Stock-Based Compensation

The Company initially adopted the Werner Enterprises, Inc. Stock Option Plan in 1987, such plan being approved by the Company's shareholders on June 9, 1987, at the Company's annual meeting. The plan was later renamed the Werner Enterprises, Inc. Equity Plan (the Equity Plan) and was last amended and restated on May 14, 2013. The Equity Plan provides for grants of nonqualified stock options, restricted stock, restricted stock units 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 restricted stock units or 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 in any one calendar year under the Equity Plan is 500,000. As of September 30, 2013, there were 7,712,084 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 employee compensation expense is included in salaries, wages and benefits within the Consolidated Statements of Income. As of September 30, 2013, the total unrecognized compensation cost related to non-vested stock-based compensation awards was approximately $6.8 million and is expected to be recognized over a weighted average period of 2.5 years. The following table summarizes the stock-based compensation expense and related income tax benefit recognized in the Consolidated Statements of Income (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Stock options:
Pre-tax compensation expense	$	67	$	103	$	198	$	289
Tax benefit	24		42		76		117
Stock option expense, net of tax	$	43	$	61	$	122	$	172
Restricted stock:
Pre-tax compensation expense	$	1,173	$	1,038	$	3,631	$	3,085
Tax benefit	421		420		1,398		1,249
Restricted stock expense, net of tax	$	752	$	618	$	2,233	$	1,836

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, one day from the date of grant.

The following table summarizes stock option activity for the nine months ended September 30, 2013:



	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	800		$	17.92
Options granted	—		$	—
Options exercised	(54	)	$	18.03
Options forfeited	(5	)	$	20.39
Options expired	—		$	—
Outstanding at end of period	741		$	17.89	3.33	$	4,029
Exercisable at end of period	558		$	17.58	2.54	$	3,207

We did not grant any stock options during the three-month and nine-month periods ended September 30, 2013 and September 30, 2012. The fair value of stock option grants is estimated using a Black-Scholes valuation model. No stock option exercises occurred during the three-month period ended September 30, 2012. The total intrinsic value of stock options exercised was $0.1 million for the three-month period ended September 30, 2013, and $0.3 million and $0.2 million for the nine-month periods ended September 30, 2013, and September 30, 2012, respectively.

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 nine months ended September 30, 2013:



	Number of Restricted Shares (in thousands)		Weighted Average Grant Date Fair Value ($)
Nonvested at beginning of period	815		$	20.69
Shares granted	—		$	—
Shares vested	(64	)	$	22.98
Shares forfeited	(1	)	$	20.64
Nonvested at end of period	750		$	20.49

We did not grant any shares of restricted stock during the three-month and nine-month periods ended September 30, 2013, and granted 40,000 and 45,000 shares of restricted stock during the three-month and nine-month periods ended September 30, 2012, respectively. 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 present value of estimated future dividends for the 2012 grants was calculated using the following weighted-average assumptions:



Dividends per share (quarterly amounts)	$	0.05
Risk-free interest rate	0.8		%

The total fair values of previously granted restricted stock awards vested during the three-month and nine-month periods ended September 30, 2013, were $1.0 million and $1.5 million, respectively. The total fair value of previously granted restricted stock awards vested during the three-month and nine-month periods ended September 30, 2012, was $0.5 million. 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 $0.4 million and $0.6 million for the three-month and nine-month periods ended September 30, 2013, respectively, and $0.1 million and $0.1 million for the three-month and nine-month periods ended September 30, 2012, respectively, and is reflected as a financing activity within the Consolidated Statements of Cash Flows; the 23,324 shares withheld to satisfy the tax withholding obligations for the nine-month period ended September 30, 2013, were recorded as treasury stock.