Stockholders' Equity and Stock-based Compensation Arrangements

6 Months Ended

Jun. 30, 2011

Stockholders' Equity and Stock-based Compensation Arrangements

Stockholders' Equity and Stock-based Compensation Arrangements

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

Our common stock was previously comprised of two classes: Class A and Ordinary. With the exception of disparate voting power, both classes were substantially identical. Each share of Class A common stock entitled the holder to 98 votes. Holders of Ordinary common stock are entitled to one vote per share. On June 2, 2011 our Chairman and Chief Executive Officer sold all of their Class A common stock to other shareholders. Once the Class A stock was no longer held by its former shareholders, it was converted into Ordinary common stock. This eliminated the 80% voting power previously held by our Chairman and Chief Executive Officer.

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 have three-year vesting terms, except upon a change in control, when they would vest immediately.

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 171,274 shares of treasury stock to cover options exercised, with 282,276 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 June 30, 2011 was $0.2 million. This reduction was $0.1 million for the three and six months ended June 30, 2010.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Compensation cost included in:
Basic income per share	$	0.18	$	0.03	$	0.21	$	0.05
Diluted income per share	$	0.18	$	0.03	$	0.21	$	0.05
Stock-based compensation expense	2,996		375		3,401		741
Income tax benefit	769		68		851		135

In connection with the sale of Class A common stock mentioned above, vesting of most of the unvested stock options under our Stock Plan was accelerated. As a result, we incurred $2.2 million of stock-based compensation expense during the second quarter of 2011.

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 and six months ended June 30, 2011 or 2010. During the six months ended June 30, 2011, we granted 40,000 restricted shares with a fair value of $19.89 per share. As a result of the sale of Class A common stock, the vesting of these shares was accelerated and we recognized an associated compensation cost of $0.7 million during the second quarter of 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, 2011	1,086,886		$	20.60
Granted	—		—
Exercised	(108,888	)	15.09
Forfeited	(13,760	)	26.18
Outstanding, June 30, 2011	964,238		$	21.15	5.3	$	5,538
Exercisable, June 30, 2011	856,498		$	21.86	5.0	$	4,381

The total intrinsic value of the options exercised during the three and six month period ended June 30, 2011 was $1.0 million. The total intrinsic value of the options exercised during the three and six month periods ended June 30, 2010 was nominal. As of June 30, 2011, there was $0.6 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 2.8 years. Cash received from option exercises under the Stock Plans for the three and six month period ended June 30, 2011 was $1.6 million.

The following tables set forth information regarding the Purchase Plan:

	Three Months Ended June 30,		Six Months Ended June 30,
	2011	2010	2011	2010
Risk-free interest rate	0.3%	0.5%	0.3%	0.5%
Weighted-average expected life of option feature (in years)	1.0	1.0	1.0	1.0
Expected volatility of underlying stock	28.3%	27.9%	28.3%	27.9%
Expected dividends	n/a	n/a	n/a	n/a
Weighted-average fair value of option feature	$4.81	$2.79	$4.81	$2.79

	Number of Options		Weighted- Average Exercise Price		Remaining Contract Life (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2011	15,709		$	16.58
Shares subscribed	17,165		16.58
Exercised	—		—
Forfeited	(1,027	)	16.58
Outstanding, June 30, 2011	31,847		$	16.58	0.1	$	289