Note 16 - Stock Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards.

2006 Long-Term Incentive Plan

Effective May 17, 2006, the Company’s stockholders approved the Schawk Inc. 2006 Long-Term Incentive Plan (“2006 Plan”). The 2006 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based awards and other cash and stock-based awards to officers, other employees and directors of the Company. Options and stock appreciation rights granted under the plan have an exercise price equal to the market price of the underlying stock at the date of grant and are exercisable for a period of ten years from the date of grant. Options and stock appreciation rights granted pursuant to the 2006 Plan vest over a three-year period. The total number of shares of common stock available for issuance under the 2006 Plan is 1,377 as of December 31, 2013.

The equity compensation grants made by the Company during 2013, with the exception of non-qualified stock options granted to its outside directors, were in the form of stock-settled stock appreciation rights and restricted stock units, rather than stock options and shares of restricted stock, as had been granted in prior periods.

The Company issued 176, 130 and 111 stock options or stock appreciation rights, as well as 145, 149 and 126 restricted shares or restricted stock units, during the years ended December 31, 2013, 2012 and 2011, respectively, under the 2006 Plan.

Options and Stock Appreciation Rights

The Company has granted stock options and stock-settled stock appreciation rights under several stock-based compensation plans. The Company’s 2003 Equity Option Plan provides for the granting of options and stock appreciation rights to purchase up to 6,452 shares of Class A common stock to key employees. The Company also adopted an Outside Directors’ Formula Stock Option Plan authorizing unlimited grants of options to purchase shares of Class A common stock to outside directors. Options granted under both plans have an exercise price equal to the market price of the underlying stock at the date of grant and are exercisable for a period of ten years from the date of grant. Options and stock appreciation rights granted pursuant to the 2003 Equity Option Plan vest over a three-year period. Options granted pursuant to the Outside Directors Stock Option Plan vest over a two-year period. The Company issues new shares of its Class A common stock for option and stock appreciation rights exercises.

The Company issued 15, 17 and 15 stock options during 2013, 2012 and 2011, respectively, to its directors under the Outside Directors Stock Option Plan.

The Company recorded $692, $780 and $888 of compensation expense relating to outstanding options and stock appreciation rights during the years ended December 31, 2013, 2012, and 2011, respectively.

The Company records compensation expense for employee stock options and stock appreciation rights based on the estimated fair value of the options and stock appreciation rights on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option.

The following assumptions were used to estimate the fair value of options and stock appreciation rights granted during the years ended December 31, 2013, 2012 and 2011 using the Black-Scholes option pricing model:

		2013			2012			2011

Expected dividend yield		2.78 - 2.84	%		2.73	%		1.57 - 2.66	%
Expected stock price volatility		54.61 - 56.36	%		53.52 - 57.19	%		48.80 - 53.21	%
Risk-free interest rate range		1.26 - 1.68	%		1.24 - 1.33	%		1.33 - 2.84	%
Weighted-average expected life		6.47 - 7.59	years		6.21 - 7.70	years		6.28 - 7.63	years
Forfeiture rate		1.00 - 2.50	%		1.00 - 3.00	%		1.00 - 3.00	%
Total fair value of grants	$	908		$	727		$	995

The following table summarizes the Company’s activities with respect to its stock options and stock appreciation rights for 2013, 2012 and 2011 (in thousands, except price per share and contractual term):

	Number of Shares		Weighted Average Exercise Price Per Share	Weighted Average Remaining Term		Aggregate Intrinsic Value

Outstanding December 31, 2010	2,054	$	13.77	4.85	$	13,978
Granted	126	$	17.62
Exercised	(121)	$	9.27
Cancelled	(1)	$	8.90
Outstanding December 31, 2011	2,058	$	14.28	3.94	$	1,496
Granted	147	$	12.00
Exercised	(272)	$	9.39
Cancelled	(113)	$	9.98
Outstanding December 31, 2012	1,820	$	15.08	3.71	$	1,520
Granted	191	$	11.29
Exercised	(164)	$	10.18
Cancelled	(316)	$	16.51
Outstanding December 31, 2013	1,531	$	14.89	4.26	$	2,369
Vested at December 31, 2013	1,204	$	15.63
Exercisable at December 31, 2013	1,204	$	15.63	3.03	$	1,378

The weighted-average grant-date fair value of options and stock appreciation rights granted during the years ended December 31, 2013, 2012 and 2011 was $4.75, $4.95 and $7.90, respectively. The total intrinsic value for options exercised during the years ended December 31, 2013, 2012 and 2011, respectively, was $484, $988 and $908.

Cash received from option exercises under all plans for the years ended December 31, 2013, 2012 and 2011 was approximately $1,618, $2,681 and $1,073, respectively. The actual tax benefit realized for the tax deductions from option exercises under all plans totaled approximately $247, $244 and $293, respectively, for the years ended December 31, 2013, 2012 and 2011.

The following table summarizes information concerning outstanding and exercisable options and stock appreciation rights at December 31, 2013:

	Outstanding				Exercisable
Range of exercise price	Number outstanding	Weighted average remaining contractual life (years)	Weighted average exercise price		Number exercisable		Weighted average exercise price

$6.20-$8.26	116	5.3	$	6.96	116	$	6.96
8.26-10.33	53	9.3	$	10.02	--	$	--
10.33-12.39	255	8.7	$	11.58	43	$	11.72
12.39-14.45	353	1.8	$	13.86	337	$	13.90
14.45-16.52	165	5.2	$	15.82	147	$	15.90
16.52-18.58	213	4.3	$	18.09	194	$	18.08
18.58-20.65	361	2.0	$	18.93	352	$	18.93
20.65-21.08	15	5.8	$	21.04	15	$	21.04

	1,531				1,204

As of December 31, 2013, 2012 and 2011 there was $986, $880 and $959, respectively, of total unrecognized compensation cost related to nonvested options and stock appreciation rights outstanding. That cost is expected to be recognized over a weighted average period of approximately 1.9 years. A summary of the Company’s nonvested option and stock appreciation rights activity for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands, except price per share and contractual term):

	Number of Shares			Weighted Average Grant Date Fair Value Per Share

Nonvested at January 1, 2011		320		$	4.93
Granted		126		$	7.90
Vested		(185	)	$	4.95
Nonvested at December 31, 2011		261		$	6.35
Granted		147		$	4.95
Vested		(152	)	$	5.36
Forfeited		(4	)	$	5.60
Nonvested at December 31, 2012		252		$	6.12
Granted		191		$	4.75
Vested		(108	)	$	6.60
Forfeited		(8	)	$	7.82

Nonvested at December 31, 2013		327		$	5.11

Restricted Stock and Restricted Stock Units

As discussed above, the Company’s 2006 Long-Term Incentive Plan provides for the grant of various types of stock-based awards, including restricted shares and restricted stock units. Restricted shares and restricted stock units are valued at the price of the common stock on the date of grant and vest at the end of a three-year period. For restricted shares, during the vesting period, the participant has the rights of a shareholder in terms of voting and dividend rights but is restricted from transferring the shares. Holders of restricted stock units do not have voting rights but are entitled to dividend equivalent payments. The expense for both types of grants is recorded on a straight-line basis over the vesting period.

The Company recorded $952, $2,349 and $1,210 of compensation expense relating to restricted stock and restricted stock units during years ended December 31, 2013, 2012 and 2011, respectively. The expense in 2012 reflects an increase in the level of grants and increased expense attributable to retirement-age vesting provisions.

A summary of the restricted share and restricted stock unit activity for the years ended December 31, 2013, 2012 and 2011 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value per share

Outstanding at January 1, 2011		276		$	10.90
Granted		126		$	15.86
Vested – restriction lapsed		(59	)	$	15.90
Outstanding at December 31, 2011		343		$	11.86
Granted		149		$	11.84
Vested – restriction lapsed		(136	)	$	6.94
Outstanding at December 31, 2012		356		$	13.72
Granted		145		$	11.15
Vested – restriction lapsed		(81	)	$	13.88
Forfeited		(30	)	$	13.00

Outstanding at December 31, 2013		390		$	12.81

As of December 31, 2013, 2012 and 2011, there was $1,699, $1,438 and $1,984, respectively, of total unrecognized compensation cost related to the outstanding restricted shares and restricted stock units that will be recognized over a weighted average period of approximately 1.9 years.

Employee Stock-based Compensation Expense

The Company recorded $1,644, $3,129 and $2,098 for stock-based compensation during years ended December 31, 2013, 2012 and 2011, respectively. The expense is included in selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss). There were no amounts related to employee stock-based compensation capitalized as assets during the three years ended December 31, 2013.