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 2014, 2013 and 2012, we granted SSSARs to various employees under the terms of the 2005 Plan. The following table summarizes information relating to these grants:



	2014			2013			2012
SSSARs granted	146			108			187
Weighted average grant date fair value per right	$	11.84		$	9.04		$	9.07
Assumptions used in fair value calculations:
Risk-free interest rate	0.75		%	0.33		%	0.41		%
Dividend yield	1.97		%	2.09		%	2.11		%
Volatility factor of the expected market price of our common stock	22.35		%	23.23		%	24.30		%
Weighted average expected life in years	3.12			2.67			2.76

For each grant, 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 estimate a forfeiture rate for each grant based on historical experience.

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. We recorded tax benefits and excess tax benefits related to SSSARs. These excess tax benefits were included in the financing section of the Consolidated Statements of Cash Flows. The following table summarizes our continuing operations SSSARs compensation expense and tax benefits recorded for each of the years ending June 30:



	2014		2013		2012
Compensation expense	$	1,092	$	1,316	$	1,514
Tax benefits	$	382	$	461	$	530
Intrinsic value of exercises	$	2,692	$	1,851	$	559
Excess tax benefits	$	942	$	659	$	230

The total fair values of SSSARs vested for each of the years ended June 30 were as follows:



	2014		2013		2012
Fair value of vested rights	$	1,145	$	1,476	$	1,107

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the year ended June 30, 2014:



	Number of Rights		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at beginning of year	374		$	66.42
Exercised	(150	)	$	63.68
Granted	146		$	89.16
Forfeited	(12	)	$	68.32
Outstanding at end of year	358		$	76.75	3.57	$	6,594
Exercisable and vested at end of year	84		$	64.63	2.23	$	2,573
Vested and expected to vest at end of year	320		$	76.44	3.53	$	5,991

The following table summarizes information about the SSSARs outstanding by grant year at June 30, 2014:



	Outstanding				Exercisable
			Weighted Average
Grant Years	Range of Exercise Prices	Number Outstanding	Remaining Contractual Life in Years	Exercise Price	Number Exercisable	Weighted Average Exercise Price
2014	$79.78-$89.29	146	4.65	$89.16	—	$—
2013	$72.67	85	3.66	$72.67	14	$72.67
2012	$63.50-$68.12	92	2.65	$68.08	35	$68.12
2011	$57.78	22	1.65	$57.78	22	$57.78
2010	$58.79	13	0.65	$58.79	13	$58.79

At June 30, 2014, there was approximately $1.7 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of approximately 2 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 2014, 2013 and 2012, 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:



	2014		2013		2012
Employees
Restricted stock granted	24		8		25
Grant date fair value	$	2,190	$	572	$	1,705
Weighted average grant date fair value per award	$	89.21	$	72.67	$	68.08

The restricted stock under each of these employee grants vests on the third anniversary of the grant date. We estimate a forfeiture rate for each grant based on historical experience. Under the terms of the grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status. Approximately 6,000, 23,000 and 6,000 shares of employee restricted stock vested in 2014, 2013 and 2012, respectively.

In 2014, 2013 and 2012, we also 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:



	2014		2013		2012
Nonemployee directors
Restricted stock granted	6		7		7
Grant date fair value	$	490	$	490	$	490
Weighted average grant date fair value per award	$	84.42	$	73.29	$	65.97

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, 7,000 and 8,000 shares of nonemployee director restricted stock vested in 2014, 2013 and 2012, respectively, 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. We recorded tax benefits and excess tax benefits related to restricted stock. These excess tax benefits were included in the financing section of the Consolidated Statements of Cash Flows. The following table summarizes our continuing operations restricted stock compensation expense and tax benefits recorded for each of the years ending June 30:



	2014		2013		2012
Compensation expense	$	1,434	$	1,411	$	1,243
Tax benefits	$	502	$	494	$	435
Excess tax benefits	$	78	$	135	$	71

The total fair values of restricted stock vested for each of the years ended June 30 were as follows:



	2014		2013		2012
Fair value of vested shares	$	931	$	1,842	$	645

The following table summarizes the activity relating to restricted stock granted under the 2005 Plan for the year ended June 30, 2014:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock at beginning of year	45		$	68.16
Granted	30		$	88.30
Vested	(13	)	$	65.96
Forfeited	(4	)	$	70.63
Unvested restricted stock at end of year	58		$	79.09

At June 30, 2014, there was approximately $2.5 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of approximately 2 years.