NOTE 8 — STOCK-BASED COMPENSATION

The Company’s stock compensation plans, approved by the Company’s shareholders and administered by the Compensation and Benefits Committee of the Board of Directors of the Company, provide for the grant of incentive and non-incentive stock options, restricted stock, and other stock-based awards or units to key employees and directors. The plans, as amended, authorize the grant of up to 7.8 million shares or units through April 2020. These share or unit amounts exclude amounts that were issued under predecessor plans.

Stock options vest equally over the three years from the date of the grant. The cost of stock options, based on the fair market value of the shares on the date of grant, is charged to expense over the respective vesting periods. Stock options normally become exercisable at a rate of one-third annually and in full on the third anniversary date. All options and rights must be exercised within ten years from date of grant. At the Company’s discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement method permits the employee to receive, without payment to the Company, cash, shares of common stock, or a combination thereof equal to the excess of market value of common stock over the option purchase price. The Company has historically settled all such options in common stock and intends to continue to do so.

The weighted average fair value of options granted during 2012, 2011 and 2010 was $2.73, $3.12 and $3.27, respectively. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following assumptions:


	2012			2011			2010
Dividend yield		0.7	%		0.6	%		2.9	%
Expected volatility		59	%		52	%		48	%
Risk free interest rate		0.9	%		2.2	%		2.0	%
Weighted average expected option life in years		5.6			5.9			5.9

The expected life of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the options. Expected volatility is based on historical volatility of the Company’s common stock. Dividend yields are based on historical dividend payments.

Stock option activity for the three years ended December 31, 2012 was as follows:


	Option Shares									Weighted Average Exercise Price
	2012			2011			2010			2012		2011		2010
	(in millions)
Outstanding at beginning of year		2.0			1.9			2.1		$	10.16	$	12.61	$	13.60
Granted		0.6			0.7			0.4			5.52		6.50		8.93
Canceled or expired		(0.3	)		(0.6	)		(0.6	)		9.88		14.02		13.47

Outstanding at end of year		2.3			2.0			1.9		$	8.93	$	10.16	$	12.61

Exercisable at end of year		1.3			1.0			1.2		$	11.22	$	13.12	$	14.84

The following table summarizes information for stock options outstanding as of December 31, 2012 under all plans:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Shares		Weighted Average Remaining Life		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	(in millions)		(in years)				(in millions)
5.01 — 10.00		1.5		8.1	$	6.12		0.5	$	6.51
10.01 — 15.00		0.4		5.5		10.74		0.4		10.81
15.01 — 20.00		0.4		2.3		16.87		0.4		16.87

		2.3		6.6	$	8.93		1.3	$	11.22

The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2012 was $0.5 million.

Restricted stock awards are granted to employees at no cost. Awards primarily cliff vest at the third anniversary from the date of award, provided the recipient is still employed by the Company on the vesting date. The cost of restricted stock awards, based on the fair market value at the date of grant, is being charged to expense over the respective vesting periods. The following table summarizes restricted stock grants for the 12-month period ended December 31, 2012:


	Number of Restricted Shares			Weighted Average Price per Share
	(in millions)
Outstanding and non-vested at December 31, 2011		0.4		$	7.99
Granted		0.1			5.72
Vested		(0.2	)		7.14

Outstanding and non-vested at December 31, 2012		0.3		$	7.38

The total compensation expense related to all stock option and stock award compensation plans was $2.0 million, $1.8 million and $2.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. Also, as of December 31, 2012, there were $1.6 million and $0.5 million of total unrecognized compensation cost related to stock options and stock awards, respectively, that is expected to be recognized over the weighted-average period of approximately 1.9 and 2.1 years, respectively.

2010 Performance Share Units

In 2008, the Company established a long term incentive plan for executive officers under which awards were classified as equity in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Performance share units granted in 2010 were tied to the achievement of a pre-determined three-year relative performance metric based upon Total Stockholder Return (“TSR”) relative to a comparator group of companies, which is a market condition per ASC 718. Performance share units would have vested if (1) the Company had achieved certain specified stock performance targets compared to a comparator group of companies measured at December 31, 2012, and (2) the employee remained continuously employed by the Company until the last day of the three-year performance period, December 31, 2012. The TSR performance metric for the 2010 award was not met. Accordingly, the 2010 performance share units were not earned. Compensation expense is based on the fair value of the performance share unit on the date of grant. As of December 31, 2012, compensation expense relating to the unearned 2010 performance share units has been fully amortized.

The fair value is calculated using a Monte Carlo simulation model with the following assumptions:


	2010
Dividend yield		2.4	%
Expected volatility		64	%
Risk free interest rate		1.5	%
Weighted average expected life in years		2.7

2011 and 2012 Performance Share Units

The performance share units granted in 2011 and 2012 were extended to certain other non-executive officers. The performance share units granted in 2011 and 2012 both have a one-year performance period ending December 31, 2011 and 2012, respectively, in which the Company must achieve certain earnings per share (“EPS”) from continuing operations, which is a performance condition per ASC 718, followed by a two-year service requirement (i.e., if earned, these shares would vest in full on December 31, 2013 or 2014, respectively). The EPS threshold for the 2011 award was not met. Accordingly, the 2011 performance share units were not earned, and no compensation expense was recorded relating to the 2011 award. The EPS threshold for 2012 was achieved at the maximum level, and 200% of the target shares were earned. Compensation expense included in the consolidated statement of operations for the 2012 performance unit shares for the year ended December 31, 2012 was $ 0.6 million. The total compensation expense for these performance share units is being amortized through the end of the vesting period, December 31, 2014.