Stock Compensation Plan

9 Months Ended

Sep. 30, 2012

Stock Compensation Plan

Stock Compensation Plan

Note 7.  Stock Compensation Plan

The Company reserved 3,500,000 shares of $0.01 par value common stock (“Common Stock”) for issuance under the 2004 Omnibus Stock and Incentive Plan (the “Omnibus Plan”).  As of September 30, 2012, approximately 760,000 shares of Common Stock were available for future issuance under the Omnibus Plan.

Valuation and Expense Information

Substantially all stock-based compensation expense is recorded in selling, general and administrative expenses on the condensed consolidated statements of operations.  The following table summarizes stock-based compensation expense and related income tax benefits.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Stock-based compensation expense	$	0.9		$	0.9		$	3.9		$	3.1
Income tax benefit	(0.3		)	(0.4		)	(1.5		)	(1.2		)
Stock-based compensation, net of income tax benefit	$	0.6		$	0.5		$	2.4		$	1.9

The following table summarizes total compensation costs related to the Company’s equity awards and amounts recognized in the nine months ended September 30, 2012.

	Stock Options and SARs			Performance shares and RSUs
Unrecognized compensation cost — December 31, 2011	$	0.8		$	2.4
Grant date fair value of current year grants	2.0			4.1
Compensation expense recognized	(1.0		)	(2.9		)
Estimated forfeitures for awards granted in prior years	—			0.1
Unrecognized compensation cost — September 30, 2012	$	1.8		$	3.7
Expected amortization period (in years)	3.2			1.8

Stock Options and SARs

During the nine months ended September 30, 2012, the Company awarded nonqualified stock options to Long-Term Compensation Plan (the “LTCP”) participants to purchase approximately 96,000 shares of Common Stock (subject to forfeiture due to termination of employment and other conditions). In addition, the Company awarded to a non-employee member of the Board of Directors (the “Board of Directors”) nonqualified stock options to purchase 1,570 shares of Common Stock. For the nine months ended September 30, 2012, the weighted-average exercise price of such nonqualified stock option awards was $24.14 per share. The weighted-average grant date fair value for stock options granted during the nine months ended September 30, 2012 was $8.13 per share and was estimated using the Black-Scholes option valuation model with the following assumptions:

	Nine months Ended September 30, 2012
Expected term in years	4.9
Risk free interest rate	1.1	%
Volatility	45.4	%
Dividend yield	2.0	%

Volatility and the expected term were estimated by reference to the historical stock price performance of the Company and historical data for the Company’s stock option awards, respectively. The risk-free interest rate was based on the yield on U.S. Treasury bonds with a remaining term approximately equal to the expected term of the stock option awards. Forfeitures were estimated at the date of grant.

During the nine months ended September 30, 2012, the Company awarded nonqualified stock options to its President and Chief Executive Officer to purchase 125,000 shares of Common Stock (subject to forfeiture due to termination of employment and other conditions). The exercise price of such nonqualified stock option awards was $24.09 per share and the options expire in ten years. If certain absolute total return to shareholder targets are achieved, 25 percent of the options will vest on December 31, 2014, 50 percent will vest on December 31, 2015 and 100 percent will vest on December 31, 2016. Any unvested shares as of December 31, 2016 will be forfeited. The grant date fair value of such stock options was $9.55 per share and was estimated using a “Monte-Carlo” simulation valuation model.

For the three and nine months ended September 30, 2012, the aggregate pre-tax intrinsic value of stock options and SARs exercised was approximately $1.0 million and $4.5 million, respectively. For the three and nine months ended September 30, 2011, the aggregate pre-tax intrinsic value of stock options exercised was approximately $1.1 million and $1.4 million, respectively. The aggregate intrinsic value of approximately 1,390,000 stock options and SARs that were exercisable at September 30, 2012 was $8.4 million. The aggregate intrinsic value of approximately 1,660,000 stock options and SARs that were exercisable at December 31, 2011 was $4.7 million.

The aggregate grant date fair value of approximately 270,000 stock options and SARs that vested during the nine months ended September 30, 2012, was $1.2 million. As of September 30, 2012, certain participants met age and service requirements that allowed their stock options and SARs to qualify for accelerated vesting upon retirement. As of September 30, 2012, such LTCP participants held options to purchase approximately 45,000 shares of common stock that would have been exercisable if they had retired as of such date. The aggregate grant date fair value of options subject to accelerated vesting was $0.4 million. Stock options subject to accelerated vesting for expense recognition become exercisable according to the contract terms of the stock-based awards.

As of September 30, 2012, the weighted-average grant date fair value and aggregate intrinsic value of 1,730,000 stock options and SARs that were vested or expected to vest was $9.51 per share and $10.8 million, respectively. As of December 31, 2011, the weighted-average grant date fair value and aggregate intrinsic value of 2,035,000 stock options and SARs that were vested or expected to vest was $9.03 per share and $8.1 million, respectively.

As of September 30, 2012, the Company had approximately 345,000 unvested stock options with a weighted-average grant date fair value of $9.73 per share. As of December 31, 2011, approximately 395,000 unvested stock options were outstanding with a weighted-average grant date fair value of $5.25 per share.

Performance Units

For the nine months ended September 30, 2012, the Company granted target awards of 103,000 Performance Units (subject to forfeiture due to termination of employment and other conditions) to LTCP participants. The measurement period for the Performance Units is January 1, 2012 through December 31, 2012. The Performance Units vest on December 31, 2014. Common Stock equal to not less than 40 percent and not more 200 percent of the Performance Unit target will be awarded based on the Company’s return on invested capital, consolidated revenue growth, the percentage of consolidated free cash flow to revenue and total return to shareholders relative to the companies in the Russell 2000® Value small cap index. As of September 30, 2012, the Company expects that Common Stock equal to 170 percent of the Performance Unit targets will be earned. The market price on the date of grant for the Performance Units was $23.09 per share. Based on the expected achievement of performance targets, the Company is recognizing stock-based compensation expense pro-rata over the vesting term of the Performance Units.

RSUs

During the nine months ended September 30, 2012, the Company awarded 12,025 RSUs to the Board of Directors (the “Director Awards”).  The weighted average grant date fair value of the Director Awards was $27.05 per share and the awards vest one year from the date of grant. During the vesting period, the holders of Director Awards are entitled to dividends, but the shares do not have voting rights and are forfeited in the event the holder is no longer a member of the Board of Directors. In addition, the Company issued 664 RSUs in lieu of dividends on RSUs held by non-U.S. employees and a member of the Board of Directors. For the nine months ended September 30, 2012, the aggregate intrinsic value of 635,000 RSUs awarded to LTCP participants that vested was $15.0 million.

Excess Tax Benefits

The Company accounts for stock-based compensation pursuant to the fair value recognition provisions of ASC Topic 718, Compensation—Stock Compensation (“ASC Topic 718”).  ASC Topic 718 requires the reporting of excess tax benefits related to the exercise or vesting of stock-based awards as cash provided by financing activities within the statement of cash flows.  Excess tax benefits represent the difference between the tax deduction the Company will receive on its tax return for compensation recognized by employees upon the vesting or exercise of stock-based awards and the tax benefit recognized for the grant date fair value of such awards.  Excess tax benefits are a non-cash item and therefore a reduction in cash flow from operations is recorded to offset the amount of excess tax benefits reported in cash flows from financing activities. For the nine months ended September 30, 2012 and 2011, the Company recognized excess tax benefits related to the exercise or vesting of stock-based awards of $5.1 million and $0.8 million, respectively.