SHARE-BASED COMPENSATION

Share-Based Incentive Plans

Following approval by the Company's shareholders in October 2015, the 2015 Long-Term Performance Plan (the "2015 Plan") replaced the 2011 Long-Term Performance Plan. The 2015 Plan, which expires in 2020, provides for granting of SARs, stock options, stock awards, cash awards, and such other awards or combination thereof as the Executive Organization and Compensation Committee or, in the case of director awards, the Corporate Governance Committee of the Board of Directors (together referred to as the Committee) may determine to officers, other key employees and members of the Board of Directors. Grants are generally made at regularly scheduled committee meetings. Compensation costs charged to expense under award programs paid (or to be paid) with shares (including SARs, stock options, performance shares, restricted stock, and RSUs) are summarized in the table below:



Year Ended June 30,	2017		2016		2015
SARs and options	$	1,891	$	1,543	$	1,610
Performance shares	1,331		446		836
Restricted stock and RSUs	2,298		2,078		2,015
Total compensation costs under award programs	$	5,520	$	4,067	$	4,461

Such amounts are included in selling, distribution and administrative expense in the accompanying statements of consolidated income. The total income tax benefit recognized in the statements of consolidated income for share-based compensation plans was $4,848, $1,595 and $1,749 for fiscal years 2017, 2016 and 2015, respectively. It has been the practice of the Company to issue shares from treasury to satisfy requirements of awards paid with shares.

The aggregate unrecognized compensation cost for share-based award programs with the potential to be paid at June 30, 2017 are summarized in the table below:



June 30,	2017		Average Expected Period of Expected Recognition (Years)
SARs and options	$	2,893	2.6
Performance shares	3,910		1.7
Restricted stock and RSUs	2,149		1.9
Total unrecognized compensation costs under award programs	$	8,952	2.0

Cost of these programs will be recognized as expense over the weighted-average remaining vesting period of 2.0 years. The aggregate number of shares of common stock which may be awarded under the 2015 Plan is 2,500; shares available for future grants at June 30, 2017 were 2,021.

Stock Appreciation Rights and Stock Options

The weighted-average assumptions used for SARs and stock option grants issued in fiscal 2017, 2016
and 2015 are:



	2017		2016		2015
Expected life, in years	4.8		4.4		4.7
Risk free interest rate	1.2	%	1.3	%	1.4	%
Dividend yield	2.5	%	2.5	%	2.5	%
Volatility	24.1	%	26.0	%	29.0	%
Per share fair value of SARs and stock options granted during the year	$7.97		$6.79		$9.53

The expected life is based upon historical exercise experience of the officers, other key employees and members of the Board of Directors. The risk free interest rate is based upon U.S. Treasury zero-coupon bonds with remaining terms equal to the expected life of the SARs and stock options. The assumed dividend yield has been estimated based upon the Company’s historical results and expectations for changes in dividends and stock prices. The volatility assumption is calculated based upon historical daily price observations of the Company’s common stock for a period equal to the expected life.

SARs are redeemable solely in Company common stock. The exercise price of stock option awards may be settled by the holder with cash or by tendering Company common stock.

A summary of SARs and stock options activity is presented below:



	Shares		Weighted-Average Exercise Price
Year Ended June 30, 2017
(Shares in thousands)
Outstanding, beginning of year	1,236		$	37.69
Granted	335		48.97
Exercised	(343	)	32.30
Forfeited	(10	)	42.69
Outstanding, end of year	1,218		$	42.26
Exercisable at end of year	585		$	38.44
Expected to vest at end of year	1,187		$	42.14

The weighted-average remaining contractual terms for SARs and stock options outstanding, exercisable, and expected to vest at June 30, 2017 were 7.0, 5.3, and 6.9 years, respectively. The aggregate intrinsic values of SARs and stock options outstanding, exercisable, and expected to vest at June 30, 2017 were $20,456 $12,051, and $20,075, respectively. The aggregate intrinsic value of the SARs and stock options exercised during fiscal 2017, 2016, and 2015 was $8,396, $2,422, and $1,601, respectively.

The total fair value of shares vested during fiscal 2017, 2016, and 2015 was $1,788, $1,291, and $2,187, respectively.

Performance Shares

Performance shares are paid in shares of Applied stock at the end of a three-year period provided the Company achieves goals established by the committee. The number of Applied shares payable will vary depending on the level of the goals achieved.

A summary of nonvested performance shares activity at June 30, 2017 is presented below:



	Shares		Weighted-Average Grant-Date Fair Value
Year Ended June 30, 2017
(Shares in thousands)
Nonvested, beginning of year	37		$	46.01
Awarded	29		44.56
Vested	(14	)	50.39
Nonvested, end of year	52		$	43.99

The Committee set three one-year goals for each of the 2017, 2016 and 2015 grants. Each fiscal year during the three-year term has its own separate goals, tied to the Company’s earnings before interest, tax, depreciation, and amortization (EBITDA) and after-tax return on assets (ROA). Achievement during any particular fiscal year is awarded and “banked” for payout at the end of the three-year term. Based upon the outstanding grants as of June 30, 2017, the maximum number of shares which could be earned in future periods was 91.

Restricted Stock and Restricted Stock Units

Restricted stock award recipients are entitled to receive dividends on, and have voting rights with respect to their respective shares, but are restricted from selling or transferring the shares prior to vesting. Restricted stock awards vest over periods of one to four years. RSUs are grants valued in shares of Applied stock, but shares are not issued until the grants vest one to four years from the award date, assuming continued employment with Applied. Applied primarily pays dividend equivalents on RSUs on a current basis.

A summary of the status of the Company’s non-vested restricted stock and RSUs at June 30, 2017 is

presented below:



	Shares		Weighted-Average Grant-Date Fair Value
Year Ended June 30, 2017
(Share amounts in thousands)
Nonvested, beginning of year	118		$	43.56
Granted	47		52.91
Forfeitures	(4	)	44.27
Vested	(45	)	44.69
Nonvested, end of year	116		$	46.91