Granted options have an exercise price equal to our stock’s market price on the grant date.  The options generally were exercisable one year after the grant date, and they expire ten years after the grant date.  The Director Plan expired during 2006.  Options granted prior to the expiration were not affected by this action.

In May 1998, our stockholders approved the 1998 Stock Option Plan (the 1998 Plan), which authorized the Board to grant stock options, stock appreciation rights, restricted stock and performance awards to employees, agents, consultants or independent contractors.  These options generally were exercisable three or more years after the grant date, and they expire ten years after the grant date. In May 2002, the Board suspended the 1998 Plan.  Options granted prior to the suspension were not affected by this action.

Stock Option Awards

The following is a summary of the stock option activity under our share-based plans for the year ended December 31, 2011:

	Shares			Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balance at December 31, 2010	5,255,165		$	22.08
Granted	404,500			24.50
Exercised	(958,509	)		12.70
Forfeited	(31,919	)		19.30
Balance at December 31, 2011	4,669,237		$	24.23	5.07	$	35,441,126
Exercisable at December 31, 2011	2,595,660		$	25.44	3.23	$	18,372,236

The table below summarizes information about stock options outstanding and exercisable at December 31, 2011:

	Outstanding Stock Options				Exercisable Stock Options
		Weighted Average
		Remaining	Weighted			Weighted
		Contractual Term	Average			Average
Range of exercise prices	Shares	(Years)	Exercise Price		Shares	Exercise Price
$ 0.00 to $ 11.99	449,960	1.12	$	11.98	449,960	$	11.98
$ 12.00 to $ 17.99	166,696	0.31		13.38	166,696		13.38
$ 18.00 to $ 23.99	2,219,973	6.08		20.17	803,184		21.09
$ 24.00 to $ 29.99	451,966	8.61		24.69	49,466		26.21
$ 30.00 to $ 47.30	1,380,642	4.14		35.92	1,126,354		35.66
	4,669,237	5.07	$	24.23	2,595,660	$	25.44

The following table summarizes the cash proceeds and tax benefits realized from the exercise of stock options:

		Year Ended December 31,
(in thousands, except share amounts)		2011		2010		2009
Options exercised		958,509		650,210		557,252
Cash proceeds	$	12,173	$	5,411	$	3,439
Intrinsic value of options exercised	$	13,868	$	8,589	$	7,870
Tax benefits realized	$	5,409	$	3,375	$	3,093

We estimated the fair value of employee stock option awards at the grant date based on the assumptions summarized in the following table:

		Year Ended December 31,
(Weighted average)		2011			2010			2009
Expected volatility		37.9	%		38.9	%		36.6	%
Expected term		7.8	years		6.7	years		6.7	years
Risk-free interest rate		3.10	%		3.23	%		2.94	%
Expected dividend yield		2.0	%		2.0	%		2.0	%
Grant date fair value	$	8.97		$	7.34		$	6.18

We calculated expected volatility over the expected term of the awards based on the historical volatility of our common stock.  We use weekly price observations for our historical volatility calculation because we believe that they provide the most appropriate measurement of volatility given the trading patterns of our common stock.  We estimated the expected term based on the vesting period of the awards and our historical exercise activity for awards with similar characteristics. The weighted average expected term increased in 2011 due to a higher expected term estimate for stock option awards granted to our named executive officers and the impact of fewer stock option awards granted.  While our expected term estimates for both three-year and five-year vest period awards were slightly higher in 2010 compared to 2009, the weighted average expected term was the same due to an increase in the percentage of total stock option awards with a three-year vest period.  The risk-free interest rate is based on the U.S. Treasury zero-coupon issues with a remaining term approximating the expected term of the option. We determined the expected dividend yield based on the anticipated dividends over the expected term.

For purposes of recognizing share-based compensation expense, we ratably expense the estimated fair value of employee stock options over the options’ requisite service period. The requisite service period for our share-based awards is either the vesting period, or if shorter, the period from the grant date to the date that employees meet the retirement provisions of our share-based award agreements. We recognize compensation cost for awards with graded vesting using the graded vesting recognition method.

The table below presents the total share-based compensation expense for stock option awards and the related recognized tax benefits for the past three years (in thousands):

		2011		2010		2009
Share-based compensation expense	$	4,497	$	4,570	$	4,681
Recognized tax benefits		1,721		1,796		1,840

At December 31, 2011, the unamortized compensation expense related to stock option awards totaled $4.2 million.  We anticipate that this expense will be recognized over a weighted average period of 2.0 years.

Restricted Stock Awards

The following is a summary of the restricted stock awards activity under our share-based plans for the year ended December 31, 2011:

	Shares		Weighted Average Grant Date Fair Value
Balance unvested at December 31, 2010	418,621		$	21.49
Granted (at market price)	126,725			25.74
Vested	(32,856	)		24.71
Forfeited	(7,200	)		19.66
Balance unvested at December 31, 2011	505,290		$	22.37

At December 31, 2011, the unamortized compensation expense related to the restricted stock awards totaled $3.8 million.  We anticipate that this expense will be recognized over a weighted average period of 2.2 years.

The table below presents the total number of restricted stock awards that vested for the past three years and the related fair value of those awards (in thousands, except share amounts):

		2011		2010		2009
Shares vested		32,856		44,152		58,748
Fair value of restricted stock awards vested	$	812	$	1,077	$	1,010

The table below presents the total share-based compensation expense for restricted stock awards for the past three years (in thousands):

		2011		2010		2009
Share-based compensation expense	$	3,507	$	3,028	$	1,560

Employee Stock Purchase Plan

In March 1998, the Board adopted the SCP Pool Corporation Employee Stock Purchase Plan (the ESPP). Under the ESPP, employees who meet minimum age and length of service requirements may purchase stock at 85% of the lower of:

a.   the closing price of our common stock at the end of a six month plan period ending either June 30 or December 31; or

b.   the average of the beginning and ending closing prices of our common stock for such six month period.

No more than 956,250 shares of our common stock may be issued under the ESPP. For the two six month offering periods in each year presented below, our employees purchased the following aggregate number of shares:

2011	2010	2009
37,653	48,002	57,839

The grant date fair value for the most recent ESPP purchase period ended December 31, 2011 was $4.52 per share.  Share-based compensation expense related to our ESPP was $0.2 million in 2011, 2010 and 2009.