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Share Based Compensation Plans
 12 Months Ended
Dec. 31, 2012
Share Based Compensation Plans [Abstract]  
Share Based Compensation Plans

Note 19.    Share Based Compensation Plans

 

Stock option plans

 

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 and 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     2010  

Dividend yield

     0.0 %      0.2 %      1.0 % 

Expected life

     5 years       5 years       5 years  

Volatility

     60.1 %      78.3 %      82.3 % 

Risk free interest rate

     0.43 %      1.22 %      1.36 % 

 

The following table summarizes the transactions of the Company’s stock option plans for the year ended December 31, 2012:

 

                         
    Number of
Options		     Weighted
Average
Exercise Price		     Weighted
Average Fair
Value		  

Outstanding at December 31, 2011

     1,229,220     $ 5.44          

Granted – at discount

     75,932     $ 0.00     $ 21.98  

      – at market value

     31,012     $ 29.56     $ 16.70  

Exercised

     (325,879 )    $ 3.80          

Forfeited

     (9,044 )    $ 10.00          
   

 

 

                  

Outstanding at December 31, 2012

     1,001,241     $ 6.27          
   

 

 

                  

 

The following table summarizes information about options outstanding at December 31, 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

     561,811       7.01     $ 0.59       128,617       6.04     $ 0.69  

$5 - $10

     20,654       2.71     $ 9.93       20,654       2.71     $ 9.93  

$10 - $15

     355,233       2.17     $ 11.27       0       0.00     $ 0.00  

$20 - $25

     11,185       5.18     $ 20.57       11,185       5.18     $ 20.57  

$25 - $30

     50,978       7.84     $ 28.59       11,666       4.14     $ 27.09  

$30 - $35

     1,380       8.37     $ 32.60       0       0.00     $ 0.00  
   

 

 

                    

 

 

                  
      1,001,241                       172,122                  
   

 

 

                    

 

 

                  

 

The aggregate intrinsic value of fully vested stock options was $1.3 million. Of the 172,122 stock options that are exercisable, 95,724 had performance conditions attached. The total compensation cost for 2012, 2011 and 2010 was $3.1 million, $3.1 million and $3.1 million, respectively. The cash tax benefit realized from stock option exercises totaled $2.7 million, $1.7 million and $0.5 million in 2012, 2011 and 2010, respectively. The excess tax benefit classified in financing activities was $2.2 million, $1.1 million and $0.0 million in 2012, 2011 and 2010, respectively. The total compensation cost related to non-vested stock options not yet recognized at December 31, 2012 was $2.8 million and this cost is expected to be recognized over the weighted-average period of 1.31 years.

 

No stock options awards were modified in 2012, 2011 or 2010. On February 13, 2009, we extended the vesting period for 132,470 grants made under a key employee performance related stock option plan from February 13, 2009 to February 13, 2011, and modified the performance criteria to reflect the longer vesting period. Additional compensation cost of $0.2 million was required to be recognized for these modified stock options in the period February 13, 2009 to February 13, 2011.

 

The total intrinsic value of options exercised in 2012, 2011 and 2010 was $1.5 million, $2.2 million and $3.7 million, respectively. The amount of cash received from the exercise of stock option awards in 2012, 2011 and 2010 was $1.2 million, $0.7 million and $0.2 million, respectively. The Company’s policy is to issue shares from treasury stock to holders of stock options who exercise those options. During 2012, 2011 and 2010 the new total fair value of shares vested was $1.3 million, $2.9 million and $4.4 million, respectively.

 

The total options vested in 2012 were 374,384 (2011 – 290,363, 2010 – 174,298).

 

Stock equivalent units

 

The Company awards Stock Equivalent Units (“SEUs”) from time to time as a long-term performance incentive. SEUs have vesting periods ranging from 11 months to 4 years and in all cases SEUs granted expire within 10 years of the date of grant. Grants may be priced at market value or at a premium or discount. There is no limit to the number of SEUs that can be granted. The liability for SEUs is located in the current portion of accrued liabilities in the consolidated balance sheets until they are cash settled.

 

SEUs can have certain performance related measures dependent upon external factors such as the Company’s stock price. In such cases the fair value of SEUs is calculated using the Monte Carlo model. The following assumptions were used in the Monte Carlo model:

 

                         
        2012             2011             2010      

Dividend yield

     0.0 %      0.0 %      0.5 % 

Volatility

     43.8 %      64.2 %      78.9 % 

Risk free interest rate

     0.36 %      0.36 %      1.05 % 

 

The following table summarizes the transactions of the Company’s SEUs for the year ended December 31, 2012:

 

                         
    Number of
SEUs		     Weighted
Average
Exercise Price		     Weighted
Average Fair
Value		  

Outstanding at December 31, 2011

     864,086     $ 2.30          

Granted – at discount

     98,128     $ 0.00     $ 29.73  

      – at market value

     7,293     $ 29.56     $ 15.20  

Exercised

     (345,679 )    $ 1.05          
   

 

 

                  

Outstanding at December 31, 2012

     623,828     $ 2.95          
   

 

 

                  

 

The following table summarizes information about SEUs outstanding at December 31, 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

     529,142       7.64     $ 0.21       94,210       6.23     $ 1.17  

$10 - $15

     51,259       7.13     $ 10.38       0       0.00     $ 0.00  

$25 - $30

     43,427       8.31     $ 27.52       0       0.00     $ 0.00  
   

 

 

                    

 

 

                  
      623,828                       94,210                  
   

 

 

                    

 

 

                  

 

The aggregate intrinsic value of fully vested SEUs was $0.4 million. Of the 94,210 SEUs that are exercisable, 70,399 had performance conditions attached. The total compensation cost for 2012, 2011 and 2010 was $6.8 million, $5.9 million and $5.2 million, respectively. The charges for SEUs are spread over the life of the award subject to a revaluation to fair value each quarter. The revaluation may result in a charge or a credit to the income statement in the quarter dependent upon our share price and other performance criteria. The weighted-average remaining vesting period of non-vested SEUs is 0.85 years.

 

The total intrinsic value of SEUs exercised in 2012, 2011 and 2010 was $1.3 million, $0.4 million and $0.4 million, respectively. The amount of cash received from the exercise of SEU awards in 2012, 2011 and 2010 was $0.4 million, $0.0 million and $0.0 million, respectively. During 2012, 2011 and 2010 the new total fair value of SEUs vested was $0.5 million, $0.0 million and $0.0 million, respectively.

 

The total number of SEUs that vested in 2012 was 436,914 (2011 – 19,000, 2010 – 600).

 

Long-term incentive plan

 

An additional long-term incentive plan was in place to reward selected executives for delivering exceptional performance. Under this plan a discretionary bonus was payable to eligible executives if the Innospec share performance out-performed 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 earned was a set cash amount for each one percentage point of out-performance. The maximum bonus under this plan was payable for an out-performance versus the Russell 2000 Index of 30%. The maximum bonus under this plan, in respect of the current participants, was $8 million (2011 – $8 million, 2010 – $8 million). No bonus was payable under this plan if the Innospec stock price had not out-performed the Russell 2000 Index by more than 10% over the five year period, or the Russell 2000 Index had fallen in value over the same period. The fair value of these liability cash-settled stock appreciation rights was calculated on a quarterly basis using a Monte Carlo model and summarized as follows:

 

                         

(in millions)

       2012             2011             2010      

Balance at January 1

   $ 2.2     $ 0.8     $ 0.2  

Compensation charge

     5.8       1.4       0.6  

Cash paid

     (6.7 )      0.0       0.0  
   

 

 

    

 

 

    

 

 

  

Balance at December 31

   $ 1.3     $ 2.2     $ 0.8  
   

 

 

    

 

 

    

 

 

  

 

The following assumptions were used in the Monte Carlo model:

 

                         
        2012             2011             2010      

Dividend yield

     0.0 %      0.0 %      0.5 % 

Volatility

     0.0 %      53.5 %      69.0 % 

Risk free interest rate

     0.36 %      0.36 %      1.05 %