8.	STOCK-BASED COMPENSATION

The Company has one stock-based compensation plan, the 2005 Stock Incentive Plan (the “Plan”). The Plan is administered by the Compensation Committee of the Company’s Board of Directors. Stock-based compensation is granted to officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock and performance share awards. The total aggregate number of shares of the Company’s common stock that may be issued under the Plan is 3,150,000 shares. For the years ended December 31, 2013, 2012 and 2011, stock compensation expense related to awards under the Plan was $3.8 million, $3.5 million and $3.1 million, respectively. This expense is included in “Selling, general and administrative expenses” in the accompanying consolidated statements of comprehensive income.

Stock Options and Stock Appreciation Rights

The Plan authorizes the grant of stock options and SARs. Stock options are granted with an exercise price and SARs are granted with a grant price equal to the closing market price of the Company’s common stock on the date of grant. These awards have ten-year contractual terms and vest based on the terms of the individual awards. The options and SARs are generally forfeitable upon termination of a holder’s service as an employee or director, unless the individual’s service is terminated due to retirement, death or permanent disability. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award. Prior to 2006, the Company granted stock options and all stock options outstanding at December 31, 2013 are fully vested. In 2006, the Company began the use of SARs instead of stock options.

As of December 31, 2013, there was $1.5 million of unrecognized compensation cost related to SARs expected to be recognized over a weighted-average period of approximately 1.7 years. The fair value of each stock option award and SAR is estimated on the date of grant using a Black-Scholes option-pricing model. For SARs issued in the years ended December 31, 2013, 2012 and 2011, respectively, the assumptions shown in the following table were used:


	Year Ended December 31,
	2013			2012			2011
Dividend yield		0	%		0	%		0	%
Average risk-free interest rate		0.7	%		0.8	%		2.0	%
Expected term (years)		5			5			5
Volatility		63.7	%		65.9	%		65.0	%

Expected Volatility. Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has used the historical volatility over the average expected term of the options granted as the expected volatility.

Risk-Free Interest Rate. This is the U.S. Treasury rate having a term that most closely resembles the expected term of the option.

Expected Term. The expected term is the period of time that the SARs granted is expected to remain unexercised. SARs granted during the year ended December 31, 2013 had a maximum term of ten years. The Company used historical exercise behavior with further consideration given to the class of employees to whom the equity awards were granted to estimate the expected term of the SAR.

The forfeiture rate is the estimated percentage of equity awards granted that are expected to be forfeited or canceled before becoming fully vested. The Company estimates forfeitures based on historical experience with further consideration given to the class of employees to whom the equity awards were granted.

The weighted-average grant date fair value of SARs granted during the year ended December 31, 2013 was $43.89.

Stock option activity under the Plan and a predecessor stock incentive plan is as follows:


	Options			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of December 31, 2013
Outstanding at December 31, 2010		222,446		$	33.20
Granted		—		$	—
Exercised		(57,027	)	$	27.94
Canceled		(20,350	)	$	31.71

Outstanding at December 31, 2011		145,069		$	38.08
Granted		—		$	—
Exercised		(23,189	)	$	31.35
Canceled		(1,242	)	$	20.00

Outstanding at December 31, 2012		120,638		$	40.37
Granted		—		$	—
Exercised		(93,484	)	$	49.83
Canceled		(6,010	)	$	36.31

Outstanding at December 31, 2013		21,144		$	40.09		1.0	$	833,948
Vested at December 31, 2013		21,144		$	40.09		1.0	$	833,948
Exercisable at December 31, 2013		21,144		$	40.09		1.0	$	833,948

SAR activity under the Plan is as follows:


	SARs			Weighted- Average Grant Price Per Share		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of December 31, 2013
Outstanding at December 31, 2010		1,246,495		$	13.70
Granted		96,765		$	25.76
Exercised		(180,555	)	$	28.34
Canceled		—		$	—

Outstanding at December 31, 2011		1,162,705		$	13.17
Granted		100,914		$	25.75
Exercised		(567,953	)	$	13.08
Canceled		(8,476	)	$	24.15

Outstanding at December 31, 2012		687,190		$	18.56
Granted		60,588		$	43.89
Exercised		(374,667	)	$	15.39
Canceled		(3,514	)	$	26.20

Outstanding at December 31, 2013		369,597		$	25.85		6.9	$	2,547,706
Vested at December 31, 2013		230,604		$	21.37		6.0	$	1,386,104
Exercisable at December 31, 2013		230,604		$	21.37		6.0	$	1,386,104

Restricted Stock

The fair value of the restricted stock is determined based on the closing price of the Company’s shares on the grant date. Shares of restricted stock vest based on the terms of the awards. Unvested restricted stock is generally forfeitable upon termination of a holder’s service as an employee, unless the individual’s service is terminated due to retirement, death or permanent disability. In the years ended December 31, 2013, 2012 and 2011, 47,015, 156,927 and 67,945 restricted shares were granted at $44.42, $27.18 and $25.86 per share, respectively. The total fair value of restricted shares vested for the years ended December 31, 2013, 2012 and 2011 was $3.1 million, $2.5 million, and $4.1 million, respectively. In the years ended December 31, 2013, 2012 and 2011, $2.5 million, $2.0 million and $1.6 million of compensation expense, respectively, was recognized related to restricted stock awards. At December 31, 2013, there was $3.6 million of total compensation expense related to unvested restricted stock remaining to be recognized over a weighted-average period of approximately 1.9 years. Compensation expense related to restricted stock is included in “Selling, general and administrative expenses” in the accompanying consolidated statements of comprehensive income.

Restricted stock activity under the Plan is as follows:


	Restricted Stock			Weighted-Average Grant Price Per Share
Nonvested at December 31, 2010		244,436		$	13.65
Granted		67,945		$	25.86
Vested		(151,706	)	$	27.06
Forfeited		(500	)	$	17.41

Nonvested at December 31, 2011		160,175		$	22.99
Granted		156,927		$	27.18
Vested		(94,705	)	$	26.88
Forfeited		(7,712	)	$	25.47

Nonvested at December 31, 2012		214,685		$	24.16
Granted		47,015		$	44.42
Vested		(69,797	)	$	44.55
Forfeited		(416	)	$	32.32

Nonvested at December 31, 2013		191,487		$	27.56

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (“ESPP”) that permits eligible employees to purchase shares of common stock of the Company at a purchase price which is the lesser of 85% of the market price on either the first day of the calendar quarter or the last day of the calendar quarter. Eligible employees may elect to participate in the plan by authorizing payroll deductions of up to 15% of gross compensation for each payroll period. On the last day of each quarter, each participant’s contribution account is used to purchase the maximum number of whole shares of common stock determined by dividing the contribution account’s balance by the purchase price. The aggregate number of shares of common stock that may be purchased under the plan is 300,000. Through December 31, 2013, employees had purchased approximately 200,000 shares under the plan. In the years ended December 31, 2013, 2012 and 2011, compensation expense of $98.7 thousand, $65.3 thousand and $86.3 thousand, respectively, was recognized related to the discount on ESPP purchases. Compensation expense related to ESPP purchases is included in “Selling, general and administrative expenses” in the accompanying consolidated statements of comprehensive income.