Note 10 Compensation Related Costs, Share Based Payments

3 Months Ended

Sep. 30, 2011

Compensation Related Costs, Share Based Payments

Note 10 Share-Based Compensation

Note 10.          Share-Based Compensation

            IHC and AMIC each have share-based compensation plans. The following is a summary of the activity pertaining to each of these plans. AMIC disclosures reflect the activity subsequent to the Acquisition Date.

A)        IHC Share-Based Compensation Plans

Total share-based compensation was $34,000 and $208,000 for the three months ended September 30, 2011 and 2010, respectively, and was $361,000 and $530,000 for the nine months ended September 30, 2011 and 2010, respectively.  Related tax benefits of $14,000 and $83,000 were recognized for the three months ended September 30, 2011 and 2010, respectively, and were $144,000 and $211,000 for the nine months ended September 30, 2011 and 2010, respectively.  

Under the terms of IHC’s stock-based compensation plans, option exercise prices are more than or equal to the quoted market price of the shares at the date of grant; option terms range from five to ten years; and vesting periods are three years for employee options.  The Company may also grant shares of restricted stock, share appreciation rights (“SARs”) and share-based performance awards. Restricted shares are valued at the quoted market price of the shares at the date of grant and have a three year vesting period. Exercise prices of SARs are more than or equal to the quoted market price of IHC shares at the date of the grant and have three year vesting periods. At September 30, 2011, there were 700,380 shares available for future stock-based compensation grants under IHC’s stock incentive plans.

Stock Options

IHC’s stock option activity for the nine months ended September 30, 2011 is as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2010	756,480	$	11.68
Expired	(66,740)	21.94
September 30, 2011	689,740		10.68

The following table summarizes information regarding IHC’s outstanding and exercisable options as of September 30, 2011:

		Outstanding		Exercisable
Number of options		689,740		381,872
Weighted average exercise price per share	$	10.68	$	11.24
Aggregate intrinsic value for all options	$	-	$	-
Weighted average contractual term remaining		2.6 years		2.1 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. No options were granted during the nine months ended September 30, 2011. The weighted average grant-date fair-value of options granted during the nine months ended 2010 was $1.57 per share. The assumptions set forth in the table below were used to value the stock options granted during the nine-month period ended September 30, 2010:

Weighted-average risk-free interest rate		2.3%
Annual dividend rate per share	$	.05
Weighted-average volatility factor of the Company's common stock		45.0%
Weighted-average expected term of options		4.5 years

Compensation expense of $61,000 and $120,000 was recognized in the three months ended September 30, 2011 and 2010, respectively, and $231,000 and $374,000 was recognized in the nine months ended September 30, 2011 and 2010, respectively, for the portion of the grant-date fair value of stock options vesting during those periods.

No options were exercised during the three months and nine months ended September 30, 2011 or 2010.

As of September 30, 2011, the total unrecognized compensation expense related to non-vested stock options was $303,000 which is expected to be recognized over the remaining requisite weighted-average service period of 1.5 years.

Restricted Stock

IHC issued 6,750 and 2,250 shares of restricted stock during the nine months ended September 30, 2011 and 2010, respectively. The total fair value of restricted stock that vested during each of the first nine months of 2011 and 2010 was $23,000. Restricted stock expense was $9,000 and $5,000 for the three months ended September 30, 2011 and 2010, respectively, and was $18,000 and $24,000 for the nine months ended September 30, 2011 and 2010, respectively.

The following table summarizes restricted stock activity for the nine months ended September 30, 2011:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2010	4,500	$	7.80
Granted	6,750		10.82
Vested	(2,250)	$	8.67
September 30, 2011	9,000	$	9.85

As of September 30, 2011, the total unrecognized compensation expense related to IHC’s non-vested restricted stock awards was $80,000 which is expected to be recognized over the remaining requisite weighted-average service period of 2.4 years.

SARs and Share-Based Performance Awards

The fair value of SARs is calculated using the Black-Scholes valuation model at the grant date and each subsequent reporting period until settlement. Compensation cost is based on the proportionate amount of the requisite service that has been rendered to date. Once fully vested, changes in fair value of the SARs continue to be recognized as compensation expense in the period of the change until settlement. For the three months ended September 30, 2011 and 2010, IHC recorded $43,000 and $54,000 respectively, of compensation costs for these awards, and for the nine months ended September 30, 2011 and 2010, IHC recorded $82,000 and $72,000, respectively. No SARs were exercised during the nine months ended September 30, 2011 or 2010. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010 are liabilities of $161,000 and $79,000, respectively, pertaining to SARs.

Other outstanding awards include share-based performance awards. Compensation costs for these awards are recognized and accrued as performance conditions are met, based on the current share price. For the three months ended September 30, 2011 and 2010, IHC recorded $8,000 and $29,000, respectively, of compensation costs for these awards, and for the nine months ended September 30, 2011 and 2010, recorded $29,000 and $60,000, respectively. The intrinsic value of share-based performance awards paid during the nine months ended September 30, 2011 and 2010 was $53,000 and $54,000, respectively. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010 are liabilities of $52,000 and $75,000, respectively, pertaining to share-based performance awards.

B.AMIC Share-Based Compensation Plans

Total AMIC share-based compensation expense was $9,000 and $18,000 for the three months ended September 30, 2011 and 2010, respectively, and was $34,000 and $44,000 for the nine months ended September 30, 2011 and for the period between the Acquisition Date and September 30, 2010, respectively.  Related tax benefits of $3,000 and $8,000 were recognized for the three months ended September 30, 2011 and 2010, respectively, and were $12,000 and $18,000 for the nine months ended September 30, 2011 and for the period between the Acquisition Date and September 30, 2010, respectively.

Under the terms of the AMIC’s stock-based compensation plan, option exercise prices are equal to the quoted market price of the shares at the date of grant; option terms are ten years; and vesting periods range from three to four years.  AMIC may also grant shares of restricted stock, stock appreciation rights and share-based performance awards.  Restricted shares are valued at the quoted market price of the shares at the date of grant, and have a three year vesting period. At September 30, 2011, there were 6,517,221 shares available for future stock-based compensation grants under the AMIC stock incentive plan.

Stock Options

AMIC’s stock option activity for the nine months ended September 30, 2011 is as follows:

	Shares	Weighted- Average
	Under Option	Exercise Price
December 31, 2010	359,234	$	9.95
Grants	20,001	5.52
Expired	(31,668)	4.50
Exercised	(13,611)	4.24
September 30, 2011	333,956	$	10.43

The following table summarizes information regarding AMIC’s outstanding and exercisable options as of September 30, 2011:

		Outstanding		Exercisable
Number of options		333,956		306,177
Weighted average exercise price per share	$	10.43	$	10.90
Aggregate intrinsic value for all options	$	2,000	$	400
Weighted average contractual term remaining		3.37 years		2.83 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. The weighted average grant-date fair-value of options granted during the nine months ended September 30, 2011 and during the period between the Acquisition Date and September 30, 2010 was $3.02 and $2.79 per share, respectively. The assumptions set forth in the table below were used to value the stock options granted during the periods:

		September 30,
		2011		2010
Weighted-average risk-free interest rate		3.11%		3.69%
Annual dividend rate per share	$	-	$	-
Weighted-average volatility factor of the Company's common stock		36.89		45.00
Weighted-average expected term of options		5 years		5 years

Compensation expense of $9,000 and $14,000 was recognized for the three months ended September 30, 2011 and 2010, respectively, and was $27,000 and $33,000 for the nine months ended September 30, 2011 and for the period between the Acquisition Date and September 30, 2010, respectively, for the portion of the grant-date fair value of AMIC’s stock options vesting during those periods.

AMIC received cash proceeds of $57,000 upon the exercise of 13,611 options with an intrinsic value of $11,000 during the nine months ended September 30, 2011. AMIC received cash proceeds of $45,000 upon the exercise of 10,000 options with an intrinsic value of $1,000 during the period between the Acquisition Date and September 30, 2010.

As of September 30, 2011, the total unrecognized compensation expense related to AMIC’s non-vested options was $88,000 which will be recognized over the remaining requisite service periods.

Restricted Stock

AMIC issued 12,000 restricted stock awards in the second quarter of 2008, with a weighted average grant-date fair value of $6.92 per share.  No restricted stock awards were issued in 2011 or 2010.  The total fair value of AMIC’s restricted stock that vested during the nine months ended September 30, 2011 and during the period between the Acquisition Date and September 30, 2010 was $12,000 and $13,000, respectively. Restricted stock expense was $0 and $4,000 for the three months ended September 30, 2011 and 2010, respectively, and was $7,000 and $11,000 for the nine months ended September 30, 2011 and the period between the Acquisition Date and September 30, 2010, respectively.

The following table summarizes AMIC’s restricted stock activity for the nine months ended September 30, 2011:

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value
December 31, 2010	2,500	$	6.92
Vested	(2,000)	$	6.92
Forfeited	(500)	$	6.92
September 30, 2011	-	$	-