Stock-Based Compensation

12 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

Note 6 –   Stock-Based Compensation

As approved by our shareholders in November 1995, the terms of the 1995 Key Employee Stock Option Plan (the "1995 Plan") reserved 3,000,000 common shares for issuance to qualified key employees. All options granted under the 1995 Plan were exercisable at prices not less than fair market value as of the date of grant. In general, options granted under the 1995 Plan vested immediately and had a maximum term of five years. The 1995 Plan expired in August 2005, but there were options issued under this plan that were exercisable through February 2010. There were no options outstanding under this plan at June 30, 2011.

Our shareholders have 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 Options

Until 2008, we used stock options as the primary vehicle for rewarding certain employees with long-term incentives for their efforts in helping to create long-term shareholder value. We calculated the fair value of option grants using the Black-Scholes option-pricing model. There were no grants of stock options in 2011, 2010, or 2009. Total compensation cost related to stock options was zero in 2011, 2010 and 2009.

There were no stock option exercises in 2011. During the year ended June 30, 2010, we received approximately $4.0 million in cash from the exercise of stock options. The aggregate intrinsic value of these options was approximately $0.9 million. A related tax benefit of approximately $0.3 million was recorded in 2010. This tax benefit was included in the financing section of the Consolidated Statements of Cash Flows and resulted from incentive stock option disqualifying dispositions and exercises of non-qualified options. The benefits included approximately $44,000 of gross windfall tax benefits for the year ended June 30, 2010.

Stock-Settled Stock Appreciation Rights

Since 2008, we have used 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 February 2011, 2010 and 2009, we granted SSSARs to various employees under the terms of the 2005 Plan. The following table summarizes information relating to each of these grants:

	2011	2010	2009
SSSARs granted	94	168	78
Weighted average fair value per right	$ 10.12	$ 11.81	$   6.89
Assumptions used in fair value calculations:
Risk-free interest rate	1.27%	1.67%	1.63%
Dividend yield	2.28%	2.04%	2.86%
Volatility factor of the expected market price of our       common stock	28.78%	29.97%	28.13%
Weighted average expected life in years	3.11	3.50	3.50

For each of 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. For the 2011 SSSARs grant, the expected average life was determined based on historical exercise experience for this type of grant. For the 2010 and 2009 SSSARs grants, the expected average life was calculated using the simplified method as defined in the Securities and Exchange Commission's Staff Accounting Bulletin 110, as we did not yet have sufficient historical exercise experience for this type of grant. The SSSARs from each of these grants 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 are assuming a forfeiture rate of four percent for each of these grants.

We recognize compensation expense over the requisite service period. Compensation cost 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 Consolidated Statements of Cash Flows. The following table summarizes SSSARs compensation expense and tax benefits recorded for each of the years ending June 30:

	2011	2010	2009
Compensation expense	$ 1,120	$      684	$      353
Tax benefits	$    392	$      240	$      124
Intrinsic value of exercises	$    922	$      926	$         19
Gross windfall tax benefits	$    334	$      324	$           7

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

	2011	2010	2009
Fair value of vested rights	$ 1,095	$      479	$      306

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the year ended June 30, 2011:

	Number of   Rights	Weighted Average Exercise    Price	Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic    Value
Outstanding at June 30, 2010	309	$   49.55
Exercised	(70)	$   39.75
Granted	94	$   57.78
Forfeited	(9)	$   52.33
Outstanding at June 30, 2011	324	$   53.98	3.62	$ 2,214
Exercisable and vested at June 30, 2011	100	$   48.88	2.85	$ 1,186
Vested and expected to vest at June 30, 2011	318	$   54.01	3.61	$ 2,165

The following table summarizes information about the SSSARs outstanding by grant year at June 30, 2011:

Outstanding					Exercisable
			Weighted Average
Grant Years	Exercise   Price	Number Outstanding	Remaining Contractual Life in Years	Exercise   Price	Number Exercisable	Weighted Average    Exercise Price
2011	$57.78	94	4.65	$ 57.78	–	–
2010	$58.79	155	3.66	$58.79	50	$58.79
2009	$39.86	43	2.66	$ 39.86	18	$39.86
2008	$38.31	32	1.67	$ 38.31	32	$38.31

        At June 30, 2011, there was approximately $2.0 million of unrecognized compensation cost related to SSSARs that we will recognize over a weighted-average period of approximately 2.01 years.

Restricted Stock

Since 2008, we have used 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 February 2011, 2010 and 2009, we granted shares of restricted stock to various employees under the terms of the 2005 Plan. The following table summarizes information relating to each of these grants:

	2011	2010	2009
Restricted stock granted	7	25	6
Grant date fair value	$    390	$  1,470	$      231
Closing stock price on grant date	$ 57.78	$  58.79	$   39.86

The restricted stock under each of these grants vests on the third anniversary of the grant date.We are assuming a forfeiture rate of four percent for each of these grants. Under the terms of the grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status. An additional 21,500 shares of restricted stock that were granted to various key employees in February 2008 vested in 2011.

In November 2010, we granted a total of 8,155 shares of restricted stock to our seven nonemployee directors under the terms of the 2005 Plan. The restricted stock had a grant date fair value of approximately $0.4 million based on a per share closing stock price of $51.52. This restricted stock vests over a one-year period, and all of these shares are expected to vest. Dividends earned on the stock during the vesting period are held in escrow and will be paid to the directors at the time the stock vests. An additional 8,435, 14,000 and 3,000 shares of restricted stock that were granted to our nonemployee directors in November 2009, 2008 and 2007, respectively, vested during the second quarter of 2011, 2010 and 2009, respectively, and the directors were paid the related dividends that had been held in escrow.

We recognize compensation expense over the requisite service period. Compensation cost 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 Consolidated Statements of Cash Flows. The following table summarizes restricted stock compensation expense and tax benefits recorded for each of the years ending June 30:

	2011	2010	2009
Compensation expense	$ 1,177	$      948	$      612
Tax benefits	$    412	$      332	$      214
Gross windfall tax benefits	$    145	$        43	$       –

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

	2011	2010	2009
Fair value of vested shares	$ 1,258	$      423	$      114

The following table summarizes the activity related to restricted stock granted under the 2005 Plan for the year ended June 30, 2011:

	Number of  Shares	Weighted Average Grant Date Fair Value
Unvested restricted stock at beginning of period	61	$  48.43
Granted	15	$  54.35
Vested	(30)	$  41.83
Forfeited	(2)	$  50.75
Unvested restricted stock at end of period	44	$  54.86

At June 30, 2011, there was approximately $1.3 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of approximately 1.72 years.