Stock-based Compensation

9 Months Ended

Mar. 31, 2013

Stock-Based Compensation

Stock-based Compensation

Note 3. Stock Based Compensation

The Company follows ASC 718 in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, as well as transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based on the fair value of the share-based payment. ASC 718 establishes fair value as the measurement objective in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans.

Total stock-based compensation expense recognized in the Statement of Comprehensive Income for the three month period ended March 31, 2013 and 2012, was $27,406 and $26,074, respectively, before income taxes. The related total deferred tax benefit was approximately $3,116 and $2,726 for the three month period ended March 31, 2013 and 2012, respectively. Total stock-based compensation expense recognized in the Statement of Comprehensive Income for the nine month period ended March 31, 2013 and 2012, was $87,777 and $68,499, respectively, before income taxes. The related total deferred tax benefit was approximately $9,852 and $7,036 for the nine month period ended March 31, 2013 and 2012, respectively. ASC 718 requires the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options to be classified and reported as both an operating cash outflow and a financing cash inflow on a prospective basis upon adoption.

As of March 31, 2013, there was approximately $83,028 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over the next 1.25 years. The total deferred tax benefit related to these awards is approximately $9,408.

The Company has one employee stock option plan under which options may be granted, the 2007 Stock Option and Restricted Stock Plan (the "2007 Plan"). The Board of Directors may grant options to acquire shares of common stock to employees of the Company at the fair market value of the common stock on the date of grant. Generally, options granted have a two-year vesting period based on two years of continuous service and have a ten-year contractual life. Option grants provide for accelerated vesting if there is a change in control. Shares issued upon the exercise of options are from those held in Treasury. The 2007 Plan was approved by the Company's shareholders at the Company's Annual Meeting on November 30, 2007 and supersedes the Company's 2000 Stock Option Plan (the "2000 Plan"). Options covering 400,000 shares were authorized for issuance under the 2007 Plan, of which 158,500 have been granted and 124,950 are outstanding as of March 31, 2013. While no further grants of options may be made under the 2000 Plan, as of March 31, 2013, 38,200 options remain outstanding, vested and exercisable from the 2000 Plan.

ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option valuation model, which incorporates various assumptions including those for volatility, expected life and interest rates.

There were no options awarded for the nine months ended March 31, 2013. The table below outlines the weighted average assumptions that the Company used to calculate the fair value of each option award for the nine months ended March 31, 2012

	March 31, 2012
Dividend yield	3.59%
Expected stock price volatility	33.82%
Risk-free interest rate	0.64%
Expected option life (in years)	3.7yrs
Weighted average fair value per share of options granted during the period	$4.757

The Company pays dividends quarterly. Our Board of Directors assesses the Company’s dividend policy periodically and we anticipate that regular quarterly dividends will be paid for the foreseeable future. While the Company has paid a special cash dividend of $1.00 per share in each of fiscal years 2013 and 2012, there is no assurance that the Board of Directors will declare a comparable special dividend during the fiscal year ending June 30, 2014 or any future years. Expected stock price volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options. The expected option life (in years) represents the estimated period of time until exercise and is based on actual historical experience.

The following table summarizes stock option activity during the nine months ended March 31, 2013:

	Employee Stock Options Plan
						Weighted
	Number of			Weighted		Average
	Shares			Average		Remaining		Aggregate
	Subject			Exercise		Contractual		Intrinsic
	To Option			Price		Term		Value
Balance at July 1, 2012		187,050		$	20.69		6.96
Granted		—			—		—
Exercised		(23,400	)	$	17.85		—
Forfeited or expired		(500	)	$	25.14		—
Outstanding at March 31, 2013		163,150		$	21.08		6.49	$	788,211
Vested or expected to vest at March 31, 2013		155,295		$	20.87		6.37	$	782,167
Exercisable at March 31, 2013		105,200		$	18.84		5.22	$	743,619

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing sale price of the company’s common stock as reported on the NYSE-MKT on March 31, 2013 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all option holders had exercised their options on March 31, 2013. This amount changes based on the fair market value of the company’s common stock. The total intrinsic values of the options exercised during the nine months ended March 31, 2013 and 2012 was $52,999 and $21,089, respectively.