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Equity
 12 Months Ended
Dec. 31, 2011
Equity
(12) Equity

 

Share-Based Payments:

 

The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a four to five-year period. The fair value of shares vested in 2011 and 2010 aggregated $0.6 million and $0.5 million, respectively. Compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. It is generally the Company’s policy to issue new shares upon exercise of stock options.

 

The following table sets forth information with respect to nonvested options for 2011:

 

    Number of Shares     Weighted Average Grant
Date Fair Value		  
Nonvested options – beginning of year     480,843     $ 4.32  
Nonvested options granted     118,900     $ 4.59  
Nonvested options vested or forfeited     (142,820 )   $ 4.29  
Nonvested options – end of year     456,923     $ 4.40  

 

Share-based payment expenses decreased income before income taxes by $1.1 million in 2011 and $0.9 million in both 2010 and 2009, decreased net income attributable to Inter Parfums, Inc. by $0.60 million, $0.55 million and $0.54 million in 2011, 2010 and 2009, respectively, and reduced diluted earnings per share by $0.02 in 2011, 2010 and 2009.

  

The following table summarizes stock option activity and related information for the years ended December 31, 2011, 2010 and 2009 and does not include information relating to options of IPSA granted by IPSA, our majority-owned subsidiary:

 

    Year ended December 31,  
    2011     2010     2009  
    Options     Weighted
Average
exercise
price		     Options     Weighted
Average
exercise
price		     Options     Weighted
Average
exercise
price		  
Shares under option - beginning of year     807,620     $ 12.78       920,825     $ 11.32       1,138,375     $ 11.23  
Options granted     118,900       15.66       120,200       18.64       100,550       11.90  
Options exercised     (95,625 )     12.66       (226,455 )     10.00       (243,600 )     10.24  
Options cancelled     (7,620 )     14.37       (6,950 )     11.27       (74,500 )     14.20  
Shares under options - end of year     823,275       13.20       807,620       12.78       920,825       11.32  

 

At December 31, 2011, options for 771,795 shares were available for future grant under the plans. The aggregate intrinsic value of options outstanding is $2.3 million as of December 31, 2011 and unrecognized compensation cost related to stock options outstanding on Inter Parfums, Inc. common stock aggregated $1.4 million, which will be recognized over the next five years. The amount of unrecognized compensation cost related to stock options outstanding of our majority-owned subsidiary, IPSA, was €0.7 million (approximately $0.9 million). Options under IPSA plans vest four years after grant.

 

The weighted average fair values of options granted by Inter Parfums, Inc. during 2011, 2010 and 2009 were $4.59, $5.59 and $4.40 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value. The assumptions used in the Black-Scholes pricing model for the years ended December 31, 2011, 2010 and 2009 are set forth in the following table:

 

    Year Ended December 31,  
    2011     2010     2009  
Weighted-average expected stock-price volatility     40 %     39 %     49 %
Weighted-average expected option life     4.5 years       4.5 years       4.5 years  
Weighted-average risk-free interest rate     0.9 %     2.1 %     2.6 %
Weighted-average dividend yield     1.7 %     1.7 %     2.0 %

 

Expected volatility is estimated based on historic volatility of the Company’s common stock. In 2011, the expected term of the option is estimated based on historic data. In 2010 and 2009, the Company used the simplified method as historic data regarding employee exercise behavior was incomplete. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would increase as the earnings of the Company and its stock price continue to increase.

 

Stock-based employee compensation determined under the fair value based method, net of related tax effects, includes compensation incurred by IPSA, our majority-owned subsidiary whose stock is publicly traded in France. No options were granted by IPSA in 2011. The weighted average fair values of the options granted by IPSA during 2010 and 2009 were €6.55 per share and €4.27 per share, respectively, on the date of grant using the Black-Scholes option pricing model.

 

 Cash proceeds, tax benefits and intrinsic value related to stock options exercised were as follows: 

 

    Year Ended December 31,  
    2011     2010     2009  
Cash proceeds from stock options exercised   $ 1,210     $ 771     $ 956  
Tax benefits   $ —     $ 520     $ 692  
Intrinsic value of stock options exercised   $ 720     $ 1,195     $ 407  

 

The following table summarizes additional stock option information as of December 31, 2010:

 

          Options outstanding        
    Number     weighted average remaining     Options  
Exercise prices   outstanding     contractual life     exercisable  
$ 6.15 – $ 6.93     75,220       2.96 years       42,860  
$ 11.30 – $ 11.41     154,650       2.09 years       20,588  
$ 12.14 – $ 12.64     194,380       2.94 years       116,635  
$ 13.10 – $ 13.45     164,775       0.98 years       161,399  
$ 15.59 - $ 15.62     121,400       5.91 years       1,200  
$17.94     3,500       4.09 years       —  
$18.01     3,000       1.41 years       2,400  
$19.03     106,350       5.00 years       21,270  
Totals     823,275       3.09 Years       366,352  

 

As of December 31, 2011, the weighted average exercise price of options exercisable was $12.45 and the weighted average remaining contractual life of options exercisable is 2.27 years. The aggregate intrinsic value of options exercisable at December 31, 2011 is $1.2 million.

 

The Chief Executive Officer and the President each exercised 75,000 outstanding stock options of the Company’s common stock in both 2010 and 2009. The aggregate exercise prices of $1.5 million in both 2010 and 2009 were paid by them tendering to the Company in 2010 and 2009 an aggregate of 95,744 and 129,984 shares, respectively, of the Company’s common stock, previously owned by them, valued at fair market value on the dates of exercise. All shares issued pursuant to these option exercises were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered in 2010 and 2009 an additional 6,782 and 2,503 shares, respectively, for payment of certain withholding taxes resulting from his option exercises.

 

Treasury Stock

 

As of December 31, 2008, the Board of Directors of the Company authorized the repurchase of up to 1,031,863 shares of the Company’s common stock. During 2009, the Company repurchased 108,100 shares of its common stock at an average price of $5.84 per common share.

 

Dividends

 

The quarterly dividend of $2.4 million ($0.08 per share) declared in December 2011 was paid in January 2012. Furthermore, in December 2011 the Board of Directors of the Company authorized the continuation of the annual dividend of $0.32 per share. The next quarterly dividend of $0.08 per share will be paid on April 16, 2012 to shareholders of record on March 30, 2012.