Stock-Based Compensation

Our shareholders approved the adoption of and subsequent amendments to the Lancaster Colony Corporation 2005 Stock Plan (the “2005 Plan”). The 2005 Plan reserved 2,000,000 common shares for issuance to our employees and directors, and all awards granted under the 2005 Plan will be exercisable at prices not less than fair market value as of the date of the grant. The vesting period for awards granted under the 2005 Plan varies as to the type of award granted, but generally these awards have a maximum term of five years.

Stock-Settled Stock Appreciation Rights

We use periodic grants of stock-settled stock appreciation rights (“SSSARs”) as a vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value. We calculate the fair value of SSSARs grants using the Black-Scholes option-pricing model. Our policy is to issue shares upon SSSARs exercise from new shares that had been previously authorized.

In the nine months ended March 31, 2014 and 2013, we granted SSSARs under the terms of our 2005 Plan. The following table summarizes information relating to these grants:



	2014			2013
SSSARs granted	146			108
Weighted average grant date fair value per right	$	11.84		$	9.04
Weighted average assumptions used in fair value calculations:
Risk-free interest rate	0.75		%	0.33		%
Dividend yield	1.97		%	2.09		%
Volatility factor of the expected market price of our common stock	22.35		%	23.23		%
Weighted average expected life in years	3.12			2.67
Weighted average estimated forfeiture rate	3		%	2		%

For these grants, the volatility factor was estimated based on actual historical volatility of our stock for a time period equal to the term of the SSSARs. The expected average life was determined based on historical exercise experience for this type of grant. The SSSARs from each grant vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date and one-third on the third anniversary of the grant date.

We recognize compensation expense over the requisite service period. Compensation expense was reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification and was allocated to each segment appropriately. We recorded tax benefits and gross windfall tax benefits related to SSSARs. These windfall tax benefits were included in the financing section of the Condensed Consolidated Statements of Cash Flows. The following table summarizes SSSARs compensation expense and tax benefits recorded:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2014		2013		2014		2013
Compensation expense	$	304	$	253	$	804	$	973
Tax benefits	$	106	$	89	$	281	$	341
Intrinsic value of exercises	$	2,343	$	87	$	2,431	$	1,371
Gross windfall tax benefits	$	820	$	41	$	851	$	490

The total fair values of SSSARs vested were as follows:



	Nine Months Ended March 31,
	2014		2013
Fair value of vested rights	$	1,138	$	1,469

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the nine months ended March 31, 2014:



	Number of Rights		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at beginning of period	374		$	66.42
Exercised	(136	)	$	63.59
Granted	146		$	89.16
Forfeited	(11	)	$	68.32
Outstanding at end of period	373		$	76.27	3.77	$	8,635
Exercisable and vested at end of period	98		$	64.62	2.47	$	3,410
Vested and expected to vest at end of period	366		$	76.23	3.76	$	8,485

At March 31, 2014, there was approximately $2.3 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of approximately 2.45 years.

Restricted Stock

We use periodic grants of restricted stock as a vehicle for rewarding our nonemployee directors and certain employees with long-term incentives for their efforts in helping to create long-term shareholder value.

In the nine months ended March 31, 2014 and 2013, we granted shares of restricted stock to various employees under the terms of the 2005 Plan. The following table summarizes information relating to these grants:



	Nine Months Ended March 31,
	2014			2013
Employees
Restricted stock granted	24			8
Grant date fair value	$	2,190		$	572
Weighted average grant date fair value per award	$	89.21		$	72.67
Weighted average estimated forfeiture rate	5		%	3		%

The restricted stock under these employee grants vests on the third anniversary of the grant date. Under the terms of our grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status. Approximately 6,000 and 23,000 shares of employee restricted stock vested in the nine months ended March 31, 2014 and 2013, respectively.

In November 2013 and 2012, we granted shares of restricted stock to our seven nonemployee directors under the terms of the 2005 Plan. The following table summarizes information relating to each of these grants:



	Nine Months Ended March 31,
	2014		2013
Nonemployee directors
Restricted stock granted	6		7
Grant date fair value	$	490	$	490
Weighted average grant date fair value per award	$	84.42	$	73.29

The 2014 grant vests over a one-year period, and all of these shares are expected to vest. Dividends earned on the stock during the vesting period will be paid to the directors at the time the stock vests. Approximately 7,000 shares of nonemployee director restricted stock vested in the nine months ended March 31, 2014 and 2013 and the directors were paid the related dividends.

We recognize compensation expense over the requisite service period. Compensation expense was reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification and was allocated to each segment appropriately. We recorded tax benefits and gross windfall tax benefits related to restricted stock. These windfall tax benefits were included in the financing section of the Condensed Consolidated Statements of Cash Flows. The following table summarizes restricted stock compensation expense and tax benefits recorded:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2014		2013		2014		2013
Compensation expense	$	366	$	303	$	1,027	$	1,086
Tax benefits	$	155	$	106	$	386	$	380
Gross windfall tax benefits	$	68	$	124	$	76	$	134

The total fair values of restricted stock vested were as follows:



	Nine Months Ended March 31,
	2014		2013
Fair value of vested shares	$	877	$	1,837

The following table summarizes the activity relating to restricted stock granted under the 2005 Plan for the nine months ended March 31, 2014:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock at beginning of period	45		$	68.16
Granted	30		$	88.30
Vested	(13	)	$	65.80
Forfeited	(2	)	$	67.47
Unvested restricted stock at end of period	60		$	78.89

At March 31, 2014, there was approximately $3.1 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of approximately 2.28 years.