3. Share-Based Compensation

Overview

As of December 31, 2013, the Company has two active equity compensation plans. A description of these plans is as follows:

Nonemployee Directors’ Deferred Stock Compensation Plan

Pursuant to the United Stationers Inc. Nonemployee Directors’ Deferred Stock Compensation Plan, non-employee directors may defer receipt of all or a portion of their retainer and meeting fees. Fees deferred are credited quarterly to each participating director in the form of stock units, based on the fair market value of the Company’s common stock on the quarterly deferral date. Each stock unit account generally is distributed and settled in whole shares of the Company’s common stock on a one-for-one basis, with a cash-out of any fractional stock unit interests, after the participant ceases to serve as a Company director. For the years ended December 31, 2013, 2012 and 2011, the Company recorded compensation expense of $0.1 million, $0.2 million, and $0.2 million, respectively. As of December 31, 2013, 2012 and 2011, the accumulated number of stock units outstanding under this plan was 56,737; 62,421; and 89,285; respectively.

Amended and Restated 2004 Long-Term Incentive Plan (“LTIP”)

In May 2011, the Company’s shareholders approved the LTIP to, among other things, attract and retain managerial talent, further align the interest of key associates to those of the Company’s stockholders and provide competitive compensation to key associates. Award vehicles include stock options, stock appreciation rights, full value awards, cash incentive awards and performance-based awards. Key associates and non-employee directors of the Company are eligible to become participants in the LTIP, except that non-employee directors may not be granted incentive stock options.

Accounting For Share-Based Compensation

The following table summarizes the share-based compensation expense (in thousands):


	Year Ended December 31,
	2013			2012			2011
Numerator:
Pre-tax expense	$	10,808		$	8,746		$	15,734
Tax effect		(4,108	)		(3,323	)		(5,977	)

After tax expense	$	6,700		$	5,423		$	9,757

Denominator:
Denominator for basic shares—Weighted average shares		39,650			40,337			43,822
Denominator for diluted shares—Adjusted weighted average shares and the effect of dilutive securities		40,236			40,991			45,014
Net expense per share:
Net expense per share—basic	$	0.17		$	0.13		$	0.22

Net expense per share—diluted	$	0.17		$	0.13		$	0.22

The following tables summarize the intrinsic value of options outstanding, exercisable, and exercised for the applicable periods listed below:

Intrinsic Value of Options

(in thousands of dollars)


	Outstanding		Exercisable
As of December 31, 2013	$	9,897	$	6,262
As of December 31, 2012		8,420		8,420
As of December 31, 2011		13,668		13,668

Intrinsic Value of Options Exercised

(in thousands of dollars)


For the year ended
December 31, 2013	$	13,676
December 31, 2012		2,380
December 31, 2011		8,911

The following tables summarize the intrinsic value of restricted shares outstanding and vested for the applicable periods listed below:

Intrinsic Value of Restricted Shares

(in thousands of dollars)


Outstanding
As of December 31, 2013	$	47,780
As of December 31, 2012		40,222
As of December 31, 2011		32,634

Intrinsic Value of Restricted Shares Vested

(in thousands of dollars)


For the year ended
December 31, 2013	$	12,414
December 31, 2012		8,812
December 31, 2011		27,576

The aggregate intrinsic values summarized in the tables above are based on the closing sale price per share for the Company’s Common Stock on the last day of trading in each respective fiscal period which was $45.89, $30.99, and $32.56 per share for the 2013, 2012 and 2011 periods ended. Additionally, the aggregate intrinsic value of options exercisable does not include the value of options for which the exercise price exceeds the stock price as of the last day of trading in each respective fiscal period.

Stock Options

The fair value of option awards and modifications to option awards is estimated on the date of grant or modification using a Black-Scholes option valuation model that uses various assumptions including the expected stock price volatility, risk-free interest rate, and expected life of the option. The expected term of options granted is derived from the historical forfeiture and exercise behavior and represents the period of time that options granted are expected to be outstanding. The expected volatility of the price of the underlying shares is implied based on historical volatility of the Company’s common stock. The expected dividends were based on the current dividend yield of the Company’s stock as of the date of the grant. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions used are shown in the following table.


	2013
Weighted average expected term		5.6
Expected volatility		40.01—40.49	%
Weighted average volatility		40.48	%
Weighted average expected dividends		1.46	%
Risk-free rate		0.76—1.62	%

Stock options granted in 2013 vest at the end of three years and have a term of 10 years. Previously issued stock options generally vested in annual increments over three years and have a term of 10 years. Compensation costs for all stock options are recognized, net of estimated forfeitures, on a straight-line basis over the vesting period. As of December 31, 2013, there was $4.7 million of unrecognized compensation cost related to stock option awards granted. The cost is expected to be recognized over a weighted-average period of 2.25 years. In 2013, there were 585,189 stock options granted. There were no stock options granted during 2012 or 2011.

The following table summarizes the transactions, excluding restricted stock, under the Company’s equity compensation plans for the last three years:


	2013			Weighted Average Exercise Price		2012			Weighted Average Exercise Price		2011			Weighted Average Exercise Price
Options outstanding—January 1		1,371,850		$	24.86		1,715,380		$	24.62		2,563,708		$	24.18
Granted		585,189			38.71		—			—		—			—
Exercised		(1,065,920	)		24.69		(217,634	)		18.69		(847,528	)		23.26
Cancelled		(78,959	)		38.69		(125,896	)		32.35		(800	)		29.51

Options outstanding—December 31		812,160		$	33.70		1,371,850		$	24.86		1,715,380		$	24.62

Number of options exercisable		305,930		$	25.42		1,371,850		$	24.86		1,715,380		$	24.62

The following table summarizes outstanding and exercisable options granted under the Company’s equity compensation plans as of December 31, 2013:


Exercise Prices	Outstanding		Remaining Contractual Life (Years)		Exercisable
20.00—25.00		201,684		2.3		201,684
25.01—30.00		102,000		3.7		102,000
30.01—35.00		2,246		3.4		2,246
35.01—40.00		506,230		9.3		—

Total		812,160		6.8		305,930

Restricted Stock and Restricted Stock Units

The Company granted 181,916 shares of restricted stock and 166,348 restricted stock units (“RSU”s) during 2013. During 2012, the Company granted 461,512 shares of restricted stock and 245,737 RSUs. During 2011, the Company granted 30,097 shares of restricted stock and 332,888 RSUs. The restricted stock granted in each period generally vests in three equal annual installments on the anniversaries of the date of the grant. The majority of the RSUs granted in 2013, 2012 and 2011 vest in three annual installments based on the terms of the agreements, to the extent earned based on the Company’s cumulative economic profit performance against target economic profit goals. The performance-based RSUs granted in 2011 and 2012 have a minimum and maximum payout of zero to 150%. The performance-based RSUs granted in 2013 have a minimum and maximum payout of zero to 200%. Included in the 2013, 2012 and 2011 grants were 194,517; 426,064; and 147,843 shares of restricted stock and RSUs granted to employees who were not executive officers, as of December 31, 2013, 2012 and 2011, respectively. In addition, there were 23,898; 41,051; and 39,314 shares of restricted stock and RSUs granted to non-employee directors during the years ended December 31, 2013, 2012 and 2011, respectively. For the years ended December 31, 2013, 2012 and 2011, respectively, there were also 129,849; 240,134; and 175,828 shares of restricted stock and RSUs granted to executive officers. The restricted stock granted to executive officers vests with respect to each officer in annual increments over three years provided that the following conditions are satisfied: (1) the officer is still employed as of the anniversary date of the grant; and (2) the Company’s cumulative diluted earnings per share for the four calendar quarters immediately preceding the vesting date exceed $0.50 per diluted share as defined in the officers’ restricted stock agreement. As of December 31, 2013, there was $14.2 million of total unrecognized compensation cost related to non-vested restricted stock and RSUs granted. The cost is expected to be recognized over a weighted-average period of 1.9 years. A rollforward of the Company’s restricted stock and RSU grants during the last three years is as follows:


Restricted Stock and RSUs	2013			Weighted Average Grant Date Fair Value		2012			Weighted Average Grant Date Fair Value		2011			Weighted Average Grant Date Fair Value
Nonvested—January 1		1,297,906		$	28.61		1,002,125		$	26.42		1,562,626		$	20.13
Granted		348,264			38.28		707,249			27.84		362,985			30.81
Vested		(323,159	)		37.02		(324,345	)		22.00		(853,384	)		17.14
Cancelled		(281,822	)		30.04		(87,123	)		28.16		(70,102	)		21.97

Nonvested—December 31		1,041,189		$	31.24		1,297,906		$	28.61		1,002,125		$	26.42