14. Share-Based Compensation

The following table sets forth information with regard to the income statement recognition of share-based compensation (in thousands):


	2012		2011		2010
Cost of revenue	$	458	$	592	$	418
Selling, general and administrative		8,392		7,057		5,767
Research and development		338		371		293

Total share-based compensation	$	9,188	$	8,020	$	6,478

No share-based compensation cost was capitalized during the years ended December 31, 2012, 2011, and 2010. The increase in net excess tax benefits realized for the tax deductions from stock options exercised and stock awards vesting during the year was $1.7 million, $0.9 million, and less than $0.1 million for the years ended December 31, 2012, 2011, and 2010, respectively.

The Company had one active stock incentive plan (“SIP” individually or “SIPs” collectively with other plans) from which awards of stock options, service award units and performance award units were available for grant to eligible participants during 2012, the 2008 Equity Compensation Plan, which is a stockholder-approved plan. The Company believes that such awards align the interests of its employees with those of its stockholders. Eligible recipients in the SIPs include all employees of the Company and any non-employee director, consultant and independent contractor of the Company. As of December 31, 2012, the number of shares available for future grants was 2,561,106 shares under the 2008 Equity Compensation Plan, which has an expiration date of May 25, 2020.

The Company’s policy for issuing shares upon exercise of stock options or the vesting of its share awards and/or conversion of deferred stock units under all of the Company’s SIPs is to issue new shares of common stock, unless treasury stock is available at the time of exercise or conversion.

Stock Options

Stock options awarded to employees under the SIPs generally vest annually over a three-year period, have a 10-year term and have an exercise price of not less than the fair market value of the Company’s common stock at the date of grant. For stock options granted prior to 2010, the Company’s stock option agreements generally provide for accelerated vesting if there is a change in control of the Company. Effective for stock options granted in 2010 and after, the Company’s stock option agreements provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the stock option agreement.

The Company uses historical data to estimate future option exercises and employee terminations in order to determine the expected term of the stock option, where the expected term of the stock option granted represents the period of time that such stock option is expected to be outstanding. Identified groups of option holders with similar historical exercise behavior are considered separately for valuation purposes. The expected term of stock options can vary for groups of option holders exhibiting different behavior. The fair value of each stock option granted to employees and non-employee directors was estimated on the date of grant using a Black-Scholes stock option valuation model, which uses a risk-free interest rate and measure of volatility, among other things, to estimate fair value. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury strip bond yield curve in effect at the time of grant. Expected volatilities are based on the historical volatility of the Company’s common stock.

The fair value of each stock option granted during the years ended December 31, 2012, 2011, and 2010, was estimated using the assumptions noted in the following table:


Assumptions for Stock Options Granted	2012	2011	2010
Expected volatility	42.23 - 43.17%	39.64 - 41.09%	35.56 - 39.89%
Expected dividends	1.10 - 1.18%	0.90 - 1.19%	1.50 - 1.80%
Expected term (in years)	5.75 - 6.00	5.66 - 5.89	4.50 - 6.50
Risk-free rate	0.83 - 1.03%	1.24 - 2.76%	1.73 - 3.29%
Weighted-average volatility	42.71%	40.45%	37.76%
Weighted-average dividends	1.14%	1.04%	1.75%
Weighted-average term (in years)	5.86	5.86	5.43
Weighted-average risk-free rate	0.93%	1.97%	2.45%
Weighted-average grant date fair value	$12.83	$14.55	$7.33

A summary of stock option activity under the SIPs as of December 31, 2012, and changes during the year then ended, is presented below:


Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011		2,043,774		$	33.39
Granted		215,337			35.07
Exercised		(579,019	)		33.18
Forfeited or expired		(76,758	)		37.75

Outstanding at December 31, 2012		1,603,334		$	33.49		5.83	$	21,430,372

Vested or expected to vest at December 31, 2012		1,573,281		$	33.55		5.79	$	20,932,377

Exercisable at December 31, 2012		1,223,181		$	33.57		4.94	$	16,310,574

Compensation expense for stock options is recognized on a straight-line basis over the vesting period using the fair value of each stock option estimated as of the grant date. As of December 31, 2012, there was $2.9 million of total unrecognized compensation cost related to stock options granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average remaining period of 2.1 years.


	(In thousands)
	2012		2011		2010
Intrinsic value of stock options exercised	$	6,334	$	2,269	$	3,725
Cash received from stock options exercised	$	19,209	$	2,336	$	6,076

Service and Performance Award Units

Service award units to employees. The Company granted service award units under the SIPs. These service award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) generally vest in equal annual installments over four years beginning on the first anniversary date of the grant, except for the 2012 grant to the Company’s current CEO, which vests in 12 quarterly installments beginning at the end of the first quarterly period ended March 31, 2013, and (iii) for any unvested units, expire without vesting if the employee is no longer employed by the Company. For those service award units granted prior to 2010, the service award units generally provide for accelerated vesting if there is a change in control of the Company. Effective for service award units granted in 2010 and after, the service award units provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the restricted stock unit agreement.

Compensation expense for service award units is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of December 31, 2012, there was $3.7 million of total unrecognized compensation cost related to service award units granted under the SIPs. This aggregate unrecognized cost for service award units is expected to be recognized over a weighted-average period of 2.9 years. The total fair value of service awards vested, using the fair value on vest date, during the years ended December 31, 2012, 2011, and 2010, was $2.1 million, $2.6 million, and $2.3 million, respectively.

Service award units to Board of Directors (“Board”). Beginning in 2012, the Board members have the right to elect to receive all or a portion of their annual 2012 compensation as Board service award units. These Board service award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, and (ii) vest on the anniversary date of the grant.

Compensation expense for Board service award units is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of December 31, 2012, there was $0.1 million of total unrecognized compensation cost related to unvested Board service award units. This aggregate unrecognized cost for service award units is expected to be recognized over a weighted-average period of 0.4 years.

A summary of the status of the Company’s service awards as of December 31, 2012, and changes during the year ended December 31, 2012, is presented below:


Service Award Units	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2011		127,237		$	21.45
Granted		86,688			39.81
Vested		(59,475	)		26.29
Cancellations		(12,351	)		24.08

Nonvested at December 31, 2012		142,099		$	30.40

Expected to vest at December 31, 2012		134,972		$	33.42

Performance award units. The Company granted performance award units under the SIPs. These performance award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12 percent, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12 percent, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) for any unvested units, expire without vesting if the recipient is no longer employed by the Company. The Company’s performance award units provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the recipient’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the performance-based restricted stock unit agreement.

Compensation expense for performance award units is recognized using the fair market value of the Company’s common stock on the date of grant and on an accelerated basis. The Company recognizes expense for these performance award units under the assumption that the performance ROIC target will be achieved. If it appears probable such performance ROIC target will not be met for a particular grant, the Company will stop recognizing any further compensation cost and any previously recognized compensation cost related to that individual grant would be reversed.

As of December 31, 2012, there was $1.4 million of total unrecognized compensation cost related to performance award units granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of performance awards vested, using the fair value on vest date, during the years ended December 31, 2012, and 2011, was $1.1 million and $0.8 million, respectively. No performance award units vested during 2010.

A summary of the status of the Company’s performance awards as of December 31, 2012, and changes during the year ended December 31, 2012, is presented below:


Performance Award Units	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2011		109,521		$	34.29
Granted		34,229			33.87
Vested		(32,210	)		32.80
Cancellations		(4,083	)		42.24

Nonvested at December 31, 2012		107,457		$	34.30

Expected to vest at December 31, 2012		100,660		$	34.07

Deferred Stock Units

Service DSU grant to former CEO. Prior to December 31, 2012, the Company granted service-based deferred stock unit awards (“Service DSUs”) under the SIPs to its then current CEO, whose employment with the Company ended during the first quarter of 2013. Service DSUs are issued at the fair market value of the Company’s stock on the date of grant, and generally vest annually over a four-year period on each anniversary date of the grant. The Service DSUs, if vested, will be convertible into shares of the Company’s common stock following the holder’s termination of employment. The Service DSUs provide for accelerated vesting upon termination without cause or the former CEO’s retirement as defined in his employment agreement. No Service DSUs were converted into shares of the Company’s common stock during 2012.

Compensation expense for Service DSUs is recognized on a straight-line basis over the vesting period, subject to the retirement eligibility terms defined in his employment agreement, using the fair market value of the Company’s common stock on the date of grant. As of December 31, 2012, there was no unrecognized compensation cost related to Service DSUs. The total fair value of Service DSUs vested, using the fair value on vest date, during the years ended December 31, 2012, and 2011, was $0.6 million and $0.7 million, respectively. No Service DSUs vested during 2010.


Service DSU Units Granted to former CEO	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2011		45,108		$	24.94
Granted		1,181			33.87
Vested		(16,217	)		25.59

Total at December 31, 2012		30,072		$	24.94

Expected to vest at December 31, 2012		30,072		$	24.94

Performance DSU grant to former CEO. Prior to December 31, 2012, the Company granted performance-based deferred stock unit awards (“Performance DSUs”) under the SIPs to its then current CEO, whose employment with the Company ended during the first quarter of 2013. These Performance DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12 percent, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12 percent, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) provide for accelerated vesting upon termination without cause or the former CEO’s retirement as defined in his employment agreement. These Performance DSUs, if vested, will be convertible into shares of the Company’s common stock, subsequent to termination of employment.

Compensation expense for Performance DSUs is recognized using the fair market value of the Company’s common stock on the date of grant and on an accelerated basis. The Company recognizes expense for these Performance DSUs under the assumption that the performance target will be achieved. If it appears probable such performance ROIC target will not be met for a particular grant, the Company will stop recognizing any further compensation cost and any previously recognized compensation cost related to that individual grant would be reversed. As of December 31, 2012, there was $0.1 million of total unrecognized compensation cost related to Performance DSUs. This aggregate unrecognized cost is expected to be recognized during the month ended January 31, 2013. The total fair value of Performance DSUs vested, using the fair value on vest date, during the years ended December 31, 2012, and 2011, was $0.4 million and $0.2 million, respectively. No Performance DSUs vested during 2010.


Performance DSUs Granted to former CEO	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2011		41,375		$	35.15
Granted		59,049			33.87
Vested		(11,782	)		33.57

Total at December 31, 2012		88,642		$	34.51

Expected to vest at December 31, 2012		88,642		$	34.51

Deferred Stock Unit Awards for service on Board of Directors (“Board”). The Company issues deferred stock units to its Board of Directors (“Board DSUs”) under the SIPs. These Board DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant and (ii) if vested, will be convertible to shares of the Company’s common stock subsequent to termination of service as a director. Board DSUs granted during 2012 vest annually over a one-year period on the first anniversary date of the grant. During 2011, annual grants of Board DSUs vest annually in three equal installments over a three-year period beginning on the first anniversary date of the grant.

In addition, the Board members have the right to elect to receive all or a portion of their retainer and meeting attendance fees as Board DSUs, which vest immediately. Board DSUs are only granted to nonemployee Directors. Board DSUs also include dividend equivalent DSUs, which vest immediately upon the date of grant.

Compensation expense for Board DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of December 31, 2012, there was $0.9 million of total unrecognized compensation cost related to Board DSUs granted to non-employee directors. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 1.0 year. The total fair value of share awards vested, using the fair value on vest date, during the years ended December 31, 2012, 2011, and 2010, was $0.9 million, $0.7 million, and $0.2 million, respectively.

A summary of the status of the Company’s nonvested Board DSUs as of December 31, 2012, and changes during the year ended December 31, 2012, is presented below:


Board DSUs	Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2011		46,146		$	34.85
Granted		25,352			36.42
Vested		(24,659	)		34.69

Nonvested at December 31, 2012		46,839		$	35.78

Vested at December 31, 2012		90,092		$	31.39

Expected to vest at December 31, 2012		45,484		$	36.85

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”) under which full time employees may purchase shares from the Company at a discount to the fair market value. As of December 31, 2012, the number of shares of the Company’s common stock available for issuance under the ESPP was 289,133. The purchase price of the stock to ESPP participants is 85% of the lesser of the fair market value on either the first day or the last day of the applicable three-month offering period. Other ESPP information for the years ended December 31, 2012, 2011, and 2010 is noted in the following table (dollars in thousands):


	2012		2011		2010
Number of ESPP shares issued		44,470		42,443		56,279
Amount of proceeds received from employees	$	1,337	$	1,288	$	1,207
Share-based compensation expense	$	333	$	352	$	332