Share-Based Compensation

On May 29, 2012, the Company's shareholders adopted and approved the 2012 Equity Incentive Plan (the "2012 Plan"), under which current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock and other stock awards. The 2012 Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company. As of this date, no further grants were permitted under any previously existing stock plans (the "Pre-existing Plans"). Additionally, all remaining shares available for future grants under the Pre-existing Plans became available for issuance under the 2012 Plan.

In addition to the 2012 Plan, the Company also had two compensation plans at December 31, 2013 which are described below: the Employee Stock Purchase Plan (the “ESPP”) and the Supplemental Executive Retirement Plan (the “SERP”).

A summary of stock-based compensation expense for the years ended December 31, 2013, 2012 and 2011 is as follows:



	December 31,
	2013		2012		2011
Stock Options	$	2,017,000	$	1,897,000	$	1,870,000
Restricted Stock	28,000		—		—
Employee Stock Purchase Plan (ESPP)	562,000		641,000		282,000
Total pre-tax stock-based compensation expense charged against income (1)	$	2,607,000	$	2,538,000	$	2,152,000


(1)	Stock-based compensation expense is recorded in the selling, general and administrative caption in our consolidated statements of comprehensive income.

With respect to our SERP, we recorded expense of $538,000, $560,000 and $444,000 (representing the Company’s 25% match of participants’ deferrals) for the years ended December 31, 2013, 2012 and 2011, respectively. Both the SERP match and deferrals are included in the selling, general and administrative caption in our consolidated statements of comprehensive income.

2012 Equity Incentive Plan

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the individuals who will be granted stock awards, the number of stock awards each individual will receive, the price per share (in accordance with the terms of our 2012 Plan), and the exercise period of each stock award.

We have outstanding stock awards that were granted under the Pre-existing Plans to non-employee directors, officers and employees of the Company and other specified groups, depending on the Pre-existing Plan. No further grants are allowed under the Pre-existing Plans. As of December 31, 2013, 5,277,000 shares of common stock were reserved for issuance under our 2012 Plan, including 2,793,000 shares which are available for future grant. The stock price will not be less than the fair market value of the common stock on the date the award is granted. No stock grant will have a term in excess of ten years. Since 2008, all awards granted become vested and exercisable ratably over a five year period on each yearly anniversary date of the stock grant.

A summary of our stock option activity is as follows:



	2013				2012				2011
	Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares
Beginning of period	$	13.18	2,632,000		$	10.97	2,912,000		$	9.14	3,002,000
Granted	23.50		564,000		17.50		601,000		16.11		510,000
Cancelled	18.18		(88,000	)	14.53		(134,000	)	12.67		(96,000	)
Exercised	10.37		(625,000	)	7.81		(747,000	)	4.93		(504,000	)
End of period	$	16.05	2,483,000		$	13.18	2,632,000		$	10.97	2,912,000

The weighted average grant-date fair value of stock options granted during 2013, 2012 and 2011 was $6.81, $4.74 and $3.26 per common share, respectively.

During 2013, the Company granted 6,000 shares of restricted stock with a weighted average grant date fair value of $23.50 per share.

The following table summarizes other information about our outstanding stock options at December 31, 2013.



Stock Options	2013		2012		2011
Range of exercise prices	$6.07 - 23.50		$3.68 - 17.50		$2.41 - 16.11
Outstanding:
Weighted average remaining contractual life (years)	6.5		6.3		6.0
Aggregate intrinsic value	$	30,599,000	$	26,472,000	$	19,639,000
Exercisable:
Number of shares	922,000		1,040,000		1,383,000
Weighted average remaining contractual life (years)	4.5		4.2		3.9
Aggregate intrinsic value	$	15,053,000	$	13,934,000	$	13,925,000
Exercised:
Aggregate intrinsic value	$	9,139,000	$	10,465,000	$	5,059,000

Fair Value Estimates

The fair value of stock awards granted during 2013, 2012 and 2011 was estimated on the date of grant using the Black-Scholes option valuation model based on the following assumptions:



	2013	2012	2011
Risk-free interest rate	1.50%	1.30%	2.60%
Weighted average expected life in years	6.0 years	6.8 years	7.4 years
Expected volatility	38.9%	39.2%	27.4%
Dividend yield	2.80%	3.60%	3.66%
Forfeiture rate	3.00%	2.90%	3.81%

Other Information

Other information pertaining to activity of our stock awards during the years ended December 31, 2013, 2012 and 2011 was as follows:



	2013		2012		2011
Total grant-date fair value of stock awards granted	$	3,412,000	$	2,438,000	$	1,477,000
Total fair value of stock awards vested during period	$	1,897,000	$	1,409,000	$	1,551,000
Total unrecognized compensation expense related to non-vested stock awards	$	4,963,000	$	3,999,000	$	3,547,000

For the years ended December 31, 2013, 2012 and 2011, the unrecognized compensation cost related to stock awards granted but not yet vested, as reported above, was expected to be recognized over a weighted average remaining period of four years.

Employee Stock Purchase Plan

Since January 1, 2000, we have had an ESPP for all eligible employees. All full-time and certain part-time employees who have completed two years of continuous service with us are eligible to participate. The ESPP was implemented through five annual offerings. On January 1, 2000, the first annual offering commenced. On February 12, 2004 (effective January 1, 2004), our Board of Directors extended the ESPP for an additional eight annual offerings. On April 12, 2011, the Board of Directors extended the ESPP for an additional five offerings through 2016. Annual offerings commence and terminate on the respective year’s first and last calendar day. Under the ESPP, we are authorized to issue up to 4,050,000 shares of our common stock to our employees. Pursuant to such authorization, we have 2,476,000 shares available for future grant at December 31, 2013. Furthermore, under the terms of the ESPP, eligible employees may contribute through payroll deductions up to $21,250 (85% of IRS limitation) of their compensation toward the purchase of the Company's common stock. No employee may purchase common stock which exceeds $25,000 in fair market value (determined on the date of grant) for each calendar year. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85% of the fair market price on the day of purchase.

The following table summarizes information about our ESPP annual offerings for the years ended December 31, 2013, 2012 and 2011:



	ESPP Annual Offering
	2013		2012		2011
Common shares purchased	65,000		79,000		71,000
Per common share purchase price	$	19.75	$	15.04	$	13.83
Amount expensed under ESPP	$	562,000	$	641,000	$	282,000
Net proceeds from issuance	$	1,288,000	$	1,192,000	$	978,000
Common shares date of issue	Jan 3, 2014		Jan 4, 2013		Jan 4, 2012

Deferred Compensation Plan

Since January 1, 2000, we have had a SERP for certain key executives and employees. The SERP is not qualified under Section 401 of the Internal Revenue Code. Effective in Plan year 2010, the Plan was amended to allow participants to defer up to 25% of their earned income on a pre-tax basis. As of the last day of each plan year, each participant will receive a 25% match of up to 15% of their deferral in the form of our Common Stock based on the then current market value. SERP participants fully vest in our matching contribution three years from the first day of the initial year of participation. The income deferred and our matching contributions are unsecured and subject to the claims of our general creditors. Under the SERP, we are authorized to issue up to 1,013,000 shares of our common stock to our employees. Pursuant to such authorization, we have 452,000 shares available for future grant at December 31, 2013 (after deducting the 2013 funding of 19,000 shares delivered in 2014). In the aggregate, since initiation of the SERP, the Company’s 25% match has resulted in 560,000 shares (including the 2013 funding of shares delivered in 2014) being issued to the trustee. At the time of issuance, such shares were accounted for at cost, as treasury stock. At December 31, 2013, approximately 311,000 of such shares are vested and remain in the respective active participants’ accounts. The following table summarizes information about our SERP for the plan years ended December 31, 2013, 2012 and 2011:



	SERP Plan Year
	2013			2012			2011
Amount of company match expensed under SERP	$	538,000		$	560,000		$	444,000
Treasury shares issued to fund SERP expense	19,000			24,000			26,000
SERP trust account balance at December 31	$	31,415,000	⁽¹⁾	$	24,997,000	⁽¹⁾	$	18,942,000		⁽¹⁾
Unrealized gain (loss) recorded in SERP liability account	$	3,005,000		$	1,718,000		$	(104,000	)

(1)

SERP trust account investments are recorded at their fair value which is based on quoted market prices. Differences between such amounts in the table above and the deferred compensation funding asset reported on our Consolidated Balance Sheets represent the value of our Common Stock held in the Plan’s participants’ trust account and reported by us as treasury stock in our Consolidated Balance Sheets.