Stock-Based Compensation

Our shareholders previously 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, 2015 and 2014, we granted SSSARs under the terms of the 2005 Plan. The following table summarizes information relating to these grants:



	Nine Months Ended March 31,
	2015			2014
SSSARs granted	149			146
Weighted average grant date fair value per right	$	9.94		$	11.84
Weighted average assumptions used in fair value calculations:
Risk-free interest rate	0.86		%	0.75		%
Dividend yield	2.02		%	1.97		%
Volatility factor of the expected market price of our common stock	19.62		%	22.35		%
Weighted average expected life in years	2.71			3.12

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 we 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. As needed, we estimate a forfeiture rate for our SSSARs grants 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 Condensed Consolidated Statements of Cash Flows. The following table summarizes our continuing operations SSSARs compensation expense and tax benefits recorded:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2015		2014		2015		2014
Compensation expense	$	308	$	304	$	893	$	804
Tax benefits	$	108	$	106	$	313	$	281
Intrinsic value of exercises	$	207	$	2,343	$	863	$	2,431
Excess tax benefits	$	72	$	820	$	302	$	851

The total fair values of SSSARs vested were as follows:



	Nine Months Ended March 31,
	2015		2014
Fair value of vested rights	$	1,245	$	1,138

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the nine months ended March 31, 2015:



	Number of Rights		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at beginning of year	358		$	76.75
Exercised	(54	)	$	63.54
Granted	149		$	91.13
Forfeited	(31	)	$	79.42
Outstanding at end of period	422		$	83.35	3.73	$	4,984
Exercisable and vested at end of period	154		$	74.70	2.66	$	3,150
Vested and expected to vest at end of period	412		$	83.35	3.73	$	4,873

At March 31, 2015, there was $2.3 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 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 the nine months ended March 31, 2015 and 2014, 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,
	2015		2014
Employees
Restricted stock granted	9		24
Grant date fair value	$	845	$	2,190
Weighted average grant date fair value per award	$	91.13	$	89.21

The restricted stock under these employee grants vests on the third anniversary of the grant date. As needed, we estimate a forfeiture rate for our restricted stock grants based on historical experience. Under the terms of our grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status. In the nine months ended March 31, 2015 and 2014, 19,000 and 6,000 shares, respectively, of employee restricted stock vested.

In November 2014 and 2013, we granted shares of restricted stock to our 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,
	2015		2014
Nonemployee directors
Restricted stock granted	7		6
Grant date fair value	$	639	$	490
Weighted average grant date fair value per award	$	92.92	$	84.42

The 2015 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. In the nine months ended March 31, 2015 and 2014, 6,000 and 7,000 shares, respectively, of nonemployee director restricted stock vested, 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 Condensed Consolidated Statements of Cash Flows. The following table summarizes our continuing operations restricted stock compensation expense and tax benefits recorded:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2015		2014		2015		2014
Compensation expense	$	384	$	366	$	1,318	$	1,027
Tax benefits	$	134	$	128	$	461	$	359
Excess tax benefits	$	142	$	68	$	154	$	76

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



	Nine Months Ended March 31,
	2015		2014
Fair value of vested shares	$	1,818	$	877

The following table summarizes the activity relating to restricted stock granted under the 2005 Plan for the nine months ended March 31, 2015:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock at beginning of year	58		$	79.09
Granted	16		$	91.89
Vested	(25	)	$	71.86
Forfeited	(3	)	$	79.22
Unvested restricted stock at end of period	46		$	87.61

At March 31, 2015, there was $2.6 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.