Stock Based Compensation

6 Months Ended

Jun. 30, 2013

Stock Based Compensation

3. STOCK BASED COMPENSATION

During the first and second quarters of 2013, the Board of Directors of the Company granted to certain management-level employees, executive officers, and non-employee directors, service-based restricted stock awards totaling 231,727 shares and 29,616 shares, respectively, with a grant-date fair value totaling approximately $3.9 million and $0.5 million, respectively. Such restricted stock awards vest beginning one year from the date of grant in cumulative annual installments of 25%. Restricted stock is valued at the date of grant, based on the closing market price of the Company’s common stock, and expensed using the straight-line method over the requisite service period (generally the vesting period of the award). The Company excludes compensation cost related to awards not expected to vest based upon estimated forfeitures.

During the first quarter of 2013, the Board of Directors of the Company also granted to certain executive officers performance-based restricted stock awards pursuant to the terms of the Company’s executive compensation program totaling 115,696 shares, with a grant-date fair value of $16.24 per share, totaling approximately $1.9 million, which represents the maximum number of shares able to be earned by the executive officers at the end of a three-year performance period ending December 31, 2015. The actual number of shares earned will be based on the Company’s performance related to the following performance criteria over the performance period:

● Operating income growth (three-year compound annual growth rate);

● Total consolidated revenue growth (three-year compound annual growth rate); and

● Cash flow return on invested capital (three-year average).

At the end of the three-year period, the executive officers are eligible to receive up to a specified number of shares based upon the Company’s performance relative to these performance criteria over the performance period. In addition, the executive officers will accrue dividend equivalents for any cash dividend declared during the performance period, payable in the form of shares of Company common stock, based upon the maximum number of shares to be earned by the executive officers for each performance-based restricted stock award. Such hypothetical cash dividend payment shall be divided by the fair value of the Company’s common stock on the dividend payment date to determine the maximum number of notional shares to be awarded. At the end of the three-year performance period and on the date some or all of the shares are paid under the agreement, a pro rata number of notional dividend shares will be converted into an equivalent number of dividend shares paid and granted to the executive officers based upon the actual number of underlying shares earned during the performance period.

At December 31, 2012, the three-year performance period related to the performance-based restricted stock awards granted to certain executive officers on February 1, 2010 ended. Based on the Company’s actual financial results from 2010 through 2012, 78,747 of the shares subject to the awards and 8,013 dividend shares were earned and vested on February 1, 2013.

Stock-based compensation cost for performance-based restricted stock awards is measured at the grant date based on the fair value of shares expected to be earned at the end of the performance period, and is recognized as expense over the performance period based upon the probable number of shares expected to vest. The Company estimates and excludes compensation cost related to awards not expected to vest based upon estimated forfeitures.

The following table presents stock-based compensation expense included in the Company’s unaudited consolidated statements of income (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2013			2012			2013			2012
Cost of portal revenues, exclusive of depreciation & amortization	$	306		$	275		$	563		$	488
Cost of software & services revenues, exclusive of depreciation & amortization		19			21			36			30
Selling & administrative		874			838			1,478			1,339
Stock-based compensation expense before income taxes		1,199			1,134			2,077			1,857
Income tax benefit		(469	)		(485	)		(788	)		(787	)
Net stock-based compensation expense	$	730		$	649		$	1,289		$	1,070