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Stockholders' Equity and Share Based Compensation Plans

6 Months Ended

Jun. 30, 2012

Stockholders' Equity and Share Based Compensation Plans [Abstract]

STOCKHOLDERS' EQUITY AND SHARE BASED COMPENSATION PLANS

NOTE 13 – STOCKHOLDERS’ EQUITY AND SHARE BASED COMPENSATION PLANS

At June 30, 2012, the Company had authorized common stock of 40,000,000 shares (December 31, 2011 – 40,000,000). Issued shares at June 30, 2012, were 29,554,500 (December 31, 2011 – 29,554,500) and treasury stock amounted to 6,339,772 shares (December 31, 2011 – 6,507,081).

The Company has five active stock option plans, two of which provide for the grant of stock options to employees, one provides for the grant of stock options to non-employee directors, and another provides for the grant of stock options to key executives on a matching basis provided they use a proportion of their annual bonus to purchase common stock in the Company on the open market or from the Company. The fifth plan is a savings plan which provides for the grant of stock options to all Company employees provided they commit to make regular savings over a pre-defined period which can then be used to purchase common stock upon vesting of the options. The stock options have vesting periods ranging from 24 months to 6 years and in all cases stock options granted expire within 10 years of the date of grant. All grants are at the sole discretion of the Compensation Committee of the Board of Directors. Grants may be priced at market value or at a premium or discount. The aggregate number of shares of common stock reserved for issuance which can be granted under the plans is 2,640,000.

The fair value of the options above is calculated using the Black-Scholes model. In some cases certain performance related options are dependent upon external factors such as the Company’s stock price. The fair value of these options is calculated using a Monte Carlo model. The following assumptions were used to determine the fair value of options calculated using the Black-Scholes model:


		2012				2011
Dividend yield			0.0	%			0.2	%
Expected life			5 years				5 years
Volatility			60.1	%			78.3	%
Risk free interest rate			0.43	%			1.22	%

The following table summarizes the transactions of the Company’s stock option plans for the three and six months ended June 30, 2012:


		Number of Options				Weighted Average Exercise Price
Outstanding at March 31, 2012			1,297,438			$	5.68
Exercised			(176,061	)		$	2.90
Forfeited			(4,735	)		$	9.78

Outstanding at June 30, 2012			1,116,642			$	6.10


		Number of Options				Weighted Average Exercise Price				Weighted Average Fair Value
Outstanding at December 31, 2011			1,229,220			$	5.44
Granted:
At discount			71,132			$	0.00			$	21.39
At market value			31,012			$	29.56			$	16.70
Exercised			(208,409	)		$	3.51
Forfeited			(6,313	)		$	10.08

Outstanding at June 30, 2012			1,116,642			$	6.10

The following table summarizes information about options outstanding at June 30, 2012:


Range of Exercise Price		Number Outstanding				Weighted Average Remaining Life in Years				Weighted Average Exercise Price				Number Exercisable and Fully Vested				Weighted Average Remaining Life in Years				Weighted Average Exercise Price
$0-$5			641,549				7.43			$	0.57				102,855				6.25			$	1.21
$5-$10			22,654				3.00			$	9.66				22,654				3.00			$	9.66
$10-$15			386,946				2.51			$	11.48				0				0.00			$	0.00
$20-$25			12,385				5.68			$	20.53				12,385				5.68			$	20.53
$25-$30			51,728				8.29			$	28.57				12,416				4.65			$	27.09
$30-$35			1,380				8.87			$	32.60				0				0.00			$	0.00

			1,116,642												150,310

The aggregate intrinsic value of fully vested stock options was $0.7 million. Of the 150,310 stock options that were exercisable, 59,009 had performance conditions attached. The total compensation cost for the first half year of 2012 was $1.6 million (2011 – $1.6 million). The total compensation cost related to non-vested stock options not yet recognized at June 30, 2012 was $3.9 million and this cost is expected to be recognized over the weighted-average period of 1.63 years.

The total intrinsic value of options exercised in the first half year of 2012 was $0.6 million (2011 – $2.1 million). The amount of cash received from the exercise of stock option awards in the first half year of 2012 was $0.7 million (2011 – $0.7 million). The Company’s policy is to issue shares from treasury stock to holders of stock options who exercise those options. During the first half year of 2012 the new total fair value of shares vested was $0.7 million (2011 – $2.9 million).

The total options vested in the first half year of 2012 were 242,880 (2011 – 290,363).

An additional long-term incentive plan is in place to reward selected executives for delivering exceptional performance. Under this plan a discretionary bonus will be payable to eligible executives if the Innospec share performance out-performs that of competitors, as measured by the Russell 2000 Index, by a minimum of 10% over the five years from January 2008 to December 2012. The amount of bonus which can be earned will be a set cash amount for each one percentage point of out-performance. The maximum bonus under this plan will be payable for an out-performance versus the Russell 2000 Index of 30%. The maximum bonus under this plan, in respect of the current participants, is $8 million (2011 – $8 million). No bonus is payable under this plan if the Innospec stock price does not out-perform the Russell 2000 Index by more than 10% over the five year period, or the Russell 2000 Index falls in value over the same period. The fair value of these liability cash-settled stock appreciation rights is calculated on a quarterly basis using a Monte Carlo model and summarized as follows:


(in millions)		2012				2011
Balance at January 1		$	2.2			$	0.8
Compensation charge			3.0				1.6

Balance at June 30		$	5.2			$	2.4

The following assumptions were used in the Monte Carlo model:


		2012				2011
Dividend yield			0.0	%			0.2	%
Volatility			29.5	%			45.7	%
Risk free interest rate			0.40	%			0.81	%