Share-Based Compensation

2012 Equity Incentive Plan

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 the date of shareholder adoption of the 2012 Plan, 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, 2014 which are described below: the Employee Stock Purchase Plan (the “ESPP”) and the Supplemental Executive Retirement Plan (the “SERP”).

The Nominating, Compensation and Stock Option Committee of the Board of Directors is responsible for determining the individuals who will be granted stock awards, the number of stock awards each individual will receive, the price per share (in accordance with the terms of our 2012 Plan), and the exercise period of each stock award.

A summary of stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 is as follows:



	December 31,
	2014		2013		2012
Stock Options	$	2,596,000	$	2,017,000	$	1,897,000
Restricted Stock	109,000		28,000		—
Employee Stock Purchase Plan ("ESPP")	375,000		562,000		641,000
Total pre-tax stock-based compensation expense charged against income (1)	$	3,080,000	$	2,607,000	$	2,538,000


(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 $497,000, $538,000 and $560,000 (representing the Company’s 25% match of participants’ deferrals) for the years ended December 31, 2014, 2013 and 2012, respectively. Both the SERP match and deferrals are included in the selling, general and administrative caption in our consolidated statements of comprehensive income.

We have outstanding stock awards 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 Pre-existing Plan. As of December 31, 2014, 4,677,000 shares of common stock were reserved for issuance under our 2012 Plan, including 2,315,000 shares which are available for future grant. The stock price will not be less than the fair market value of the common stock on the date the award is granted. No stock award will have a term in excess of ten years. Since 2008, all awards granted under the Pre-existing Plans or the 2012 Plan become vested and exercisable ratably over a five year period on each yearly anniversary date of the stock grant.

A summary of our stock option activity under the 2012 Plan is as follows:



	2014				2013				2012
	Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares
Beginning of period	$	16.05	2,483,000		$	13.18	2,632,000		$	10.97	2,912,000
Granted	28.02		535,000		23.50		564,000		17.50		601,000
Cancelled	21.95		(122,000	)	18.18		(88,000	)	14.53		(134,000	)
Exercised	11.66		(534,000	)	10.37		(625,000	)	7.81		(747,000	)
End of period	$	19.45	2,362,000		$	16.05	2,483,000		$	13.18	2,632,000

The weighted average grant-date fair value of stock options granted during 2014, 2013 and 2012 was $8.24, $6.81 and $4.74 per common share, respectively.

During 2014 and 2013, the Company granted 14,000 and 6,000 shares, respectively, of restricted stock with weighted average grant date fair values of $28.02 and $23.50 per share, respectively. No shares of restricted stock were granted by the Company in 2012.

A summary of our non-vested stock-based compensation is as follows:



	2014				2013				2012
	Weighted Average Grant Date Fair Value		Number of Non-vested Shares		Weighted Average Grant Date Fair Value		Number of Non-vested Shares		Weighted Average Grant Date Fair Value		Number of Non-vested Shares
Beginning of period	$	4.72	1,559,000		$	3.45	1,592,000		$	2.69	1,489,000
Granted	8.24		535,000		6.81		564,000		4.74		601,000
Vested	3.90		(517,000	)	3.09		(518,000	)	2.61		(423,000	)
Forfeited	6.05		(112,000	)	4.77		(79,000	)	2.92		(75,000	)
End of period	$	6.17	1,465,000		$	4.72	1,559,000		$	3.45	1,592,000

The following table summarizes other information about our outstanding stock options at December 31, 2014, 2013 and 2012.



Stock Options	2014		2013		2012
Range of exercise prices	$10.39 - $28.02		$6.07 - 23.50		$3.68 - 17.50
Outstanding:
Weighted average remaining contractual life (years)	6.7		6.5		6.3
Aggregate intrinsic value	$	27,118,000	$	30,599,000	$	26,472,000
Exercisable:
Number of shares	895,000		922,000		1,040,000
Weighted average remaining contractual life (years)	5.1		4.5		4.2
Aggregate intrinsic value	$	14,457,000	$	15,053,000	$	13,934,000
Exercised:
Aggregate intrinsic value	$	9,303,000	$	9,139,000	$	10,465,000

Fair Value Estimates

The fair value of stock awards granted during 2014, 2013 and 2012 was estimated on the date of grant using the Black-Scholes option valuation model based on the following assumptions:



	2014	2013	2012
Risk-free interest rate	1.90%	1.50%	1.30%
Weighted average expected life in years	5.9 years	6.0 years	6.8 years
Expected volatility	36.9%	38.9%	39.2%
Dividend yield	2.40%	2.80%	3.60%
Forfeiture rate	3.00%	3.00%	2.90%

Other Information

Other information pertaining to activity of our stock awards during the years ended December 31, 2014, 2013 and 2012 was as follows:



	2014		2013		2012
Total grant-date fair value of stock awards granted	$	4,268,000	$	3,412,000	$	2,438,000
Total fair value of stock awards vested during period	$	2,051,000	$	1,897,000	$	1,409,000
Total unrecognized compensation expense related to non-vested stock awards	$	6,492,000	$	4,963,000	$	3,999,000

For the years ended December 31, 2014, 2013 and 2012, the unrecognized compensation cost related to stock awards granted but not yet vested, as reported above, was expected to be recognized over a weighted average remaining period of four years.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan ("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. 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 2,421,000 shares available for future grant at December 31, 2014. 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, 2014, 2013 and 2012:



	ESPP Annual Offering
	2014		2013		2012
Common shares purchased	55,000		65,000		79,000
Per common share purchase price	$	24.11	$	19.75	$	15.04
Amount expensed under ESPP	$	375,000	$	562,000	$	641,000
Net proceeds from issuance	$	1,326,000	$	1,288,000	$	1,192,000
Common shares date of issue	Jan 7, 2015		Jan 3, 2014		Jan 4, 2013

Deferred Compensation Plan

We have a Supplemental Executive Retirement Plan (the “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. 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. 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 436,000 shares available for future grant at December 31, 2014 (after deducting the 2014 funding of 16,000 shares delivered in 2015). In the aggregate, since initiation of the SERP, the Company’s 25% match has resulted in 576,000 shares (including the 2014 funding of shares delivered in 2015) being issued to the trustee. At the time of issuance, such shares were accounted for at cost, as treasury stock. At December 31, 2014, approximately 331,000 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, 2014, 2013 and 2012:



	SERP Plan Year
	2014			2013			2012
Amount of company match expensed under SERP	$	497,000		$	538,000		$	560,000
Treasury shares issued to fund SERP expense	16,000			19,000			24,000
SERP trust account balance at December 31	$	35,310,000	⁽¹⁾	$	31,415,000	⁽¹⁾	$	24,997,000	⁽¹⁾
Unrealized gain (loss) recorded in SERP liability account	$	1,211,000		$	3,005,000		$	1,718,000

(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.