Share-Based Compensation

On May 29, 2012, the Company's shareholders adopted and approved the 2012 Equity Incentive Plan (the "2012 Plan"), under which current or prospective officers, employees, non-employee directors and advisors can receive share-based awards such as stock options, restricted stock and other stock awards. The 2012 Plan seeks to promote the highest level of performance by providing an economic interest in the long-term success of the Company. As of this date, no further grants were permitted under any previously existing stock plans (the "Pre-existing Plans"). Additionally, all remaining shares available for future grants under the Pre-existing Plans became available for issuance under the 2012 Plan.

In addition to the 2012 Plan, the Company also had two compensation plans at December 31, 2012 which are described below: the 2000 Employee Stock Purchase Plan (the “ESPP”) and the Supplemental Executive Retirement Plan (the “SERP”).

A summary of stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010 is as follows:



	December 31,
	2012		2011		2010
Employee Stock Purchase Plan (ESPP)	$	641,000	$	282,000	$	317,000
Stock-based compensation — Stock options	1,897,000		1,870,000		1,015,000
Total pre-tax stock-based compensation expense charged against income (1)	$	2,538,000	$	2,152,000	$	1,332,000


(1)	Stock-based compensation expense is recorded in the selling, general and administrative caption in our consolidated statements of comprehensive income.

With respect to our SERP, we recorded expense of $560,000, $444,000 and $400,000 (representing the Company’s 25% match of participants’ deferrals) for the years ended December 31, 2012, 2011 and 2010, respectively. Both the SERP match and deferrals are included in the selling, general and administrative caption in our consolidated statements of comprehensive income.

Equity Incentive Plan

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the individuals who will be granted options, the number of options each individual will receive, the option price per share (in accordance with the terms of our option plan), and the exercise period of each option.

We have outstanding stock options that were granted under the Pre-existing Plans to non-employee directors, officers and employees of the Company and other specified groups, depending on the plan. No further grants are allowed under the Pre-existing Plans. As of December 31, 2012, 5,969,000 shares of common stock were reserved for issuance under our equity incentive plan, including 3,337,000 shares which are available for future grant. The stock option price will not be less than the fair market value of the common stock on the date the option is granted. No option grant will have a term in excess of ten years. The options granted in 2012, 2011 and 2010 become vested and exercisable ratably over a five year period on each yearly anniversary date of the option grant.

A summary of stock option activity is as follows:



	2012				2011				2010
	Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares
Beginning of period	$	10.97	2,912,000		$	9.14	3,002,000		$	7.55	3,077,000
Granted	17.50		601,000		16.11		510,000		14.31		670,000
Cancelled	14.53		(134,000	)	12.67		(96,000	)	9.27		(41,000	)
Exercised	7.81		(747,000	)	4.93		(504,000	)	7.10		(704,000	)
End of period	$	13.18	2,632,000		$	10.97	2,912,000		$	9.14	3,002,000

The weighted average grant-date fair value of stock options granted during 2012, 2011 and 2010 was $4.74, $3.26 and $3.98 per common share, respectively.

The following table summarizes information about stock options outstanding at December 31, 2012.



	Options Outstanding				Options Exercisable
Exercise Price Range	Number Outstanding	Average Remaining Contractual Life	Weighted Average Exercise Price Per Share		Number Exercisable	Weighted Average Exercise Price
$3.68 — 10.39	812,000	3.63	$	7.53	605,000	$	6.56
13.93	296,000	5.01	13.93		206,000	13.93
14.31	506,000	7.01	14.31		160,000	14.31
16.11	444,000	8.01	16.11		69,000	16.11
$17.50	574,000	8.99	17.50		—	17.50
	2,632,000	6.34	$	13.18	1,040,000	$	9.84

Fair Value Estimates

The fair value of options granted during 2012, 2011 and 2010 is estimated on the date of grant using the Black-Scholes option valuation model based on the following assumptions:



	2012	2011	2010
Risk-free interest rate	1.30%	2.60%	2.50%
Weighted average expected life in years — Stock Options	6.8 years	7.4 years	4.5 years
Expected volatility	39.2%	27.4%	42.1%
Dividend yield	3.60%	3.66%	3.45%
Forfeiture rate	2.90%	3.81%	3.88%

Other Information

Other information pertaining to activity of our stock options during the years ended December 31, 2012, 2011 and 2010 was as follows:



	2012		2011		2010
Aggregate intrinsic value of stock options exercised	$	10,465,000	$	5,059,000	$	5,613,000
Aggregate intrinsic value of outstanding stock options	$	26,472,000	$	19,570,000	$	21,393,000
Total grant-date fair value of stock options granted	$	2,438,000	$	1,477,000	$	2,176,000
Total fair value of options vested during period	$	1,409,000	$	1,551,000	$	579,000

The unrecognized compensation cost related to stock options granted but not yet vested at December 31, 2012, 2011 and 2010 was approximately $3,999,000, $3,547,000 and $3,356,000, respectively. The weighted average remaining period over which the above amounts are expected to be recognized was four years for each year ended December 31, 2012, 2011 and 2010.

Employee Stock Purchase Plan

Since January 1, 2000, we have had a non-compensatory ESPP for all eligible employees. All full-time and certain part-time employees who have completed two years of continuous service with us are eligible to participate. The ESPP was implemented through five annual offerings. On January 1, 2000, the first annual offering commenced. On February 12, 2004 (effective January 1, 2004), our Board of Directors extended the ESPP for an additional eight annual offerings. On April 12, 2011, the Board of Directors extended the ESPP for an additional five offerings through 2016. Annual offerings commence and terminate on the respective year’s first and last calendar day. Under the ESPP, we are authorized to issue up to 4,050,000 shares of our common stock to our employees. Pursuant to such authorization, we have 2,541,000 shares available for future grant at December 31, 2012. Furthermore, under the terms of the ESPP, eligible employees may contribute through payroll deductions up to $21,250 (85% of IRS limitation) of their compensation toward the purchase of the Company's common stock. No employee may purchase common stock which exceeds $25,000 in fair market value (determined on the date of grant) for each calendar year. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85% of the fair market price on the day of purchase.

The following table summarizes information about our ESPP annual offerings for the years ended December 31, 2012, 2011 and 2010:



	ESPP Annual Offering
	2012		2011		2010
Common shares purchased	79,000		71,000		75,000
Per common share purchase Price	$	15.04	$	13.83	$	12.07
Amount expensed under ESPP	$	641,000	$	282,000	$	317,000
Net proceeds from issuance	$	1,192,000	$	978,000	$	911,000
Common shares date of issue	Jan. 4, 2013		Jan. 4, 2012		Jan. 6, 2011

Deferred Compensation Plan

Since January 1, 2000, we have had a SERP for certain key executives and employees. The SERP is not qualified under Section 401 of the Internal Revenue Code. Effective in Plan year 2010, the Plan was amended to allow participants to defer up to 25% of their earned income on a pre-tax basis. Prior to the amendment, participants were eligible to defer up to 15% of their earned income on a pre-tax basis. As of the last day of each plan year, each participant will receive a 25% match of up to 15% of their deferral in the form of our Common Stock based on the then current market value. The 2010 amendment increased the deferral amount to 25% of their earned income on a pre-tax basis, but the 25% match is still limited to a maximum of 15% of eligible participants’ deferral. SERP participants fully vest in our matching contribution three years from the first day of the initial year of participation. The income deferred and our matching contributions are unsecured and subject to the claims of our general creditors. Under the SERP, we are authorized to issue up to 1,013,000 shares of our common stock to our employees. Pursuant to such authorization, we have 471,000 shares available for future grant at December 31, 2012 (after deducting the 2012 funding of 24,000 shares delivered in 2013 and adding back 9,000 shares forfeited during 2012). In the aggregate, since initiation of the SERP, the Company’s 25% match has resulted in 541,000 shares (including the 2012 funding of shares delivered in 2013, net of forfeited shares) being issued to the trustee. At the time of issuance, such shares were accounted for at cost, as treasury stock. At December 31, 2012, approximately 282,000 of such shares are vested and remain in the respective active participants’ accounts. The following table summarizes information about our SERP for the plan years ended December 31, 2012, 2011 and 2010:



	SERP Plan Year
	2012			2011				2010
Amount of company match expensed under SERP	$	560,000		$	444,000			$	400,000
Treasury shares issued to fund SERP expense	24,000			26,000				25,000
SERP trust account balance at December 31	$	24,997,000	⁽¹⁾	$	18,942,000		⁽¹⁾	$	16,534,000	⁽¹⁾
Unrealized gain (loss) recorded in SERP liability account	$	1,718,000		$	(104,000	)		$	1,325,000

(1)

SERP trust account investments are recorded at their fair value which is based on quoted market prices. Differences between such amounts in the table above and the deferred compensation funding asset reported on our Consolidated Balance Sheets represent the value of our Common Stock held in the Plan’s participants’ trust account and reported by us as treasury stock in our Consolidated Balance Sheets.