3) Stock-Based Compensation, Common Stock Repurchases and Dividends

In May 2007, the Company's shareholders approved the 2007 Stock Incentive Plan (the "2007 Plan"). The 2007 Plan provides for the grant of stock incentive awards in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units and other awards in stock and/or cash to certain key employees, non-employee directors and service providers. In May 2009 and May 2011, the Company's shareholders approved amendments to the 2007 Plan, including a combined increase in the number of shares authorized for issuance of 1,000,000 shares to a total of 1,730,320 shares. At December 31, 2011, a total of 395,003 shares were available for future grant under the 2007 Plan, as amended. Effective with the approval of the 2007 Plan in May 2007, the Company may not issue any new awards or options under its Amended and Restated 1992 Stock Option Plan (the "1992 Plan"). The exercise price of stock options granted under the 2007 Plan is equal to the market value on the date of grant. Options issued to employees through March 31, 2006 under the 1992 Plan generally become exercisable over a two-year period and terminate ten years from the date of grant. Options issued to employees after March 31, 2006 under both the 1992 Plan and the 2007 Plan generally become exercisable over a four-year period. Options issued to employees through May 13, 2008 under the 1992 Plan and the 2007 Plan terminate ten years from the date of grant, while options issued effective May 14, 2008 under the 2007 Plan terminate seven years from the date of grant. Stock options granted to non-employee directors vest six months from the date of grant and terminate ten years from the date of grant. Restricted stock and restricted stock units issued to employees and to non-employee directors under the 2007 Plan are subject to the risk of forfeiture and transfer restrictions that generally lapse in varying time periods from the date of grant.

In addition to awards granted under the 2007 Plan and 1992 Plan, the Company granted non-qualified options to purchase 200,000 and 150,000 shares of its common stock to newly hired executive officers on April 1, 2009 and October 10, 2011, respectively. The options in both cases were granted outside of any shareholder-approved plan as inducements to accept employment with the Company. The options have an exercise price equal to the closing price of the Company's common stock as reported by the Nasdaq Stock Market on the first day of employment, vest in four equal installments on each of the first four anniversaries of the date of grant and have terms of seven years. In other respects, the options were structured to mirror the terms of the options granted under the 2007 Plan and are subject to stock option agreements between the Company and the executive officers.

The Company determines stock-based compensation expense based on the grant-date fair value and recognizes it on a straight-line basis over the vesting period for each stock-based award granted on or after January 1, 2006, and for previously granted awards not yet vested as of January 1, 2006. The Company recognizes stock-based compensation net of an estimated forfeiture rate, resulting in the recognition of compensation cost for only those shares expected to vest. Compensation cost is recognized for all awards over the vesting period to the extent the employees or directors meet the requisite service requirements, whether or not an option is ultimately exercised. Conversely, when an employee or director does not meet the requisite service requirements and forfeits the award prior to vesting, any compensation expense previously recognized for the award is reversed.

The Company recognized the following amounts related to the Company's share-based payment arrangements (in thousands):


	Years Ended December 31,
	2011			2010			2009

Stock-based compensation cost charged against income, before income tax benefit Stock options	$	1,447		$	1,467		$	1,174
Resticted stock and restricted stock units		534			470			368
	$	1,981		$	1,937		$	1,542

Income tax benefit related to stock-based compensation included in net income	$	(692	)	$	(668	)	$	(539	)

Stock Options

The fair value of each option award is estimated at the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of stock option awards granted were as follows:


	Years Ended December 31,
	2011	2010	2009

Expected life of options in years	4.75	4.75	4.75

Risk-free interest rate	0.80% - 2.05%	1.55%- 2.65%	1.58% - 2.30%

Expected volatility	46.2%-48.4%	49.2% - 49.6%	48.5% - 49.9%

Expected dividend yield	2.7% - 6.1%	0.0%	0.0%

The Company reviews these assumptions at the time of each new option award and adjusts them as necessary to ensure proper option valuation. The expected life represents the period that the stock option awards are expected to be outstanding. Effective April 2008, the Company's Board of Directors approved a change in the contractual term of stock options granted to employees from ten to seven years. Given the reduction in the contractual term of its employee stock option awards, the Company determined it was unable to rely on its historical exercise data as a basis for estimating the expected life of stock options granted to employees subsequent to this change. As such, the Company used the "simplified" method for determining the expected life of stock options granted to employees in 2011, 2010 and 2009, which bases the expected life calculation on the average of the vesting term and the contractual term of the awards. The risk-free interest rate is based on the yield of constant maturity U.S. treasury bonds with a remaining term equal to the expected life of the awards. The Company estimated the stock price volatility using weekly price observations over the most recent historical period equal to the expected life of the awards. The expected dividend yield for 2010 grants was zero as the Company had not paid or declared any cash dividends to date on its common stock, and did not have plans at that time to pay dividends. With the approval by the Company's Board of Directors effective February 23, 2011 of the initiation of dividend payments, the Company has computed an expected dividend rate for grants awarded in 2011 based on the relationship of the expected dividend to the stock price on the date of grant.

A summary of share option activity under the 2007 and 1992 Plans as of and for the year ended December 31, 2011 is presented in the table below (in thousands, except per share data):


	Shares			WAEP*		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value**

Options outstanding at December 31, 2010		1,260		$	17.59
Granted		587			12.03
Exercised		(44	)		8.47
Canceled		(55	)		17.28
Options outstanding at December 31, 2011		1,749		$	15.96		5.20	$	44

Options subject to exercise at December 31, 2011		768		$	18.93		4.26	$	38

*Weighted Average Exercise Price

**Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market value).

A summary of the status of the Company's nonvested option shares as of December 31, 2011 and changes during the year ended December 31, 2011 is presented in the table below (in thousands, except per share data):


	Number of Shares			Weighted Average Grant- Date Fair Value

Nonvested at December 31, 2010		607		$	7.34
Granted		587		$	3.13
Vested		(197	)	$	7.34
Canceled		(17	)	$	6.55
Nonvested at December 31, 2011		980		$	4.83

As of December 31, 2011, $3,719,000 of total stock option compensation expense (gross of the impact of potential forfeitures) was not yet recognized related to non-vested option awards, and is expected to be recognized over a weighted average period of 2.7 years.

Other information pertaining to options is as follows (in thousands, except per share data):


	Years Ended December 31,
	2011		2010		2009

Number of options granted		587		284		449
Fair value of options granted	$	1,838	$	2,138	$	2,850
Per share weighted average fair value of options granted	$	3.13	$	7.52	$	6.36
Total fair value of stock options vested	$	1,446	$	1,137	$	958
Total intrinsic value of stock options exercised	$	240	$	758	$	718

Cash received from the exercise of stock options was $279,000, $944,000 and $1,225,000 for the years ended December 31, 2011, 2010 and 2009, respectively. The aggregate impact of the exercise of stock options, expirations of vested stock options and lapse of restrictions on restricted stock generated a net tax impact of $19,000 and $114,000 in 2011 and 2010 respectively, recorded as a reduction in additional paid-in capital, and a net tax benefit of $46,000 in 2009, recorded as an increase to additional paid-in capital.

Restricted Stock

Restricted stock and restricted stock units are valued based on the market value of the Company's shares on the date of grant, which was equal to the intrinsic value of the shares on that date. These awards vest and the restrictions lapse over varying periods from the date of grant. The Company recognizes compensation expense for the intrinsic value of the restricted awards ratably over the vesting period.

A summary of the status of the Company's nonvested shares and share units as of December 31, 2011 and changes during the year ended December 31, 2011 is presented in the table below (in thousands, except per share data):


	Number of Shares			Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2010		27.5		$	16.98
Granted		157.3		$	13.19
Vested		(23.8	)	$	17.27
Canceled		(2.0	)	$	14.68

Nonvested at December 31, 2011		159.0		$	13.22

As of December 31, 2011, $1,732,000 of total compensation expense (gross of the impact of potential forfeitures) was not yet recognized related to non-vested shares and share unit awards, which is expected to be recognized over a weighted average period of 0.6 years. The market value of restricted shares and share units at the vesting date was $349,000 and $632,000 for the years ended December 31, 2011 and 2010, respectively.

Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):


	Years Ended December 31,
	2011		2010		2019

Number of restricted stock and restricted stock units granted		157		28		38
Fair value of restricted stock and restricted stock units granted	$	2,075	$	467	$	559
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted	$	13.19	$	16.98	$	14.91
Total fair value of restricted stock and restricted stock units vested	$	349	$	632	$	76
Compensation expense recognized for restricted stock and restricted stock units	$	534	$	470	$	368

Common Stock Repurchases and Dividends

Effective October 2010, the Company's Board of Directors approved the continuation of common stock repurchases under Board authorizations originally providing for the repurchase of up to 1,000,000 shares of the Company's common stock. Shares may be purchased at prevailing market prices in the open market or in private transactions, subject to market conditions, share price, trading volume and other factors. The repurchase program may be discontinued at any time. The Company repurchased 117,377 shares of its common stock at an average purchase price of $15.56 per share during the fourth quarter 2010. On July 26, 2011, the Board authorized the repurchase of an additional 500,000 shares under the program. The Company did not purchase any shares during the first half of 2011, but resumed repurchases under the program July 2011, and purchased an additional 458,531 shares through December 31, 2011 at an average price of $13.15 per share. The repurchase program has been funded to date using cash on hand. As of December 31, 2011, 347,009 shares remained available for repurchase under the authorizations.

On February 23, 2011, the Company's Board of Directors approved the initiation of dividend payments and authorized the first dividend of $0.10 per share payable April 15, followed by two additional dividends at $0.10 per share payable July 15 and September 15. On October 7, 2011, the Board declared a dividend of $0.17 per share to shareholders of record as of November 30, 2011, payable December 15, 2011, resulting in the payment of four dividends in 2011 aggregating $4.6 million. The Company expects quarterly dividend payments during 2012 of approximately $1.7 million.