Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

5. Stock-Based Compensation

At September 30, 2011, the Company had stock-based employee compensation plans as described below. Stock-based compensation cost (included in selling, general, and administrative expenses) for the three and nine months ended September 30, 2011 was $256,000 and $429,000 ($155,000 and $261,000, net of tax), respectively. For the three months ended September 30, 2010, the Company recognized a benefit of $90,000 ($54,000, net of tax) due to the forfeiture of stock options to former executives of the Company. Stock-based compensation cost for nine months ended September 30, 2010 was $91,000 ($56,000, net of tax). The associated actual tax benefits realized for the tax deduction from option exercises of share-based payment units equaled $291,000 and $146,000 for the nine months ended September 30, 2011 and September 30, 2010, respectively.

The Company maintains two shareholder approved stock option plans that have expired: the Non-Employee Director Nonqualified Stock Option Plan (the “Director Plan”) and the Long-Term Incentive Plan (the “1991 Incentive Plan”). As of September 30, 2011, 13,000 options were outstanding under the Director Plan. As of September 30, 2011, no options were outstanding under the 1991 Incentive Plan.

On May 14, 2008, the shareholders approved the 2008 Incentive Stock Plan (the “2008 Plan”). The 2008 Plan was proposed to create an additional incentive to retain directors, key employees and advisors of the Company. Prior to the amendment of the 2008 Plan on June 8, 2011, as described below, up to 315,000 shares of the Company’s common stock were subject to the 2008 Plan. Options granted under the 2008 Plan are required to stipulate an exercise price per share of not less than the fair market value of the Company’s common stock on the business day immediately prior to the date of the grant. Options granted under the 2008 Plan are exercisable no later than ten years after the grant date.

During 2008, the Company granted 155,000 incentive options to select executives and a key employee under the 2008 Plan. The options issued vest in three equal installments, with the first installment vesting on the date of the grant and the remaining two installments each vesting on the second and third anniversary of the grant. During 2010, 135,000 of these options were cancelled.

During 2010, the Company granted 160,000 stock options to select executives and key employees under the 2008 Plan. All stock options that were issued vest over a three year period except for one grant of 15,000 shares, in which 7,500 shares vested on the date of grant and the remainder vests on the first anniversary of the grant date. Compensation expense is recognized over the vesting period of the options. During the first quarter of 2011, 5,000 of these options were forfeited in connection with the departure of a certain executive in February 2011.

On June 8, 2011, the shareholders approved amendments to the Company’s 2008 Plan to (a) increase the number of shares of the Company’s common stock subject to the 2008 Plan from 315,000 shares to 450,000 shares, and (b) require shareholder approval prior to the reduction of the exercise price of any outstanding options or stock appreciation rights, any repricing through cancellations and re-grants of new options or stock appreciation rights, or any cancellation of outstanding options or stock appreciation rights with an exercise price above the current stock price in exchange for cash or other securities.

No stock options were granted to select executives and key employees under the 2008 Plan during the nine months ended September 30, 2011. There were 140,000 options granted to select executives and key employees under the 2008 Plan during the nine months ended September 30, 2010. As of September 30, 2011, 135,000 options were outstanding under the 2008 Plan.

During the second quarter of 2011, the Company implemented a Long-Term Incentive Plan (the “2011 LTIP”) pursuant to which the Company awarded restricted stock units (“RSUs”) to eligible executives. Under the terms of the 2011 LTIP, the number of RSUs that may vest, if any, will be based on, among other things, the Company achieving certain sales and return on invested capital (“ROIC”) targets during the January 2011 to December 2013 performance period. Earned RSUs, if any, cliff vest at the end of fiscal 2013 (100% of earned RSUs vest at December 31, 2013). The final value of these RSUs will be determined by the number of shares earned. The value of these RSUs is charged to compensation expense on a straight-line basis over the three year vesting period with periodic adjustments to account for changes in anticipated award amounts. The weighted average price for these RSUs was $23.00 per share based on the grant date of June 9, 2011. For the three and nine months ended September 30, 2011, $51,000 and $67,000 was charged to compensation expense, respectively. As of September 30, 2011, total unamortized compensation expense for this grant was $476,000. As of September 30, 2011, the maximum number of achievable RSUs under the 2011 LTIP is 39,943 RSUs. These RSUs reduce the number of shares available to grant under the 2008 Plan.

During the third quarter of 2011, the Company awarded each Director 1,000 restricted shares pursuant to the 2008 Plan that vest upon the earlier of: (1) the first anniversary of the grant date, (2) at the time of the recipient’s termination, or (3) at the time of the recipient’s retirement. Based on the terms of the awards the shares were immediately expensed and as a result the Company recognized $123,000 of stock compensation expense during the third quarter of 2011. The weighted average price of these restricted stock grants was $24.62 per share based on the grant date of July 29, 2011. As of September 30, 2011, no shares were granted under this award.

Stock Options

Option activity under the principal option plans as of September 30, 2011 and changes during the nine months ended September 30, 2011 were as follows:

				Weighted
	Outstanding			Average		Weighted Average		Aggregate Intrinsic
	Options			Exercise Price		Remaining Life		Value
	(in thousands)							(in thousands)
Outstanding as of December 31, 2010		253		$	11.34		4.93	$	1,554
Granted		—			—
Exercised		(82	)		9.95
Forfeited		(5	)		12.80
Expired		(18	)		10.33
Outstanding as of September 30, 2011		148		$	12.17		5.20	$	694
Exercisable as of September 30, 2011		46		$	10.66		3.74	$	283

During the nine-month period ended September 30, 2011, options to purchase approximately 82,000 shares of common stock with an aggregate exercise price of $817,000 were exercised by option holders. During the nine-month period ended September 30, 2010, options to purchase approximately 102,000 shares of common stock with an aggregate exercise price of $726,000 were exercised by option holders.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2011. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for the nine months ended September 30, 2011 was $879,000.

As of September 30, 2011, $608,000 of total unrecognized compensation cost related to stock options, which excludes RSUs and restricted stock grants previously mentioned, is expected to be recognized over a weighted-average period of 1.9 years.

The fair value of share-based payment units was estimated using the Black Scholes option pricing model. The table below presents the weighted-average expected life in years. The expected life computation is based on historical exercise patterns and post-vesting termination behavior. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The following assumptions and weighted-average fair value were as follows:

	Nine Months
	Ended
	September 30,
	2010
Weighted average fair value of grants	$	6.49
Valuation assumptions:
Expected dividend yield		0.00	%
Expected volatility		68.62
Expected life (in years)		4.42
Risk-free interest rate		1.74	%

No stock options were granted during the nine months ended September 30, 2011.