Note 7 - Share-based Compensation

12 Months Ended

Dec. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

(7)            Share-Based Compensation

The Company measures and recognizes compensation expense for all share-based payments based on the grant-date fair value of those awards.  All of the Company’s existing stock option awards and non-vested stock awards have been determined to be equity-classified awards.

In August 2001, the Board of Directors adopted, and on May 1, 2002, the Company’s shareholders approved, the National Research Corporation 2001 Equity Incentive Plan (“2001 Equity Incentive Plan”).  The 2001 Equity Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 600,000 shares of the Company’s common stock.  Options granted may be either nonqualified or incentive stock options.  Options vest over one to five years following the date of grant and option terms are generally five to ten years following the date of grant.   At December 31, 2011, there were 3,770 shares available for issuance pursuant to future grants under the 2001 Equity Incentive Plan.  The Company has accounted for grants of 596,230 options and restricted stock under the 2001 Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.

The National Research Corporation 2004 Non-Employee Director Stock Plan (the “2004 Director Plan”) is a nonqualified plan that provides for the granting of options with respect to 550,000 shares of the Company’s common stock.  The 2004 Director Plan provides for grants of nonqualified options to each director of the Company who is not employed by the Company.  On the date of each annual meeting of shareholders of the Company, options to purchase 12,000 shares of the Company’s common stock are granted to directors that are re-elected or retained as a director at such meeting.  Options vest one year following the date of grant and option terms are generally ten years following the date of grant, or three years in the case of termination of the outside director’s service.  At December 31, 2011, there were 181,000 shares available for issuance pursuant to future grants under the 2004 Director Plan.  The Company has accounted for grants of 369,000 options under the 2004 Director Plan using the date of grant as the measurement date for financial accounting purposes.

In February 2006, the Board of Directors adopted, and on May 4, 2006, the Company’s shareholders approved the National Research Corporation 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”).  The 2006 Equity Incentive Plan provides for the granting of options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 600,000 shares of the Company’s common stock.  Options granted may be either incentive stock options or nonqualified stock options.  Vesting terms vary with each grant, and option terms are generally five to ten years.  Options vest over one to five years following the date of grant and options terms are generally five to ten years following the date of grant.   At December 31, 2011, there were 306,320 shares available for issuance pursuant to future grants under the 2006 Equity Incentive Plan.  The Company has accounted for grants of 293,680 options and restricted stock under the 2006 Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.

The Company granted options to purchase 166,008, 273,812 and 102,739 shares of the Company’s common stock during the years ended December 31, 2011, 2010 and 2009, respectively.  Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant.  The Company does in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant.  The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following assumptions:

	2011	2010	2009
Expected dividend yield at date of grant	2.00 to 2.55%	2.86 to 3.09%	1.93-2.35%
Expected stock price volatility	28.70 to 32.00%	28.40 to 31.20%	24.2 to 30.2%
Risk-free interest rate	1.70 to 2.14%	1.55 to 2.56%	1.55 to 2.15%
Expected life of options (in years)	4 to 6	4 to 6	4 to 6

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of the Company’s stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years the Company estimates that options will be outstanding. The Company considers groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes stock option activity under the Company’s 2001 and 2006 Equity Incentive Plans and the 2004 Director Plan for the year ended December 31, 2011:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at beginning of period		834,061		$	23.49
Granted		166,008		$	35.88
Exercised		(58,671	)	$	16.03
Cancelled		(171,997	)	$	28.00
Outstanding at end of period		769,401		$	25.73		6.37	$	10,225
Exercisable at end of period		368,587		$	22.03		4.97	$	6,186

The weighted average grant date fair value of stock options granted during the years ended December 31, 2011, 2010 and 2009, was $7.43, $4.48 and $5.72, respectively.  The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010 and 2009, was $1.0 million, $192,000 and $28,000, respectively.  As of December 31, 2011, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.2 million, which was expected to be recognized over a weighted average period of 3.22 years.

Cash received from stock options exercised for the years ended December 31, 2011, 2010 and 2009, was $568,000, $274,000, and $18,000, respectively.  The actual tax benefit realized for the tax deduction from stock options exercised was $350,000, $43,000 and $11,000, for the years ended December 31, 2011, 2010 and 2009, respectively.

During 2011, 2010 and 2009, the Company granted 39,501, 9,238 and -0- non-vested shares of common stock under the 2006 Equity Incentive Plan.  As of December 31, 2011, the Company had 30,002 non-vested shares of common stock outstanding under the Plan.  These shares vest over one to five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested.  The fair value of the awards is calculated as the fair market value of the shares on the date of grant.  The Company recognized $143,000, $108,000 and $178,000 of non-cash compensation for the years ended December 31, 2011, 2010 and 2009, respectively, related to this non-vested stock.

The following table summarizes information regarding non-vested stock granted to associates under the 2001 and 2006 Equity Incentive Plans for the year ended December 31, 2011:

	Shares Outstanding			Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period		22,636		$	21.03
Granted		39,501		$	32.31
Forfeitures		(25,178	)	$	28.40
Vested		(6,957	)	$	17.25
Outstanding at end of period		30,002		$	30.57

As of December 31, 2011, the total unrecognized compensation cost related to non-vested stock awards was approximately $616,000 and is expected to be recognized over a weighted average period of 3.96 years.