Note 7 – 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 February 2013 and 2012, we granted SSSARs to various employees under the terms of our 2005 Plan. The following table summarizes information relating to each of these grants:


	2013			2012

SSSARs granted		108			185
Weighted average grant date fair value per right	$	9.04		$	9.08
Assumptions used in fair value calculations:
Risk-free interest rate		0.33	%		0.41	%
Dividend yield		2.09	%		2.11	%
Volatility factor of the expected market price of our common stock		23.23	%		24.31	%
Weighted average expected life in years		2.67			2.76
Estimated forfeiture rate		2.00	%		4.00	%

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. 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				Nine Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Compensation expense	$	282	$	453	$	1,081	$	1,099
Tax benefits	$	99	$	159	$	378	$	385
Intrinsic value of exercises	$	87	$	138	$	1,371	$	281
Gross windfall tax benefits	$	41	$	58	$	490	$	122

The total fair values of SSSARs vested were as follows:


	Nine Months Ended
	March 31,
	2013		2012

Fair value of vested rights	$	1,469	$	1,107

The following table summarizes the activity relating to SSSARs granted under the 2005 Plan for the nine months ended March 31, 2013:


	Number of Rights	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value

Outstanding at beginning of period	446	$	60.55
Exercised	(124)	$	52.82
Granted	108	$	72.67
Forfeited	(5)	$	63.50
Outstanding at end of period	425	$	65.88	3.65	$	4,723
Exercisable and vested at end of period	162	$	61.21	2.76	$	2,552
Vested and expected to vest at end of period	416	$	65.86	3.65	$	4,629

At March 31, 2013, there was approximately $1.8 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of approximately 2.29 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 November 2012 and 2011, 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,
	2013		2012
Nonemployee directors
Restricted stock granted		7		7
Grant date fair value	$	490	$	490
Weighted average grant date fair value per award	$	73.29	$	65.97

The 2013 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 2012 grant vested during the second quarter of 2013, and the directors were paid the related dividends.

In February 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 each of these grants:


	Nine Months Ended
	March 31,
	2013			2012
Employees
Restricted stock granted		8			25
Grant date fair value	$	572		$	1,693
Weighted average grant date fair value per award	$	72.67		$	68.12
Estimated forfeiture rate		3.00	%		4.00	%

The restricted stock under each of these employee grants vests on the third anniversary of the grant date. Under the terms of the grants, employees receive dividends on unforfeited restricted stock regardless of their vesting status. Approximately 23,000 shares of employee restricted stock vested in 2013.

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. Windfall tax benefits, if any, 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				Nine Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Compensation expense	$	306	$	343	$	1,130	$	892
Tax benefits	$	107	$	120	$	395	$	312
Gross windfall tax benefits	$	124	$	56	$	134	$	71

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


	Nine Months Ended
	March 31,
	2013		2012

Fair value of vested shares	$	1,837	$	645

The following table summarizes the activity relating to restricted stock granted under the 2005 Plan for the nine months ended March 31, 2013:


	Number of Shares	Weighted Average Grant Date Fair Value

Unvested restricted stock at beginning of period	62	$	63.25
Granted	15	$	72.95
Vested	(30)	$	60.56
Forfeited	(1)	$	61.85
Unvested restricted stock at end of period	46	$	68.16

At March 31, 2013, there was approximately $2.0 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of approximately 1.92 years.