11.

STOCK-BASED COMPENSATION PLANS

As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expenses associated with the Company’s stock-based compensation plans. The information discussed below relating to the Company’s stock-based compensation plans is also applicable for the Operating Partnership.

Incentive stock plans

Incentive stock awards are granted under the Company’s 2003 Incentive Stock Plan, as amended and restated in October 2008 (the “2003 Stock Plan”). Under the 2003 Stock Plan, an aggregate of 3,469 shares of common stock were reserved for issuance. Of this amount, stock grants count against the total shares available under the 2003 Stock Plan as 2.7 shares for every one share issued, while options (and stock appreciation rights (“SAR”) settled in shares) count against the total shares available as one share for every one share issued on the exercise of an option (or SAR). The exercise price of each option granted under the 2003 Stock Plan may not be less than the market price of the Company’s common stock on the date of the option grant and all options may have a maximum life of ten years. Participants receiving restricted stock grants are generally eligible to vote such shares and receive dividends on such shares. Substantially all stock option and restricted stock grants are subject to annual vesting provisions (generally three to five years) as determined by the compensation committee overseeing the 2003 Stock Plan.

Compensation costs for stock options have been estimated on the grant date using the Black-Scholes option-pricing method. The weighted average assumptions used in the Black-Scholes option-pricing model are as follows:


	Nine months ended September 30,
	2012	2011
Dividend yield	2.0%	2.2%

Expected volatility	43.3%	42.4%

Risk-free interest rate	1.1%	2.7%

Expected option term (years)	6.0 years	6.0 years

The Company’s assumptions were derived from the methodologies discussed herein. The expected dividend yield reflects the Company’s current historical yield, which was expected to approximate the future yield. Expected volatility was based on the historical volatility of the Company’s common stock. The risk-free interest rate for the expected life of the options was based on the implied yields on the U.S. Treasury yield curve. The weighted average expected option term was based on the Company’s historical data for prior period stock option exercise and forfeiture activity.

Restricted stock

Compensation cost for restricted stock is amortized ratably into compensation expense over the applicable vesting periods. Total compensation expense related to restricted stock was $530 and $460 for the three months and $1,610 and $1,436 for the nine months ended September 30, 2012 and 2011, respectively. At September 30, 2012, there was $2,769 of unrecognized compensation cost related to restricted stock. This cost is expected to be recognized over a weighted average period of 1.9 years.

A summary of the activity related to the Company’s restricted stock for the nine months ended September 30, 2012 and 2011 is as follows:


	Nine months ended September 30,
	2012						2011
	Shares			Weighted-Avg. Grant-Date Fair Value			Shares			Weighted-Avg. Grant-Date Fair Value
Unvested share, beginning of period		84			$	29		129			$	19
Granted (1)		50				44		41				37
Vested		(5	)			30		(8	)			24

Unvested shares, end of period		129				35		162				24

(1)	The total value of the restricted share grants for the nine months ended September 30, 2012 and 2011 was $2,184 and $1,532, respectively.

Stock options

Compensation cost for stock options is amortized ratably into compensation expense over the applicable vesting periods. The Company recorded compensation expense related to stock options of $90 and $99 for the three months and $291 and $284 for the nine months ended September 30, 2012 and 2011, respectively, under the fair value method. At September 30, 2012, there was $508 of unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted average period of 1.9 years.

A summary of stock option activity under all plans for the nine months ended September 30, 2012 and 2011, is presented below:


	Nine months ended September 30,
	2012							2011
	Shares				Exercise Price			Shares				Exercise Price
Options outstanding, beginning of period			1,501			$	31			2,068			$	31
Granted			29				44			25				37
Exercised			(776	)			30			(545	)			29
Expired			–				–			(10	)			39

Options outstanding, end of period (1)			754				34			1,538				31

Options exercisable, end of period (1)			686				34			1,384				33

Options vested and expected to vest, end of period (1)			751				34			1,530				31

Weighted average fair value of options granted during the period		$	15.18						$	13.18

(1)

At September 30, 2012, the aggregate intrinsic value of stock options outstanding, exercisable and vested/expected to vest was $10,824, $9,880 and $10,772, respectively. At that same date, the weighted average remaining contractual lives of stock options outstanding, exercisable and vested/expected to vest was 4.0 years, 3.6 years and 4.0 years, respectively.

Upon the exercise of stock options, the Company issues shares of common stock from treasury shares or, to the extent treasury shares are not available, from authorized common shares. The total intrinsic value of stock options exercised for the nine months ended September 30, 2012 and 2011 was $14,659 and $5,224, respectively.

At September 30, 2012, the Company segregated its outstanding options into two ranges, based on exercise prices, as follows:


Option Ranges	Options Outstanding							Options Exercisable
	Shares		Weighted Avg. Exercise Price			Weighted Avg . Life (Years)		Shares		Weighted Avg. Exercise Price
$12.22 - $32.53		380		$	24		3.7		358		$	24
$34.90 - $48.00		374			43		4.4		328			43

Total		754			34		4.0		686			34

Employee stock purchase plan

The Company maintains an Employee Stock Purchase Plan (the “ESPP”) approved by Company shareholders in 2005. The maximum number of shares issuable under the ESPP is 300. The purchase price of shares of common stock under the ESPP is equal to 85% of the lesser of the closing price per share of common stock on the first or last day of the trading period, as defined. The Company records the aggregate cost of the ESPP (generally the 15% discount on the share purchases) as a period expense. Total compensation expense relating to the ESPP was $48 and $39 for the three months and $193 and $153 for the nine months ended September 30, 2012 and 2011, respectively.