11. SHARE-BASED COMPENSATION

The Company applies the provisions of FASB ASC 718, “Compensation – Stock Compensation,” to account for the Company’s share-based compensation. Share-based compensation cost is measured at the grant date based on the calculated fair value of the award and is recognized over the employees’ requisite service period. The Company recorded stock compensation expense of $477,000 and $465,000 for the three-month periods ended September 30, 2012 and 2011, respectively, and $1,312,000 and $1,720,000 for the nine-month periods ended September 30, 2012 and 2011, respectively, related to restricted stock awards and performance unit awards.

Stock Option Awards

A summary of the option activity as of September 30, 2012 is presented below.



				Weighted
			Weighted	Average
			Average	Remaining		Aggregate
			Exercise	Contractual		Intrinsic
	Shares		Price	Term		Value
Outstanding and Exercisable at January 1, 2012	39,950	$	8.94	2.8
Granted	-		-	-
Canceled	-		-	-
Exercised	(11,450)		6.44	-
Outstanding and Exercisable at September 30, 2012	28,500	$	9.94	2.4	$	638,000

The total intrinsic value of options outstanding and exercisable at September 30, 2011 was $669,000.

At September 30, 2012, common stock options outstanding and exercisable under the Company’s equity plans had option prices ranging from $4.10 to $14.77, with a weighted average exercise price of $9.94. At September 30, 2011, common stock options outstanding and exercisable under the Company’s equity plans had option prices ranging from $4.10 to $14.77, with a weighted average exercise price of $8.83 per share.

The weighted average remaining contractual life of the stock options outstanding at September 30, 2012 and 2011 was 2.4 and 3.1 years, respectively.

There were 10,000 options with a weighted average exercise price per share of $6.02 exercised during the three-month period ended September 30, 2012. There were 10,000 options with a weighted average exercise price per share of $4.87 exercised during the three-month period ended September 30, 2011. The total intrinsic value of options exercised during the three-month periods ended September 30, 2012 and 2011 was $225,000 and $154,000, respectively.

Options exercised during the nine-month periods ended September 30, 2012 and 2011 totaled 11,450 and 31,000 shares, respectively. The weighted average exercise price per share of the options exercised during the nine-month periods ended September 30, 2012 and 2011 were $6.44 and $3.93, respectively. The total intrinsic value of options exercised during the nine-month periods ended September 30, 2012 and 2011 were $255,000 and $909,000, respectively.

Shares issued as a result of stock option exercise generally will be from previously issued shares which have been reacquired by the Company and held as Treasury shares.

Restricted Stock Awards

For the nine-month periods ended September 30, 2012 and 2011, the Company granted approximately 26,000 and 46,000 shares, respectively, of restricted stock to employees. During the nine-month period ended September 30, 2012, the Company also granted approximately 66,000 shares of restricted stock to an employee director. A summary of restricted stock award activity follows:



					Aggregate
			Grant Date		Fair
Grant Date	Shares		Fair Value		Value	Vesting Date
March 15, 2011	24,836	$	38.46	$	955,000	March 15, 2015
July 21, 2011	16,600		38.44		638,000	July 21, 2015
August 29, 2011	5,000		24.50		123,000	August 29, 2014
February 1, 2012	66,000		30.15		1,990,000	February 1, 2016
March 6, 2012	18,347		27.49		504,000	March 6, 2016
May 23, 2012	8,000		28.05		224,000	May 23, 2016

These forfeitable Restricted Stock Awards time-vest after a four-year holding period, unless indicated otherwise by the underlying Restricted Stock Agreement. Certain awards of restricted stock included in the above table provide for partial vesting over a period up to the vesting date listed. Shares issued as a result of Restricted Stock Awards generally are previously issued shares which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.

Performance Unit Awards

Annually, under separate three-year long-term incentive plans, pursuant to the Omnibus Plan, the Company grants performance units. Units granted during the nine-month periods ended September 30 are as follows:



						Aggregate
Incentive				Grant Date		Fair
Plan	Grant Date	Units		Fair Value		Value	Vesting Date
2010 - 2012	March 2, 2010	36,541	$	31.83	$	1,163,000	March 2, 2013
2011 - 2013	March 15, 2011	34,002		38.46		1,308,000	March 15, 2014
2012 - 2014	March 6, 2012	43,042		27.49		1,183,000	March 6, 2015

In addition, on March 15, 2011 the Company awarded, pursuant to the Omnibus Plan, 1,500 special performance units to an employee director and 1,000 special performance units to an executive officer. Based on the satisfaction of the underlying performance conditions, these units were converted, net of shares withheld for applicable income tax purposes, into 1,436 and 957 shares, respectively, of the Company’s common stock on March 6, 2012. The grant date fair value of these awards was $38.46 and the aggregate fair value was $58,000 and $38,000, respectively.

Performance units are subject to forfeiture and will be converted into common stock of the Company based upon the Company’s performance relative to performance measures and conversion multiples as defined in the underlying plan. The aggregate fair value in the above table is based upon achieving 100% of the performance targets as defined in the underlying plan. The Company reversed $1,157,000 of incentive compensation expense during the nine-month period ended September 30, 2012 caused by the impact of the product warranty charge on Company performance, as it related to the awards’ underlying performance conditions. More information on the product warranty charge can be found in Note 14.

Shares issued as a result of performance unit awards generally are previously issued shares which have been reacquired by the Company and held as Treasury shares or authorized but previously unissued common stock.

The excess tax benefit realized for the tax deduction from stock-based compensation approximated $121,000 and $368,000 for the nine months ended September 30, 2012 and 2011, respectively. This excess tax benefit is included in cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.