Our shareholders approved the adoption of and subsequent amendments to the Lancaster Colony Corporation 2005 Stock Plan (the “2005 Plan”). The 2005 Plan reserved 2,000,000 common shares for issuance to our employees and directors, and all awards granted under the 2005 Plan will be exercisable at prices not less than fair market value as of the date of the grant. The vesting period for awards granted under the 2005 Plan varies as to the type of award granted, but generally these awards have a maximum term of five years.

Stock-Settled Stock Appreciation Rights

We use periodic grants of stock-settled stock appreciation rights (“SSSARs”) as a vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value. We calculate the fair value of SSSARs grants using the Black-Scholes option-pricing model. Our policy is to issue shares upon SSSARs exercise from new shares that had been previously authorized.

In 2012, 2011 and 2010, we granted SSSARs to various employees under the terms of the 2005 Plan. The following table summarizes information relating to these grants:


	2012	2011	2010
SSSARs granted................................................................................	187	94	168
Weighted average fair value per right...........................................	$ 9.07	$ 10.12	$ 11.81
Weighted average assumptions used in fair value calculations:
Risk-free interest rate.................................................................	0.41%	1.27%	1.67%
Dividend yield.............................................................................	2.11%	2.28%	2.04%
Volatility factor of the expected market price of our common stock............................................................................	24.30%	28.78%	29.97%
Expected life in years.................................................................	2.76	3.11	3.50
Estimated forfeiture rate.................................................................	4%	4%	4%

For each grant, the volatility factor was estimated based on actual historical volatility of our stock for a time period equal to the term of the SSSARs. For the 2012 and 2011 SSSARs grants, the expected average life was determined based on historical exercise experience for this type of grant. For the 2010 SSSARs grant, the expected average life was calculated using the simplified method as defined in the Securities and Exchange Commission’s Staff Accounting Bulletin 110, as we did not yet have sufficient historical exercise experience for this type of grant. The SSSARs from each grant vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date and one-third on the third anniversary of the grant date.

We recognize compensation expense over the requisite service period. Compensation cost was reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification and was allocated to each segment appropriately. We recorded tax benefits and gross windfall tax benefits related to SSSARs. These windfall tax benefits were included in the financing section of the Consolidated Statements of Cash Flows. The following table summarizes SSSARs compensation expense and tax benefits recorded for each of the years ending June 30:


	2012	2011	2010
Compensation expense..............................................................	$ 1,624	$ 1,120	$ 684
Tax benefits.................................................................................	$ 569	$ 392	$ 240
Intrinsic value of exercises........................................................	$ 559	$ 922	$ 926
Gross windfall tax benefits........................................................	$ 230	$ 334	$ 324

The total fair values of SSSARs vested for each of the years ended June 30 were as follows:


	2012	2011	2010
Fair value of vested rights..........................................................	$ 1,107	$ 1,095	$ 479

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the year ended June 30, 2012:


	Number of Rights	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at June 30, 2011................................................	324	$ 53.98
Exercised............................................................................	(64)	$ 49.34
Granted...............................................................................	187	$ 68.06
Forfeited.............................................................................	(1)	$ 60.84
Outstanding at June 30, 2012..............................................	446	$ 60.55	3.55	$ 4,752
Exercisable and vested at June 30, 2012..........................	144	$ 52.60	2.41	$ 2,671
Vested and expected to vest at June 30, 2012...................	435	$ 60.45	3.51	$ 4,679

The following table summarizes information about the SSSARs outstanding by grant year at June 30, 2012:

Outstanding

Exercisable

Weighted Average

Grant

Years

Range of

Exercise

Prices

Number

Outstanding

Remaining

Contractual

Life in Years

Exercise

Price

Number

Exercisable

Weighted Average

Exercise Price

187

$68.06

$57.78

$57.78

$58.79

127

$58.79

$39.86

$39.86

$38.31

$38.31

At June 30, 2012, there was approximately $2.0 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of approximately 2.06 years.

Restricted Stock

We use periodic grants of restricted stock as a vehicle for rewarding our nonemployee directors and certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

In 2012, 2011 and 2010, we granted shares of restricted stock to various employees under the terms of the 2005 Plan. The following table summarizes information relating to these grants:


	2012	2011	2010
Restricted stock granted.............................................................	25	7	25
Grant date fair value..................................................................	$ 1,705	$ 390	$ 1,470
Weighted average grant date fair value per award...............	$ 68.08	$ 57.78	$ 58.79
Estimated forfeiture rate............................................................	4%	4%	4%

The restricted stock under each grant vests on the third anniversary of the grant date. Under the terms of the grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status. An additional 5,650 and 21,500 shares of restricted stock that were granted to various key employees in previous years vested in 2012 and 2011, respectively.

In 2012, we also granted a total of 7,427 shares of restricted stock to our seven nonemployee directors under the terms of the 2005 Plan. This restricted stock had a grant date fair value of approximately $0.5 million based on a per share closing stock price of $65.97. This restricted stock vests over a one-year period, and all of these shares are expected to vest. Dividends earned on the stock during the vesting period will be paid to the directors at the time the stock vests. An additional 8,155, 8,435 and 14,000 shares of restricted stock that were granted to our nonemployee directors in previous years vested during 2012, 2011 and 2010, respectively, and the directors were paid the related dividends.

We recognize compensation expense over the requisite service period. Compensation cost was reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification and was allocated to each segment appropriately. We recorded tax benefits and gross windfall tax benefits related to restricted stock. These windfall tax benefits were included in the financing section of the Consolidated Statements of Cash Flows. The following table summarizes restricted stock compensation expense and tax benefits recorded for each of the years ending June 30:


	2012	2011	2010
Compensation expense..............................................................	$ 1,298	$ 1,177	$ 948
Tax benefits.................................................................................	$ 454	$ 412	$ 332
Gross windfall tax benefits........................................................	$ 71	$ 145	$ 43

The total fair values of restricted stock vested for each of the years ended June 30 were as follows:


	2012	2011	2010
Fair value of vested shares........................................................	$ 645	$1,258	$ 423

The following table summarizes the activity relating to restricted stock granted under the 2005 Plan for the year ended June 30, 2012:


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested restricted stock at beginning of period....................................	44	$ 54.86
Granted.....................................................................................................	32	$ 67.60
Vested........................................................................................................	(14)	$ 46.75
Forfeited...................................................................................................	-	$ -
Unvested restricted stock at end of period............................................	62	$ 63.25

At June 30, 2012, there was approximately $2.2 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of approximately 2.07 years.