Share-based Compensation Plans

12 Months Ended

Dec. 29, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

(10) Share-based Compensation Plans

The Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model.  The value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period.  Compensation expense for the share-based payment awards was based on the estimated grant date fair value.  Share-based compensation expense recognized in the Consolidated Statements of Income (Loss) for years ended December 29, 2012, December 31, 2011, and January 1, 2011 was based on awards ultimately expected to vest, and therefore has been reduced for estimated forfeitures.

Share-based compensation recognized for the year ended December 29, 2012 was a net credit of $2.4 million, as compared to expense of $5.4 million for fiscal 2011 and $7.9 million for fiscal 2010.  During fiscal 2012, the Company reversed $3.7 million of previously recorded expense related to unvested units outstanding under the Company’s Long-Term Incentive Plan which it no longer expects to vest above the zero percent payout threshold, and recorded charges of $1.3 million related to other share-based awards. Share-based compensation amounts are included in the selling, general & administrative expense line of our Consolidated Statements of Income (Loss).

We have four equity compensation plans under which incentive performance units, stock appreciation rights, and other forms of share-based compensation have been or may be granted, primarily to key employees and non-employee members of the Board of Directors.  These plans include the 2009 Incentive Award Plan (as Amended and Restated as of March 2, 2010) (“2009 Plan”), the 2000 Stock Incentive Plan (as amended and restated on July 14, 2008) (“2000 Plan”), the Director Deferred Compensation Plan, and the 1997 Non-Employee Director Stock Compensation Plan.  No additional awards can be granted under the 2000 stock incentive program effective May 20, 2009, the date our Shareholder’s approved the 2009 plan.

The Board adopted the Director Deferred Compensation Plan for amounts deferred on or after January 1, 2005.  The plan permits non-employee directors to annually defer all or a portion of his or her cash compensation for service as a director, and have the amount deferred into either a cash account or a share unit account.  Each share unit is payable in one share of Nash Finch common stock following termination of the participant’s service as a director.

                Under the 2000 Plan, employees, non-employee directors, consultants and independent contractors were awarded incentive or non-qualified stock options, shares of restricted stock, stock appreciation rights or performance units.

                Awards to non-employee directors under the 2000 Plan began in 2004 and ended in May 2008 and have taken the form of restricted stock units (“RSUs”) that are granted annually to each non-employee director as part of his or her annual compensation for service as a director.

                The 2009 Plan permits the grant of stock options, restricted stock, restricted stock units, deferred stock, stock payments, stock appreciation rights, performance awards and other stock or cash awards to employees and/or other individuals who perform services for the Company and its Subsidiaries.  RSUs granted annually to each of our non-employee directors as part of their annual compensation for service as a director after May 2008 have been granted under the 2009 Plan.

During fiscal years 2012, 2011, and 2010, awards have taken the form of performance units (including share units pursuant to our Long-Term Incentive Plan (“LTIP”)) and RSUs.

Performance units pursuant to our LTIP were granted during fiscal years 2010, 2011, and 2012 under the 2009 Plan.  These units vest at the end of a three-year performance period.

During 2010, a total of 123,128 units were granted pursuant to our LTIP.  Under this plan, depending on a comparison of the Company’s cumulative three-year actual Consolidated EBITDA results to the cumulative three-year strategic plan Consolidated EBITDA targets and the Company’s ranking on a blend of absolute return on net assets and compound annual growth rate for return on net assets among the companies in the peer group, a participant could receive a number of shares ranging from zero to 200% of the number of performance units granted.   Compensation expense equal to the grant date fair value (for shares expected to vest)  is recorded through equity over the three-year performance period as the units can only be settled in stock.

During 2011, a total of 113,044 units were granted pursuant to our LTIP.  Depending on a comparison of the Company’s three-year compound annual growth rate of Consolidated EBITDA results to the Company’s peer group and the Company’s ranking on a blend of absolute return on net assets and compound annual growth rate for return on net assets among the companies in the peer group, a participant could receive a number of shares ranging from zero to 200% of the number of performance units granted.  Compensation expense equal to the grant date fair value (for shares expected to vest) is recorded through equity over the three-year performance period as the units can only be settled in stock.

                During 2012, a total of 231,559 units were granted pursuant to our LTIP.  Depending on a comparison of the Company’s three-year compound annual growth rate of Consolidated EBITDA results to the Company’s peer group and the Company’s ranking on a blend of 1) absolute return on net assets and 2) compound annual growth rate for return on net assets as compared to the companies in the peer group, a participant could receive a number of shares ranging from zero to 200% of the number of performance units granted.  Compensation expense equal to the grant date fair value (for shares expected to vest) is recorded through equity over the three-year performance period as the units can only be settled in stock.

On December 31, 2011, 90,670 units outstanding from the LTIP grants made during fiscal 2009 vested and were cancelled without conversion to shares of common stock because the Company did not achieve the performance metrics of the LTIP for the related performance period.

On December 29, 2012, 101,739 units outstanding from the LTIP grants made during fiscal 2010 vested and were cancelled without conversion to shares of common stock because the Company did not achieve the minimum performance metrics of the LTIP for the related performance period required for a payout of common shares.

During fiscal years 2006 through 2010, RSUs were awarded to certain executives of the Company.  Awards vest in increments over the term of the grant or cliff vest on the fifth anniversary of the grant date, as designated in the award documents.  Compensation cost, net of projected forfeitures, is recognized on a straight-line basis over the period between the grant and vesting dates, with compensation cost for grants with a graded vesting schedule recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.  In addition to the time vesting criteria, awards granted in 2008 and 2009 to two of the Company’s executives include performance vesting conditions.  The Company records expense for such awards over the service vesting period if the Company anticipates the performance vesting conditions will be satisfied.

On February 27, 2007, Mr. Covington was granted a total of 152,500 RSUs under the Company's 2000 Stock Incentive Plan.  The new RSU grant replaced a previous grant of 100,000 performance units awarded to Mr. Covington when he joined the Company in 2006.  The previous 100,000 unit grant has been cancelled.  The new grant delivered additional equity in lieu of the cash "tax gross up" payment included in the previous award; therefore no cash outlay will be required by the Company.  Vesting of the new RSU grant to Mr. Covington occurred over a four year period based on Mr. Covington's continued employment with Nash Finch.  However, Mr. Covington will not receive the stock until six months after the termination of his employment, whenever that may occur.  At the date of the modification, the Company deemed it improbable that the performance vesting conditions of the original awards would be achieved and therefore was not accruing compensation expense related to the original grant.  Accordingly, the replacement of the previous grant had no immediate financial impact but resulted in incremental compensation cost in periods subsequent to the modification due to the expectation that the replacement awards will vest.  The Company recorded total compensation of $4.7 million for the replacement awards over the 4-year vesting period compared with $2.1 million that would have been recorded for the original awards.

On December 17, 2008, in connection with the Company’s announcement of its planned acquisition of certain military distribution assets of GSC Enterprises, Inc. (GSC), eight executives of the Company were granted a total of 267,345 SARs with a per share price of $38.44.  The SARs were eligible to become vested during the 36 month period commencing on closing of the acquisition of the GSC assets which was January 31, 2009.  The SARs were to vest on the first business day during the vesting period that followed the date on which the closing prices on NASDAQ for a share of Nash Finch common stock for the previous 90 market days was at least $55.00 or a change in control occurred following the six month anniversary of the grant date, or termination of the executive’s employment due to death or disability.  Upon vesting and exercise, the Company would award the executive a number of shares of restricted stock equal to (a) the product of (i) the number of shares with respect to which the SAR is exercised and (ii) the excess, if any, of (x) the fair market value per share of common stock on the date of exercise over (y) the base price per share relating to such SAR, divided by (b) the fair market value of a share of common stock on the date such SAR is exercised.  The restricted stock would vest on the first anniversary of the date of exercise so long as the executive remained continuously employed with the Company.

                The fair value of the SARs was estimated on the date of grant using a modified binomial lattice model which factors in the market and service vesting conditions.  The modified binomial lattice model used by the Company incorporates a risk-free interest rate based on the 5-year treasury rate on the date of the grant.  The model used an expected volatility calculated as the daily price variance over 60, 200 and 400 days prior to grant date using the Fair Market Value (average of daily high and low market price of Nash Finch common stock) on each day.  Dividend yield utilized in the model was calculated by the Company as the average of the daily yield (as a percent of the Fair Market Value) over 60, 200 and 400 days prior to the grant date.  The modified binomial lattice model calculated a fair value of $8.44 per SAR which was to be recorded over a derived service period of 3.55 years.  However, as a result of the expiration of the vesting period of the grant on January 31, 2012, all remaining compensation expense to be recorded for this grant was expensed in the first quarter of fiscal 2012.

The following assumptions were used to determine the fair value of SARs during fiscal 2008:

Assumptions - SARs Valuation		2008
Weighted-average risk-free interest rate		1.37%
Expected dividend yield		1.86%
Expected volatility		35%
Exercise price	$	38.44
Market vesting price (90 consecutive market days at or above this price)	$	55.00
Contractual term		5.1 years

As of December 31, 2011, 267,345 SARs with a weighted average base/exercise price per SAR of $38.44 were outstanding and unvested.  No SARs were granted or exercised during fiscal 2012; however, approximately 23,800 shares were forfeited by a recipient due to termination of employment.  The remaining 243,545 SARs did not vest because the closing price per share of Nash Finch common stock was below the minimum of $55.00 required for 90 consecutive market days before January 31, 2012. During fiscal 2012, the Company recognized directly through equity the write-off of the $0.8 million deferred tax asset less current year charges of $0.3 million related to the SARs that did not vest.

The following tables summarize activity in our share-based compensation plans during the fiscal year ended December 29, 2012:

(in thousands, except per share amounts)	Service Based Grants (Board Units and RSUs)	Weighted Average  Remaining Restriction/ Vesting Period	Performance Based Grants (LTIP & Performance  RSUs)	Weighted Average Remaining Restriction/ Vesting Period
Outstanding at December 31, 2011	597.9	0.2	568.2	0.7
Granted	16.1		232.3
Forfeited/cancelled	-		(142.0)
Exercised/units settled	(147.8)		(26.7)
Shares deferred upon vesting/settlement & dividend equivalents on deferred shares*	46.0		9.9
Outstanding at December 29, 2012	512.2	0.1	641.7	0.9
Unvested shares expected to vest as of December 29, 2012**	36.8	1.9	294.6	1.6
Exercisable/unrestricted at December 31, 2011	468.4		319.9
Exercisable/unrestricted at December 29, 2012	475.4		303.1

* “Shares deferred upon vesting/settlement” above are net of the performance adjustment factor applied to the “units settled” for the participants that deferred shares as provided in the plan.

**The “shares expected to vest” in the above tables represent the following:  For all grants, gross unvested units outstanding less management’s estimate of forfeitures due to termination of employment prior to vesting.  For RSUs under “Performance Based Grants” that include a performance vesting condition based on a Nash Finch specific internal target, the number of shares expected to be paid based on management’s current expectation of achieving the target. For LTIP awards, the base amount of shares that could be earned without consideration of increases or decreases that may result based on plan performance metrics versus its peer group.

The weighted-average grant-date fair value of equity based restricted stock/performance units granted was $27.97, $38.84, and $35.83 during fiscal years 2012, 2011, and 2010, respectively.  The weighted-average grant-date fair value of equity based SARs granted during 2008 was $8.44 per SAR.

The following tables present the non-vested equity awards, including options, restricted stock and performance units including LTIP.

(in thousands, except per share amounts)	Service Based Grants (Board Units and RSUs)		Weighted Average Fair Value at Date of Grant	Performance Based Grants (LTIP & Performance RSUs)		Weighted Average Fair Value at Date of Grant
Non-vested at December 31, 2011	129.4	$	36.27	248.3	$	37.72
Granted	16.1			232.3
Vested/restrictions lapsed	(108.7)			-
Forfeited/cancelled	-			(142.0)
Non-vested at December 29, 2012	36.8	$	35.93	338.6	$	32.10

No stock options were outstanding for any of fiscal 2012, 2011, or 2010.  The total grant date fair value for all other share-based awards that vested during the year was $3.7 million, $9.3 million, and $5.5 million for fiscal 2012, 2011, and 2010, respectively.  As of December 29, 2012, the total unrecognized compensation costs related to non-vested share-based compensation arrangements under our stock-based compensation plans was $0.4 million for service based awards and $0.1 million for performance based awards.  The costs are expected to be recognized over a weighted-average period of 1.9 years for the service based awards and 0.8 years for the performance based awards.