Note 16 - Stock-Based Compensation

The Company’s incentive compensation plan, titled “The 2005 Long Term Incentive Plan” (as restated to incorporate all amendments, the “Incentive Plan”), was approved by the Company’s board of directors and ratified by the stockholders. The Incentive Plan provides for the grant to eligible persons of stock options, share appreciation rights, or SARs, restricted shares, restricted share units, or RSUs, performance shares, performance units, dividend equivalents and other share-based awards, referred to collectively as the awards. Time-vested stock option awards generally vest based on one to three years of service and have 10 year contractual terms. Share awards generally vest over one to three years. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Incentive Plan). The Incentive Plan will terminate as to future awards on May 17, 2023. Under the Incentive Plan, 2,459,616 shares of common stock have been reserved for issuance (from either authorized but unissued shares or treasury shares), of which 689,002 were available for issuance at December 31, 2017.

The Company recognizes stock-based compensation expense for time-vested stock option awards based on the fair value of the award on the grant date using the Black-Scholes option valuation model. Expected life in years for time-vested stock option awards was determined using the simplified method. The Company believes that it is appropriate to use the simplified method in determining the expected life for time-vested stock options because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for time-vested stock options. Expected volatility was based on the historical volatility of the Company’s stock. The risk-free interest rate was based on the U.S. Treasury bond rate for the expected life of the option. The expected dividend yield was based on the latest annualized dividend rate and the current market price of the underlying common stock on the date of the grant. The Company recognizes stock-based compensation for restricted stock awards over the vesting period based on the fair market value of the stock on the date of the award, calculated as the average of the high and low trading prices for the Company’s common stock on the award date.

In each of January 2015, 2016 and 2017, the Company granted performance shares with performance measurement periods of three calendar years. Since the outcome of the performance conditions were below the threshold level, no performance shares from the January 2015 grant were earned. The performance shares from the January 2016 and January 2017 grants will vest and be earned at the end of each performance measurement period, if at all, based on the Company’s three-year cumulative basic earnings per share, provided that a minimum three-year average return on invested capital goal is also met or exceeded. The earnings per share thresholds and return on invested capital goals were established by the Company’s board of directors on the grant dates. The Company recognizes stock-based compensation cost for performance shares over the vesting period based on the fair market value of the Company’s stock on the award date multiplied by the estimated number of shares to be awarded based on the probable outcome of the performance conditions. As of December 31, 2017, the probable outcome of the performance conditions for the January 2016 and January 2017 awards was estimated to be below the threshold level.

On July 31, 2017, the Company granted non-qualified stock options to purchase 350,000 shares of our common stock to an executive of the Company. The award features a performance earning vesting schedule whereby the stock options will vest if the average closing price per share of the Company’s stock over the previous 90 calendar days (the “Threshold Stock Price”) exceeds the closing price per share of the Company’s stock on July 31, 2017 (the “Reference Stock Price”) as follows: 34% of the stock options will vest if the Threshold Stock Price exceeds the Reference Stock Price by $5.00; another 33% of the stock options will vest if the Threshold Stock Price exceeds the Reference Stock Price by $10.00; and the remaining 33% of the stock options will vest if the Threshold Stock Price exceeds the Reference Stock Price by $15.00. Such stock price appreciation goals can be achieved at any point during the options’ ten-year contractual term. When vesting of an award of stock-based compensation is dependent upon the attainment of a target stock price, the award is considered to be subject to a market condition. The Company recognizes stock-based compensation cost for stock options with market conditions over the derived service period of the stock options. The estimated fair value and derived service period for the stock options were calculated using a Monte Carlo simulation. Assumptions used in valuing the July 31, 2017 stock options include the expected stock option life, expected volatility, expected dividend yield and risk-free rate. The stock options were assumed to have an expected life equal to the midpoint of (a) the date the performance goal is attained and (b) the date the stock options expire. The expected volatility assumption of 49.22% was based on the Company’s historical stock price volatility over the ten-year period ended on the grant date. The expected dividend yield assumption of 2.19% was based on the Company’s then quarterly dividend payment of $0.09 and the grant date stock price of $16.44. The risk-free rate assumption of 2.30% was based on the yields on U.S. Treasury STRIPS with a remaining term that approximates the life assumed at the date of the grant. The estimated fair value of the three vesting tranches for the stock options ranged from $6.88 to $7.25 with derived service periods from 0.98 years to 2.39 years.

Stock-based compensation expense of $1,162, $1,149 and $2,183 is included within selling, general and administrative expense for the years ended December 31, 2017, 2016 and 2015, respectively. The total income tax benefit recognized on the consolidated statements of operations for share-based compensation arrangements was $330, $405 and $768 for the years ended December 31, 2017, 2016 and 2015, respectively.

A summary of the Company’s time-vested stock options activity and related information at December 31, 2017 and 2016, and changes during the years then ended, is presented below:



		December 31,
	2017		2016
		Weighted-		Weighted-
		Average		Average
		Exercise		Exercise
	Options	Price	Options	Price
	Outstanding	(per share)	Outstanding	(per share)
Outstanding at the beginning of the year	378,990	$ 24.32	507,783	$ 24.80
Granted	-	-	-	-
Exercised	-	-	-	-
Forfeited or expired	(203,370)	23.67	(128,793)	26.20
Outstanding at the end of the year	175,620	$ 25.13	378,990	$ 24.32

Exercisable at the end of the year	175,620	$ 25.13	341,194	$ 24.18

There were no time vested stock options granted during 2017, 2016 or 2015.

A summary of the Company’s time vested stock options outstanding as of December 31, 2017 is presented below:



		Weighted-
		Average	Weighted-
		Remaining	Average
		Contractual	Exercise	Aggregate
	Options	Term	Price	Intrinsic
	Outstanding	(in years)	(per share)	Value
Options outstanding	175,620	4.2	$ 25.13	$ -
Vested or expected to vest	175,620	4.2	$ 25.13	$ -
Options exercisable	175,620	4.2	$ 25.13	$ -

There were no time-vested stock options exercised during 2017 or 2016. There were 240,410 stock options exercised during 2015 with an intrinsic value of $2,258.

A summary of the Company’s nonvested restricted shares as of December 31, 2017 and 2016, and changes during the years then ended is presented below:




		December 31,
	2017		2016

		Weighted-		Weighted-
		Average		Average
		Grant Date		Grant Date
		Fair Value		Fair Value
	Shares	(per share)	Shares	(per share)
Nonvested at the beginning of the year	111,549	$ 19.19	85,317	$ 23.75
Granted	72,503	15.44	84,353	16.57
Vested	(27,949)	15.55	(28,531)	24.49
Forfeited or expired	(56,239)	18.73	(29,590)	19.90
Nonvested at the end of the year	99,864	$ 17.75	111,549	$ 19.19
Expected to vest	99,864	$ 17.75	102,962	$ 18.94

The weighted-average grant-date fair value per share of stock awards granted during the years ended December 31, 2017, 2016 and 2015, was $15.44, $16.57 and $24.04, respectively. The fair value of stock awards vested during the years ended December 31, 2017, 2016 and 2015, was $475, $486 and $754, respectively, based on the value at vesting date. As of December 31, 2017, there was $685 of total unrecognized compensation expense related to nonvested restricted stock awards, which will be recognized over the average remaining requisite service period of 22 months.