Common Stock and Stock-based Compensation

A reconciliation of the changes in the number of common shares issued is as follows:



(Thousands)
Issued as of January 1, 2010	26,800
Exercise of stock options and SARs	162
Vesting of performance-restricted shares	6

Issued as of December 31, 2010	26,968
Exercise of stock options and SARs	55
Vesting of performance-restricted shares	1

Issued as of December 31, 2011	27,024
Exercise of stock options and SARs	26

Issued as of December 31, 2012	27,050

Stock incentive plans (the 2006 Stock Incentive Plan and the 2006 Non-employee Director Equity Plan) were approved at the May 2, 2006 annual meeting of shareholders. These plans authorize the granting of option rights, stock appreciation rights, performance-restricted shares, performance shares, performance units and restricted shares and replaced the 1995 Stock Incentive Plan and the 1997 Stock Incentive Plan for Non-employee Directors, although there are still options outstanding under these plans. The 2006 Stock Incentive Plan and the 2006 Non-employee Director Equity Plan were amended to, among other things, add additional shares to the plans. These amendments were approved by shareholders at the May 2011 annual meeting.

Stock Options

Stock options may be granted to employees or non-employee directors of the Company. Option rights entitle the optionee to purchase common shares at a price equal to or greater than the market value on the date of grant. Option rights granted to employees generally become exercisable (i.e., vest) over a four-year period and expire ten years from the date of the grant. Options granted to employees may also be issued with shorter vesting periods. Options granted to non-employee directors vest in six months and expire ten years from the date of the grant. The number of options available to be issued is established in plans approved by shareholders. The exercise of options is generally satisfied by the issuance of new shares.

Compensation cost for options is determined at the date of the award through the use of a pricing model and charged against income over the vesting period for each award. There was no compensation cost in 2012, 2011 or 2010, as all options were fully vested prior to 2010.

The following table summarizes the Company’s stock option activity during 2012:



(Shares in thousands)	Number of Options		Weighted- average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted- average Remaining Term (Years)
Outstanding at December 31, 2011	113		$	15.03
Exercised	(16	)	9.75
Canceled	(1	)	7.27
Outstanding at December 31, 2012	96		15.98		$	943,000	1.4
Vested and expected to vest as of December 31, 2012	96		15.98		943,000		1.4
Exercisable at December 31, 2012	96		15.98		943,000		1.4

Summarized information on options outstanding as of December 31, 2012 is as follows:



	Number Outstanding and Exercisable (Thousands)	Weighted- average Remaining Life (Years)	Weighted- average Exercise Price
Range of Option Prices
$5.55 - $8.10	11	0.4	$	6.75
$14.80-$16.10	8	1.8	15.45
$17.075-$17.58	77	1.5	17.31
	96	1.4	$	15.98

Cash received from the exercise of stock options totaled $0.2 million in 2012, $0.7 million in 2011 and $2.6 million in 2010. The tax benefit realized from tax deductions from exercises was $0.1 million in 2012, $0.5 million in 2011 and $0.8 million in 2010. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $0.3 million, $1.4 million and $2.3 million, respectively.

Restricted Stock

The Company may grant restricted stock to employees and non-employee directors of the Company. These shares are restricted and vest over a designated period of time as defined at the date of the grant and are forfeited should the holder’s employment terminate during the restriction period. The fair market value of the restricted shares is determined on the date of the grant and is amortized over the restriction period. The restriction period is typically three years.

The fair value of the restricted stock is based on the closing stock price on the date of grant. The weighted-average grant date fair value for 2012, 2011 and 2010 was $27.87, $39.18 and $22.65, respectively.

Compensation cost was $2.7 million in 2012, $2.5 million in 2011 and $2.3 million in 2010. The unamortized compensation cost on the outstanding restricted stock was $2.8 million as of December 31, 2012 and is expected to be amortized over a weighted-average period of 19 months.

The following table summarizes the restricted stock activity during 2012:



(Shares in thousands)	Number of Shares		Weighted- average Grant Date Fair Value
Outstanding at December 31, 2011	311		$	23.89
Granted	76		27.87
Vested	(113	)	28.37
Forfeited	(51	)	28.93
Outstanding at December 31, 2012	223		$	30.18

Long-term Incentive Plans

Under long-term incentive compensation plans, executive officers and selected other employees receive cash or stock awards based upon the Company’s performance over the defined period, typically three years. Awards may vary based upon the degree to which actual performance exceeds the pre-determined threshold, target and maximum performance levels at the end of the performance periods. Payouts may be subjected to attainment of threshold performance objectives.

Compensation expense is based upon the performance projections for the three-year plan period, the percentage of requisite service rendered and the fair market value of the Company’s common shares on the date of grant. The offset to the compensation expense for the portion of the award to be settled in shares is recorded within shareholders’ equity and was $0.4 million for 2012, zero for 2011 and less than $0.1 million for 2010.

Directors Deferred Compensation

Non-employee directors may defer all or part of their fees into the Company’s common shares. The fair value of the deferred shares is determined at the share acquisition date and is recorded within shareholders’ equity. Subsequent changes in the fair value of the Company’s common shares do not impact the recorded values of the shares.

The following table summarizes the stock activity for the directors' deferred compensation plan during 2012:



(Shares in thousands)	Number of Shares		Weighted- average Grant Date Fair Value
Outstanding at December 31, 2011	101		$	26.42
Granted	8		23.10
Distributed	(6	)	(26.40		)
Outstanding at December 31, 2012	103		$	38.68

There was no income or expense associated with this plan recorded in 2012, 2011 or 2010. During the years ended December 31, 2012, 2011 and 2010, the weighted-average grant date fair value of shares granted was $23.10, $38.00 and $25.13, respectively.

Stock Appreciation Rights

The Company may grant stock appreciation rights (SARs) to certain employees and non-employee directors. Upon exercise of vested SARs, the participant will receive a number of shares of common stock equal to the spread (the difference between the market price of the Company’s common shares at the time of the exercise and the strike price established in the SARs agreement) divided by the common share price. The strike price of the SARs is equal to or greater than the market value of the Company’s common shares on the day of the grant. The number of SARs available to be issued is established by plans approved by the shareholders. The vesting period and the life of the SARs are established in the SARs agreement at the time of the grant. The exercise of the SARs is satisfied by the issuance of treasury shares. The SARs vest three years from the date of grant. SARs granted prior to 2011 expire in ten years, while the SARs granted in 2011 and later expire in seven years.

The following table summarizes the Company's SARs activity during 2012:



(Shares in thousands)	Number of SARs		Weighted- average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted- average Remaining Term (Years)
Outstanding at December 31, 2011	841		$	23.39
Granted	185		29.45
Exercised	(33	)	15.01
Outstanding at December 31, 2012	993		24.80		$	4,473,000	5.9
Vested and expected to vest as of December 31, 2012	993		24.80		4,473,000		5.9
Exercisable at December 31, 2012	444		19.65		3,511,000		5.5

The weighted-average fair value of the SARs granted in 2012 was $12.87. The fair value will be amortized to compensation cost on a straight-line basis over the three-year vesting period. Compensation cost was $2.8 million, $2.5 million and $1.8 million in 2012, 2011 and 2010, respectively, and was included in selling, general and administrative expense. The unamortized compensation cost balance was $3.8 million as of December 31, 2012.

Summarized information on SARs outstanding as of December 31, 2012 follows:



SARs Prices	Number Outstanding (Thousands)	Weighted- average Remaining Life (Years)	Weighted- average Exercise Price
$15.01	316	6.1	$	15.01
$21.24-$24.03	272	6.2	21.86
$27.78-$29.45	214	5.3	29.23
$34.30-$39.30	152	5.3	39.19
$44.72	39	4.1	44.72
	993	5.9	$	24.80

The SARs granted at $15.01, $24.03, $27.78 and $44.72 are exercisable.

The fair value of the SARs was estimated on the grant date using the Black-Scholes pricing model with the following assumptions:



	2012		2011		2010
Risk-free interest rate	0.89	%	0.03	%	0.11	%
Dividend yield	—	%	—	%	—	%
Volatility	50.0	%	58.7	%	58.0	%
Expected lives (in years)	5.0		6.5		6.5

The risk-free rate of return was based upon the five-year Treasury note rate at the time the SARs were granted. The Company initiated a dividend in May 2012, subsequent to the 2012 grant date. The share price volatility was calculated based upon the actual closing prices of the Company's common shares at month end over a period of approximately ten years prior to the granting of the SARs. This approach to measuring volatility is consistent with the approach used to calculate the volatility assumption in the valuation of stock options. The Company's current SARs program has been in place since 2006. The expected life assumption was based upon prior analyses.

Serial Preferred Stock

The Company has five million shares of Serial Preferred Stock authorized (no par value), none of which have been issued. Certain terms of the Serial Preferred Stock, including dividends, redemption and conversion, will be determined by the Board of Directors prior to issuance.