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 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 March 31 (in thousands):

	Three Months Ended				Twelve Months Ended
	2013		2012		2013		2012
Compensation expense	$	1,291	$	822	$	2,332	$	1,846
Tax benefit recognized	476		298		827		642

Activity for our various stock plans for the three months ended March 31, 2013, 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 March 31,
	2013	2012
Risk-free interest rate	0.12% to 0.32%	0.16% to 0.45%
Expected volatility of Empire stock	20.5%	21.5%
Expected volatility of peer group stock	12.1% to 30.8%	13.5% to 51.9%
Expected dividend yield on Empire stock	4.5%	4.9%
Expected forfeiture rates	3%	3%
Plan cycle	3 years	3 years
Fair value percentage	10.0% to 99.0%	41.0% to 104.0%
Weighted average fair value per share	$17.06	$13.63

Non-vested performance-based restricted stock awards (based on target number) as of March 31, 2013 and 2012 and changes during the three months ended March 31, 2013 and 2012 were as follows:

	2013				2012
	Number of shares		Weighted Average Grant Date Price		Number of shares		Weighted Average Grant Date Price

Outstanding at January 1,	33,900		$	20.25	37,400		$	19.28
Granted	26,300		$	21.36	10,000		$	20.97
Awarded	(4,460	)	$	18.36	(7,823	)	$	18.12
Not Awarded	(8,540	)	$	18.36	(5,677	)	$	18.12

Nonvested at March 31,	47,200		$	21.39	33,900		$	20.25

At March 31, 2013, there was $0.6 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.

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.

The fair value measurements for each grant year are noted in the following table:

	Fair Value of Grants Outstanding at March 31
	2013	2012
Total unrecognized compensation cost (in millions)	$0.3	Less than $0.1
Recognition period	1-3 years	1.75 years
Fair value	$19.63	$17.63

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 2012 and 2013 is presented in the table below:

	March 31, 2013			March 31, 2012
		Weighted				Weighted
	Number of	Average Fair		Number of		Average Fair
	shares	Market Value		shares		Market Value
Outstanding at January 1,	3,300	$	20.38	3,433		$	21.84
Granted	21,600	21.36		—		—
Vested	—	—		—		—
Distributed				(133	)	20.13
Forfeited	—	—		—		—
Vested but not distributed	—	—		—		—

Outstanding at end of period	24,900	$	22.40	3,300		$	20.38

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.

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 March 31, 2013 and 2012, under a Black-Scholes methodology. The assumptions used in the valuations are shown below:

	Fair Value of Grants Outstanding at March 31,
	2013	2012
Risk-free interest rate	0.11% to 0.28%	0.17% to 0.83%
Expected dividend yield	4.5%	4.9%
Expected volatility	24.0%	25.0%
Expected life in months	78	78
Market value	$22.40	$20.35
Weighted average fair value per option	$1.64	$1.56

A summary of option activity under the plan during the quarters ended March 31, 2013 and March 31, 2012 is presented below:

	2013			2012
		Weighted			Weighted
		Average			Average
	Options	Exercise Price		Options	Exercise Price
Outstanding at January 1,	163,300	$	23.15	190,300	$	21.56
Granted	—	—		—	—
Exercised	34,800	$	18.36	27,000	$	18.12
Outstanding at March 31,	128,500	$	23.15	163,300	$	22.13
Exercisable at March 31,	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 March 31, 2013 and 2012:

	2013	2012
Aggregate intrinsic value (in millions)	Less than $0.1	Less than $0.1
Weighted-average remaining contractual life of outstanding options	2.8 years	3.9 years
Range of exercise prices	$21.79 to $23.81	$18.36 to $23.81
Total unrecognized compensation expense (in millions) related to non-vested options and related dividend equivalents granted under the plan	$0.0	Less than $0.1
Recognition period		Less than 1 year