STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

Equity Plan

Our Equity Plan provides for grants of nonqualified stock options, restricted stock and stock appreciation rights. The Board of Directors or the Compensation Committee of our Board of Directors determines the terms of each award, including the type, recipients, number of shares subject to and vesting conditions of each award. Stock option and restricted stock awards are described below. No awards of stock appreciation rights have been issued under the Equity Plan to date. The maximum number of shares of common stock that may be awarded under the Equity Plan is 20,000,000 shares. The maximum aggregate number of shares that may be awarded to any one person under the Equity Plan is 2,562,500. As of December 31, 2012, there were 7,651,757 shares available for granting additional awards.

We apply the fair value method of accounting for stock-based compensation awards granted under our Equity Plan. Stock-based compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of December 31, 2012, the total unrecognized compensation cost related to non-vested stock-based compensation awards was approximately $10.6 million and is expected to be recognized over a weighted average period of 2.9 years. The following table summarizes the stock-based compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):



	Years Ended December 31,
	2012		2011		2010
Stock options:
Pre-tax compensation expense	$	379	$	343	$	370
Tax benefit	154		141		153
Stock option expense, net of tax	$	225	$	202	$	217
Restricted stock:
Pre-tax compensation expense	$	4,223	$	2,256	$	1,091
Tax benefit	1,710		931		450
Restricted stock expense, net of tax	$	2,513	$	1,325	$	641

We do not have a formal policy for issuing shares upon an exercise of stock options or vesting of restricted stock, so such shares are generally issued from treasury stock. From time to time, we repurchase shares of our common stock, the timing and amount of which depends on market and other factors. Historically, the shares acquired from such repurchases have provided us with sufficient quantities of stock to issue for stock-based compensation. Based on current treasury stock levels, we do not expect to repurchase additional shares specifically for stock-based compensation during 2013.

Stock Options

Stock options are granted at prices equal to the market value of the common stock on the date the option award is granted. Option awards currently outstanding become exercisable in installments from 24 to 72 months after the date of grant. The options are exercisable over a period not to exceed ten years and one day from the date of grant.

The following table summarizes stock option activity for the year ended December 31, 2012:



	Number of Options (in thousands)		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of period	1,133		$	18.01
Options granted	—		$	—
Options exercised	(331	)	$	18.23
Options forfeited	(2	)	$	19.02
Options expired	—		$	—
Outstanding at end of period	800		$	17.92	4.04	$	3,020
Exercisable at end of period	611		$	17.62	3.27	$	2,477

The fair value of stock option grants is estimated using a Black-Scholes valuation model. The following table summarizes the number of stock options granted and the weighted-average assumptions used in the valuations:



	Year Ended December 31,
	2011
Number of options granted	31,000
Risk-free interest rate	1.8		%
Expected dividend yield	0.90		%
Expected volatility	37		%
Expected term (in years)	7.0
Grant-date fair value	$	8.27

The risk-free interest rate was based on average yields for U.S. Treasury notes with a remaining term that is equivalent to the expected term of the stock option grant. We calculated expected volatility using historical daily price changes of our common stock for the period immediately preceding the grant date and equivalent in duration to the expected term of the stock option grant. The expected term was the average number of years we estimated these options will be outstanding. We considered groups of associates having similar historical exercise behavior separately for valuation purposes.

The total intrinsic value of stock options exercised was as follows (in thousands):



2012	$	1,537
2011	2,128
2010	9,089

Restricted Stock

Restricted stock awards entitle the holder to shares of common stock when the award vests. The value of these shares may fluctuate according to market conditions and other factors. Restricted stock awards currently outstanding vest over periods ranging from 12 to 84 months from the grant date of the award. The restricted shares do not confer any voting or dividend rights to recipients until such shares fully vest and do not have any post-vesting sales restrictions.

The following table summarizes restricted stock activity for the year ended December 31, 2012:



	Number of Restricted Shares (in thousands)		Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period	646		$	20.29
Shares granted	268		$	21.53
Shares vested	(99	)	$	20.34
Shares forfeited	—		$	—
Nonvested at end of period	815		$	20.69

We estimate the fair value of restricted stock awards based upon the market price of the underlying common stock on the date of grant, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Our estimate of future dividends is based on the most recent quarterly dividend rate at the time of grant, adjusted for any known future changes in the dividend rate. The following table summarizes the number of restricted shares granted and the weighted-average assumptions used to calculate the present value of estimated future dividends:



	Years Ended December 31,
	2012			2011			2010
Number of shares granted	268,000			205,500			181,750
Dividends per share (quarterly amounts)	$	0.05		$	0.05		$	0.05
Risk-free interest rate	0.7		%	1.0		%	2.1		%

The total fair value of previously granted restricted stock awards vested during the year ended ended December 31, 2012 was $2.2 million. No shares of restricted stock vested during the years ended December 31, 2011 or 2010. We withheld shares based on the closing stock price on the vesting date to settle the employees' minimum statutory obligation for the applicable income and other employment taxes. Total cash remitted for the employees' tax obligations to the relevant taxing authorities was $0.7 million for the year ended December 31, 2012 and is reflected as a financing activity within the Consolidated Statements of Cash Flows; the 30,728 shares reacquired to satisfy the tax withholding obligations were recorded as treasury stock.

Employee Stock Purchase Plan

Employee associates that meet certain eligibility requirements may participate in our Employee Stock Purchase Plan (the “Purchase Plan”). Eligible participants designate the amount of regular payroll deductions and/or a single annual payment (each subject to a yearly maximum amount) that is used to purchase shares of our common stock on the over-the-counter market. The maximum annual contribution amount is currently $20,000. These purchases are subject to the terms of the Purchase Plan. We contribute an amount equal to 15% of each participant’s contributions under the Purchase Plan. Interest accrues on Purchase Plan contributions at a rate of 5.25% until the purchase is made. We pay the broker’s commissions and administrative charges related to purchases of common stock under the Purchase Plan. Our contributions for the Purchase Plan were as follows (in thousands):



2012	$	204
2011	217
2010	180

401(k) Retirement Savings Plan

We have an Employees’ 401(k) Retirement Savings Plan (the “401(k) Plan”). Associates are eligible to participate in the 401(k) Plan if they have been continuously employed with us or one of our subsidiaries for six months or more. We match a portion of each associate’s 401(k) Plan elective deferrals. Beginning April 1, 2009, we decreased our matching contribution by half. Effective January 1, 2011, we restored our matching contribution percentage to its previous level, one-half of the first three percent of pay contributed by the participant. Salaries, wages and benefits expense in the accompanying Consolidated Statements of Income includes our 401(k) Plan contributions and administrative expenses, which were as follows (in thousands):



2012	$	1,612
2011	1,471
2010	692

Nonqualified Deferred Compensation Plan

The Executive Nonqualified Excess Plan (the “Excess Plan”) is our nonqualified deferred compensation plan for the benefit of eligible key managerial associates whose 401(k) Plan contributions are limited because of IRS regulations affecting highly compensated associates. Under the terms of the Excess Plan, participants may elect to defer compensation on a pre-tax basis within annual dollar limits we establish. Beginning in 2010, participants were permitted to defer amounts from performance-based compensation. At December 31, 2012, there were 59 participants in the Excess Plan. Although our current intention is not to do so, we may also make matching credits and/or profit sharing credits to participants’ accounts as we so determine each year. Each participant is fully vested in all deferred compensation and earnings; however, these amounts are subject to general creditor claims until distributed to the participant. Beginning January 1, 2010, the timing of distributions for participants who separate from service (as described in the plan) was increased from 6 months to 12 months after the separation date. Under current federal tax law, we are not allowed a current income tax deduction for the compensation deferred by participants, but we are allowed a tax deduction when a distribution payment is made to a participant from the Excess Plan. The accumulated benefit obligation is included in other long-term liabilities in the Consolidated Balance Sheets. We purchased life insurance policies to fund the future liability. The aggregate market value of the life insurance policies is included in other non-current assets in the Consolidated Balance Sheets. The accumulated benefit obligation and aggregate market value of the life insurance policies were as follows (in thousands):



	December 31,
	2012		2011
Accumulated benefit obligation	$	4,311	$	3,448
Aggregate market value	3,971		3,147