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. As the 2005 Plan expired in May 2015, we obtained shareholder approval of the Lancaster Colony Corporation 2015 Omnibus Incentive Plan (the “2015 Plan”) at our November 2015 Annual Meeting of Shareholders. The 2015 Plan did not affect any currently outstanding equity awards granted under the 2005 Plan. The 2015 Plan reserved 1,500,000 common shares for issuance to our employees and directors. All awards granted under these plans 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 these plans varies as to the type of award granted, but generally these awards have a maximum term of five years.

We adopted new accounting guidance for stock-based compensation on July 1, 2017. See further discussion in Note 1. We recognize compensation expense over the requisite service period of the grant. Compensation expense is reflected in Cost of Sales or Selling, General and Administrative Expenses based on the grantees’ salaries expense classification. We record tax benefits and excess tax benefits related to stock-settled stock appreciation rights (“SSSARs”) and restricted stock awards. These excess tax benefits are included in the operating section of the Consolidated Statements of Cash Flows. We estimate a forfeiture rate for our SSSARs and restricted stock grants based on historical experience.

Stock-Settled Stock Appreciation Rights

We use periodic grants of 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 2018, 2017 and 2016, we granted SSSARs to various employees under the terms of the plans. The following table summarizes information relating to these grants:



	2018			2017			2016
SSSARs granted	185			166			240
Weighted average grant date fair value per right	$	17.85		$	17.59		$	12.23
Weighted average assumptions used in fair value calculations:
Risk-free interest rate	2.39		%	1.36		%	0.86		%
Dividend yield	1.98		%	1.64		%	1.93		%
Volatility factor of the expected market price of our common stock	22.57		%	22.41		%	20.88		%
Expected life in years	2.85			2.47			2.69

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.

The following table summarizes our SSSARs compensation expense and tax benefits recorded for each of the years ended June 30:



	2018		2017		2016
Compensation expense	$	2,455	$	1,882	$	1,472
Tax benefits	$	690	$	659	$	515
Intrinsic value of exercises	$	2,381	$	2,281	$	3,788
Excess tax benefits	$	669	$	798	$	1,341

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



	2018		2017		2016
Fair value of vested rights	$	2,330	$	1,916	$	1,192

The following table summarizes the activity relating to SSSARs granted under the plans for the year ended June 30, 2018:



	Number of Rights		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at beginning of year	521		$	109.70
Exercised	(105	)	$	93.67
Granted	185		$	121.09
Forfeited	(15	)	$	115.85
Outstanding at end of year	586		$	115.99	3.42	$	13,156
Exercisable and vested at end of year	225		$	107.41	2.54	$	6,986
Vested and expected to vest at end of year	562		$	116.31	3.42	$	12,423

The following table summarizes information about the SSSARs outstanding by grant year at June 30, 2018:



	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
2018	$117.76-$124.29	181	4.65	$121.09	—	$—
2017	$121.54-$138.96	159	3.67	$134.01	54	$134.03
2016	$101.70-$112.62	172	2.70	$104.73	97	$105.26
2015	$91.13	63	1.65	$91.13	63	$91.13
2014	$89.29	11	0.66	$89.29	11	$89.29

At June 30, 2018, there was $4.7 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 2018, 2017 and 2016, we granted shares of restricted stock to various employees under the terms of the plans. The following table summarizes information relating to these grants:



	2018		2017		2016
Employees
Restricted stock granted	27		12		28
Grant date fair value	$	3,218	$	1,591	$	2,923
Weighted average grant date fair value per award	$	121.09	$	134.07	$	102.89

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.

In 2018, 2017 and 2016, we also granted shares of restricted stock to our nonemployee directors under the terms of the plans. The following table summarizes information relating to each of these grants:



	2018		2017		2016
Nonemployee directors
Restricted stock granted	6		5		6
Grant date fair value	$	759	$	759	$	639
Weighted average grant date fair value per award	$	123.11	$	138.96	$	112.05

The 2018 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.

The following table summarizes our restricted stock compensation expense and tax benefits recorded for each of the years ended June 30:



	2018		2017		2016
Compensation expense	$	2,584	$	2,366	$	1,854
Tax benefits	$	726	$	828	$	649
Excess tax benefits	$	92	$	325	$	76

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



	2018		2017		2016
Fair value of vested shares	$	1,508	$	2,420	$	1,124

The following table summarizes the activity relating to restricted stock granted under the plans for the year ended June 30, 2018:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock at beginning of year	52		$	111.87
Granted	33		$	121.47
Vested	(13	)	$	110.60
Forfeited	(4	)	$	107.86
Unvested restricted stock at end of year	68		$	116.99

At June 30, 2018, there was $4.2 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.