Stock-Based Compensation

Total stock-based compensation expense by type of award was as follows for the years ended December 31:



In Thousands	2014		2013		2012

Stock options	$	488	$	364	$	746
Stock appreciation rights (“SARs”)	$	215	$	—	$	—
Total stock-based compensation expense	$	703	$	364	$	746

Tax benefit on exercise of stock options	$	123	$	175	$	12

Stock Options:

In 2010, the Board of Directors adopted a new stock option plan called the Encore Wire 2010 Stock Option Plan (the “2010 Stock Option Plan”) which was approved by the Company’s stockholders at the 2010 Annual Meeting of Stockholders. Similar to the “1999 Stock Option Plan”, which expired on June 28, 2009, the 2010 Stock Option Plan permits the grant of stock options to directors, officers and employees of the Company. The Company granted stock option awards in 2014 and 2012 with exercise prices equal to the fair market value of its stock on the date of grant of the options. These options vest ratably over a period of five years from the time the options were granted. No options were granted in 2013. The maximum term of any option granted under the 1999 or 2010 Stock Option Plan is ten years. As of December 31, 2014, 298,500 options were available to be granted in the future under the 2010 Stock Option Plan.

The following presents a summary of stock option activity for the year ended December 31, 2014:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In Thousands)

Outstanding at January 1, 2014	309,250		$	25.73
Granted	49,000		51.63
Exercised	(25,350	)	20.84
Forfeited/Cancelled	(2,000	)	24.93
Outstanding at December 31, 2014	330,900		$	29.95	5.41	$	3,175
Vested and exercisable at December 31, 2014	199,179		$	25.27	3.81	$	2,433

The fair value of stock options granted during the years ended December 31, 2014, 2013, and 2012, was estimated on the date of grant using a Black-Scholes option pricing model and the following weighted average assumptions:



	Year Ended December 31,
	2014		2013	2012

Risk-free interest rate	1.57	%	n/a	0.78	%
Expected dividend yield	0.15	%	n/a	0.28	%
Expected volatility	32.9	%	n/a	44.9	%
Expected lives	5.0 years		n/a	5.0 years

We base expected volatilities on historical volatilities of our common stock. The expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting periods and management’s consideration of historical exercise patterns. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected life of the option. The expected dividend yield is based on the annualized dividend payment paid on common shares.

ASC 718 requires the estimation of forfeitures when recognizing compensation expense and adjustment of the estimated forfeiture rate over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change and impacts the amount of un-recognized compensation expense to be recorded in future periods.

During the years ended December 31, 2014, 2013, and 2012, the weighted average grant date fair value of options granted was $16.03, n/a and $11.11, respectively, and the total intrinsic value of options exercised was $0.7 million, $0.8 million and $0.1 million, respectively. As of December 31, 2014, total unrecognized compensation cost related to non-vested stock options of $1.2 million was expected to be recognized over a weighted average period of 3.1 years.

Stock Appreciation Rights:

In 2014, the Board of Directors adopted a new stock appreciation rights plan called the Encore Wire 2014 Stock Appreciation Rights Plan (the “2014 SARs Plan”). The 2014 SARs Plan permits the grant of stock appreciation rights ("SARs") that may only be settled in cash to non-executive officers and employees of the Company. The Company granted SARs for the first time in 2014 for a nominal amount. SARs granted to employees vest ratably over a period of five years from the time the SARs were granted. The maximum term of any SARs granted under the 2014 SARs Plan is ten years. These awards are classified as liability awards. Compensation cost for these awards is determined using a fair value method and remeasured at each reporting date until the date of settlement. Stock-based compensation expense recognized is based on SARs ultimately expected to vest, and therefore it has been reduced for estimated forfeitures. As of December 31, 2014, a total of 133,000 SARs were outstanding under the 2014 SARs Plan.