Share-Based Employee Compensation Plans And Other Compensation and Benefit Plans

9 Months Ended

Sep. 30, 2012

Share-Based Employee Compensation Plans And Other Compensation and Benefit Plans

Share-Based Employee Compensation Plans And Other Compensation and Benefit Plans

NOTE 9 – SHARE-BASED EMPLOYEE COMPENSATION PLANS AND OTHER COMPENSATION AND BENEFIT PLANS 

The Company recognizes share-based compensation expense based on the fair value of the grants, awards or shares at the time of the grant, award or issuance.  Share-based compensation includes stock option awards issued under the Company’s employee incentive  plans and director stock plan, restricted stock awarded under the Company’s employee incentive plans, performance incentive plan and director stock plan and stock issued through the Company’s employee stock purchase plan. 

Stock options: 

The Company’s stock-based incentive plans provide for the granting of stock options for the purchase of common stock of the Company to directors and certain key employees of the Company.  Options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant.  Director options granted under the plans expire after seven years and are fully vested after six months.  Employee options granted under the plans expire after ten years and typically vest 25% per year, over four years.  The Company records compensation expense for the grant date fair value of the option awards, adjusted for estimated forfeitures, evenly over the vesting period. 

The table below identifies stock option activity under these plans during the nine months ended September 30, 2012:

	Shares (in thousands)	Weighted-Average Exercise Price
Outstanding at December 31, 2011	7,491	$	37.38
Granted	1,392		88.93
Exercised	(1,416)		28.72
Forfeited	(523)		59.89
Outstanding at September 30, 2012	6,944		47.78
Exercisable at September 30, 2012	3,858	$	30.38

The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model.  The Black-Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected dividend yield.   

· Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected life.   

· Expected life - Represents the period of time that options granted are expected to be outstanding.  The Company uses historical experience to estimate the expected life of options granted.   

· Expected volatility – Measure of the amount by which the Company’s stock price has historically fluctuated.   

· Expected dividend yield – The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.   

The table below identifies the weighted-average assumptions used for stock options awarded during the nine months ended September 30, 2012 and 2011:

	For the Nine Months Ended September 30,
	2012		2011
Risk free interest rate	0.62	%	1.31	%
Expected life	3.9	Years	3.8	Years
Expected volatility	33.6	%	33.3	%
Expected dividend yield	-	%	-	%

The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or cancelled prior to becoming fully vested.  The Company’s estimate is evaluated periodically, and is based upon historical experience at the time of evaluation and reduces expense ratably over the vesting period.  

The following table summarizes activity related to stock options awarded by the Company for the three and nine months ended September 30, 2012 and 2011 (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011
Compensation expense for stock options awarded	$	4,701	$	4,598	$	13,917	$	13,722
Income tax benefit from compensation expense related to stock options	$	1,810	$	1,761	$	5,358	$	5,255

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2012, was $23.88 compared to $16.26 for the nine months ended September 30, 2011.  The remaining unrecognized compensation expense related to unvested stock option awards at September 30, 2012, was $50.7 million and the weighted-average period of time over which this cost will be recognized is 3.0 years.   

Other share-based compensation and benefit plans: 

The Company sponsors other share-based compensation and benefit plans including an employee stock purchase plan (the “ESPP’’), which permits all eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value,  a performance incentive plan, which provides for the award of shares of restricted stock to its corporate and senior management that vest evenly over a three-year period and are held in escrow until such vesting has occurred, and a compensation plan, which provides for the award of shares of restricted stock to the Company’s independent directors that vest evenly over a three-year period and are held in escrow until such vesting has occurred.  The fair value of shares awarded under these plans is based on the closing market price of the Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting period. 

The table below summarizes activity related to the Company’s other share-based compensation and benefit plans for the three and nine months ended September 30, 2012 and 2011 (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011
Compensation expense for shares issued under the ESPP	$	401	$	333	$	1,139	$	959
Income tax benefit from compensation expense related to shares issued under the ESPP		154		128		439		367
Compensation expense for restricted shares awarded		583		422		1,520		1,204
Income tax benefit from compensation expense related to restricted awards	$	225	$	162	$	585	$	461