STOCK-BASED COMPENSATION PLAN

6 Months Ended

Jun. 30, 2012

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

STOCK-BASED COMPENSATION PLAN

STOCK-BASED COMPENSATION PLAN:

Under the Amended and Restated 1997 Stock-Based Compensation Plan, no more than 2,000,000 shares in the aggregate may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. The plan will terminate on January 26, 2015, unless terminated earlier by the Board of Directors. No options were granted or outstanding during the six months ended June 30, 2012 and 2011.  No stock appreciation rights have been issued under the plan. During the six months ended June 30, 2012 and 2011, SJI granted 40,955 and 40,711 restricted shares to Officers and other key employees, respectively.   These restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets as compared to a peer group average, which can cause the actual amount of shares that ultimately vest to range from between 0% to 150% of the original share units granted. Grants containing market-based performance targets have been issued in each of the last three years and use SJI's total shareholder return (TSR) relative to a peer group to measure performance. Beginning with 2012, grants containing earnings-based targets have also been issued. These new grants are based on SJI's earnings per share growth rate relative to a peer group to measure performance. During the six months ended June 30, 2012 and 2011, SJI granted 9,904 and 12,220 restricted shares, respectively, to Directors.  Shares issued to Directors vest over a three-year service period and contain no performance conditions. As a result, 100% of the shares granted generally vest.

See Note 2 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K as of December 31, 2011 for the related accounting policy.

The following table summarizes the nonvested restricted stock awards outstanding at June 30, 2012 and the assumptions used to estimate the fair value of the awards:

	Grant Date	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Officers & Key Employees -	Jan. 2010 - TSR	52,404	$	39.020	29.0	%	1.65	%
	Jan. 2011 - TSR	40,227	$	50.940	27.5	%	1.01	%
	Jan. 2012 - TSR	20,389	$	51.230	22.5	%	0.43	%
	Jan. 2012 - EPS	20,389	$	56.930	N/A		N/A
Directors -	Jan. 2010	11,690	$	37.825	—		—
	Jan. 2011	7,332	$	52.940	—		—
	Jan. 2012	8,666	$	56.580	—		—

Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders, during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the three-year service period, the fair value of these awards are equal to the market value of the shares on the date of grant.

The following table summarizes the total stock-based compensation cost for the three and six months ended June 30, 2012 and 2011 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Officers & Key Employees	$	524		$	466		$	1,048		$	932
Directors	228			327			354			457
Total Cost	752			793			1,402			1,389
Capitalized	(58		)	(55		)	(115		)	(110		)
Net Expense	$	694		$	738		$	1,287		$	1,279

As of June 30, 2012, there was $3.9 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the restricted stock plans. That cost is expected to be recognized over a weighted average period of 2.0 years.

The following table summarizes information regarding restricted stock award activity during the six months ended June 30, 2012, excluding accrued dividend equivalents:

	Officers &Other Key Employees		Directors		Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2012	92,907		21,914		$	44.112
Granted	40,955		9,904		$	54.567
Canceled/Forfeited	(453	)	—		$	49.430
Vested	—		(4,130	)	$	47.919
Nonvested Shares Outstanding, June 30, 2012	133,409		27,688		$	47.300

During the six months ended June 30, 2012 and 2011, SJI awarded 33,322 shares to its Officers and other key employees, which had vested at December 31, 2011, at a market value of $1.9 million, and 69,271 shares, which had vested at December 31, 2010, at a market value of $3.7 million, respectively. Also, during the six months ended June 30, 2012 and 2011, SJI awarded 9,904 and 12,220 shares to its Directors at a market value of $0.6 million for each period. The Company has a policy of issuing new shares to satisfy its obligations under these plans; therefore, there are no cash payment requirements resulting from the normal operation of this plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash.  At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods.  These deferred shares are included in Treasury Stock on the condensed consolidated balance sheets.