STOCK OWNERSHIP AND BENEFIT PLANS

12 Months Ended

Dec. 31, 2011

STOCK OWNERSHIP AND BENEFIT PLANS

STOCK OWNERSHIP AND BENEFIT PLANS

(6)STOCK OWNERSHIP AND BENEFIT PLANS

Through our 1997 Equity Incentive Plan (“1997 Plan”), we had provided for grants of both incentive stock options and non-statutory stock options. On September 21, 2006, our stockholders approved, and we adopted, the 2006 Stock Incentive Plan (“2006 Plan”).  Upon the adoption of the 2006 Plan, the 1997 Plan was terminated with respect to new grants of stock options; however, all unexercised options previously granted under the 1997 Plan remain outstanding.  The 2006 Plan provides for the grant of various types of equity-based incentives, including stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares, performance units and other stock-based awards.  There are a total of 942,500 shares available for grant under the 2006 Plan (which includes 92,500 rolled over from the 1997 Plan).  As of December 31, 2011, we have granted an aggregate of 638,750 shares of restricted stock and restricted stock units under the 2006 Plan, leaving 303,750 shares available for future grant.

The following table sets forth the total stock-based compensation expense included in the Consolidated Statements of Operations:

	2011			2010			2009
Cost of products sold	$	261		$	316		$	339
General and administrative expenses	2,431			2,402			2,280
Selling and distribution expenses	705			783			806
Stock-based compensation expense before income taxes	3,397			3,501			3,425
Income tax benefit	(918		)	(888		)	(1,117		)
Stock-based compensation expense, net of income taxes	$	2,479		$	2,613		$	2,308
Earnings per share impact:
Basic - net income	$	0.19		$	0.20		$	0.18
Diluted - net income	$	0.19		$	0.20		$	0.18

Our stock-based compensation expense results from restricted stock awards, restricted stock units and stock issued under the Employee Stock Purchase Plan.

Restricted Stock Awards and Units:  Restricted stock and restricted stock units granted to the executive officers and employees of DMC generally vest in one-third increments on the first, second, and third anniversary of the grant.  Restricted stock granted to directors of DMC vest on the first anniversary of the date of grant.  In 2008, we granted 90,000 restricted stock awards under a supplemental executive retirement plan, with 100% of these awards vesting on the fifth anniversary of the date of grant.  The fair value of restricted stock and restricted stock unit awards are based on the fair value of DMC’s stock on the date of grant and is amortized to compensation expense over the vesting period on a straight line basis.

A summary of the activity of our nonvested shares of restricted stock for the years ended December 31, 2011, 2010, and 2009 is as follows:

			Weighted Average
			Grant Date
	Shares		Fair Value
Balance at December 31, 2008	267,075		$	37.46
Granted	12,000		21.88
Vested	(80,425	)	32.84
Balance at December 31, 2009	198,650		$	38.39
Granted	104,000		19.95
Vested	(65,161	)	29.26
Balance at December 31, 2010	237,489		$	32.82
Granted	116,500		20.90
Vested	(90,660	)	24.16
Forfeited	(1,500	)	18.79
Balance at December 31, 2011	261,829		$	30.59

A summary of the activity of our nonvested restricted stock units for the years ended December 31, 2011, 2010, and 2009 is as follows:

			Weighted Average
	Share		Grant Date
	Units		Fair Value
Balance at December 31, 2008	22,750		$	15.96
Vested	(7,584	)	15.96
Balance at December 31, 2009	15,166		$	15.96
Granted	28,000		20.44
Vested	(8,583	)	15.97
Balance at December 31, 2010	34,583		$	19.59
Granted	32,500		20.45
Vested	(13,085	)	18.24
Balance at December 31, 2011	53,998		$	20.43

As of December 31, 2011, there was $3,066 and $656 of total unrecognized stock-based compensation related to unvested restricted stock awards and restricted stock units, respectively.  The cost is expected to be recognized over a weighted average period of 1.43 years and 1.66 years for the restricted stock awards and restricted stock units, respectively.

Stock Options:  Our incentive stock options were granted at exercise prices that equaled the fair market value of the stock at the date of grant based upon the closing sales price of DMC’s common stock on that date. Incentive stock options generally vested 25% annually and expired ten years from the date of grant. Non-statutory stock options were generally granted at exercise prices that equaled the fair market value of the stock at the date of grant.  We have not granted options since 2006.

A summary of stock option activity for the years ended December 31, 2011, 2010, and 2009 is as follows:

			Weighted		Weighted
			Average		Average	Aggregate
			Exercise		Remaining	Intrinsic
	Options		Price		Contractual Term	Value
Balance at December 31, 2008	105,750		$	5.24
Exercised	(77,750	)	3.39
Balance at December 31, 2009	28,000		$	10.37
Exercised	(8,300	)	4.75
Balance at December 31, 2010	19,700		$	12.74
Exercised	(4,200	)	4.71
Balance at December 31, 2011	15,500		$	14.92	3.26	$	84
Exercisable at December 31, 2011	15,500		$	14.92	3.26	$	84

The intrinsic value of options exercised for the years ended December 31, 2011, 2010, and 2009 was $74, $98 and $367, respectively.  As of December 31, 2011 and 2010, there was no unrecognized stock-based compensation cost related to unvested stock options.

The following table summarizes information about employee stock options outstanding and exercisable at December 31, 2011:

	Number of
	Options	Weighted
	Outstanding at	Average
Range of	and Exercisable	Remaining	Weighted
Exercise	December 31,	Contractual Life	Average
Prices	2011	in Years	Exercise Price
$1.42 - $1.42	500	1.96	$	1.42
$4.87 - $4.87	5,000	3.06	$	4.87
$20.62 - $20.62	10,000	3.42	$	20.62
	15,500	3.26	$	14.92

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (“ESPP”) which is authorized to issue up to 450,000 shares of which 22,772 shares remain available for future purchases. The offerings begin on the first day following each previous offering (“Offering Date”) and end six months from the offering date (“Purchase Date”).  The ESPP provides that full time employees may authorize DMC to withhold up to 15% of their earnings, subject to certain limitations, to be used to purchase common stock of DMC at the lesser of 85% of the fair market value of DMC’s common stock on the Offering Date or the Purchase Date. In connection with the ESPP, 8,688; 11,005; and 10,027 shares of our stock were purchased during the years ended December 31, 2011, 2010, and 2009, respectively.  Our total stock-based compensation expense for 2011, 2010, and 2009 includes $57, $48, and $72 respectively, in compensation expense associated with the ESPP.

401(k) Plan

We offer a contributory 401(k) plan to our employees. We make matching contributions equal to 100% of each employee’s contribution up to 3% of qualified compensation and 50% of the next 2% of qualified compensation contributed by each employee.  Total DMC contributions were $379, $360, and $316 for the years ended December 31, 2011, 2010 and 2009, respectively.