Stock-Based Awards and Programs

9 Months Ended

Sep. 30, 2012

Stock-Based Awards and Programs

Stock-Based Awards and Programs

Note 9— Stock-Based Awards and Programs

Our performance-based restricted stock awards, stock options and their related dividend equivalents and time-vested restricted stock awards are valued as liability awards, in accordance with fair value guidelines. We allow employees to elect to have taxes in excess of the minimum statutory requirements withheld from their awards and, therefore, the awards are classified as liability instruments under the Accounting Standards Codification (ASC) guidance on share based payment. Awards treated as liability instruments must be revalued each period until settled, and cost is accrued over the requisite service period and adjusted to fair value at each reporting period until settlement or expiration of the award.

We recognized the following amounts in compensation expense and tax benefits for all of our stock-based awards and programs for the applicable periods ended September 30 (in thousands):

	Three Months Ended				Nine Months Ended				Twelve Months Ended
	2012		2011		2012		2011		2012		2011
Compensation Expense	$	431	$	358	$	1,629	$	1,317	$	2,077	$	2,414
Tax Benefit Recognized	148		121		575		460		730		866

Activity for our various stock plans for the nine months ended September 30, 2012, is summarized below:

Performance-Based Restricted Stock Awards

Performance-based restricted stock awards are granted to qualified individuals consisting of the right to receive a number of shares of common stock at the end of the restricted period assuming performance criteria are met. The fair value of the outstanding restricted stock awards was estimated using a Monte Carlo option valuation model. The assumptions used in the model for each grant year are noted in the following table:

	Fair Value of Grants Outstanding at September 30,
	2012	2011
Risk-free interest rate	0.13% to 0.25%	0.02% to 0.29%
Expected volatility of Empire stock	20.5%	27.8%
Expected volatility of peer group stock	12.4% to 45.6%	20.4% to 78.0%
Expected dividend yield on Empire stock	4.6%	4.6%
Expected forfeiture rates	3%	3%
Plan cycle	3 years	3 years
Fair value percentage	33.0% to 106.0%	62.0% to 87.0%
Weighted average fair value per share	$13.25	$14.85

Non-vested performance-based restricted stock awards (based on target number) as of September 30, 2012 and 2011 and changes during the nine months ended September 30, 2012 and 2011 were as follows:

	2012				2011
	Number of shares		Weighted Average Grant Date Price		Number of shares		Weighted Average Grant Date Price
Nonvested at January 1,	37,400		$	19.28	47,500		$	19.86
Granted	10,000		$	20.97	10,900		$	21.84
Awarded in excess of target	—		—		18,621		$	21.92
Awarded	(7,823	)	$	18.12	(39,621	)	$	21.92
Not Awarded	(5,677	)	$	18.12	—		—
Nonvested at September 30,	33,900		$	20.25	37,400		$	19.28

At September 30, 2012, there was $0.2 million of total unrecognized compensation cost related to estimated outstanding awards. This cost will be recognized over the outstanding years remaining in the vesting period.

Stock Options

Stock option grants vest upon satisfaction of service conditions. The cost of the awards is generally recognized over the requisite (explicit) service period. The fair value of the outstanding options was estimated as of September 30, 2012 and 2011, under a Black-Scholes methodology. The assumptions used in the valuations are shown below:

	Fair Value of Grants Outstanding at September 30,
	2012	2011
Risk-free interest rate	0.15% to 0.41%	0.13% to 0.94%
Expected dividend yield	4.6%	4.1% to 4.9%
Expected volatility	25.0%	24.0%
Expected life in months	78	78
Market value	$21.55	$19.38
Weighted average fair value per option	$1.94	$1.42

	2012				2011
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at January 1,	190,300		$	21.56	267,400		$	21.69
Granted	—		—		—		—
Exercised	(27,000	)	$	18.12	(77,100	)	$	22.02
Outstanding at September 30,	163,300		$	22.13	190,300		$	21.56
Exercisable at September 30,	128,500		$	23.15	128,500		$	23.15

The intrinsic value of the unexercised options is the difference between Empire’s closing stock price on the last day of the quarter and the exercise price multiplied by the number of in the money options had all option holders exercised their option on the last day of the quarter. The intrinsic value is zero if such closing price is less than the exercise price. The table below shows the aggregate intrinsic values at September 30, 2012 and 2011:

	2012	2011
Aggregate intrinsic value (in millions)	$0.1	$0.1
Weighted-average remaining contractual life of outstanding options	3.4 years	5.3 years
Range of exercise prices	$18.36 to $23.81	$18.12 to $23.81
Total unrecognized compensation expense (in millions) related to non-vested options and related dividend equivalents granted under the plan	Less than $0.1	Less than $0.1
Recognition period	0.3 years	0.3 to 1.3 years

Time-Vested Restricted Stock Awards

Beginning in 2011, we began granting, to qualified individuals, time-vested restricted stock awards that vest after a three-year period, in lieu of stock options. No dividend rights accumulate during the vesting period. Time-vested restricted stock is valued at an amount equal to the fair market value of our common stock on the date of grant. If employment terminates during the vesting period because of death, retirement, or disability, the participant is entitled to a pro-rata portion of the time-vested restricted stock awards such participant would otherwise have earned, which is distributed six months following the date of termination, with the remainder of the award forfeited. If employment is terminated during the vesting period for reasons other than those listed above, the time-vested restricted stock awards will be forfeited on the date of the termination, unless the Board of Directors Compensation Committee determines, in its sole discretion, that the participant is entitled to a pro-rata portion of the award.

No shares of time-vested restricted stock were granted in 2012 as a result of the limitation on incentive compensation in place in 2011. A summary of time vested restricted stock activity under the plan for 2011 and 2012 is presented in the table below:

	September 30, 2012				December 31, 2011
			Weighted				Weighted
			Average Fair				Average Fair
	Number of shares		Market Value		Number of shares		Market Value
Outstanding at January 1,	3,433		$	21.84	—		$	—
Granted	—		—		10,200		$	21.84
Vested	—		—		794		$	19.32
Distributed	(133	)	$	20.13	(661	)	$	21.02
Forfeited	—		—		(6,106	)	$	—
Vested but not distributed	—		—		133		$	20.13
Outstanding at end of period	3,300		$	20.35	3,433		$	21.84

All time-vested restricted stock awards are classified as liability instruments, which must be revalued each period until settled. The cost of the awards is generally recognized over the requisite (explicit) service period.

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (ESPP) permits the grant to eligible employees of options to purchase common stock at 90% of the lower of market value at date of grant or at date of exercise. The lookback feature of this plan is valued at 90% of the Black-Scholes methodology plus 10% of the maximum subscription price. As of September 30, 2012, there were 195,873 shares available for issuance in this plan.

	2012		2011
Subscriptions outstanding at September 30	71,438		72,182
Maximum subscription price(1)	$	17.95	$	17.27
Shares of stock issued	65,919		69,229
Stock issuance price	$	17.27	$	16.06

(1)Stock will be issued on the closing date of the purchase period, which runs from June 1, 2012 to May 31, 2013.

Assumptions for valuation of these shares are shown in the table below.

	2012			2011
Weighted average fair value of grants at September 30	$	3.19		$	3.17
Risk-free interest rate	0.17		%	0.18		%
Expected dividend yield	5.00		%	2.60		%
Expected volatility	24.00		%	22.00		%
Expected life in months	12			12
Grant Date	6/1/12			6/1/11