Stock-Based Compensation

The Company has two types of stock-based compensation awards in effect for its employees and directors. The Company has issued stock options since 1986 and restricted stock units ("RSUs") since fiscal 2010. Total compensation expense related to stock-based awards for the fiscal years ended April 30, 2016, 2015 and 2014 was $3.6 million, $3.5 million and $3.3 million, respectively. The Company recognizes stock-based compensation costs net of an estimated forfeiture rate for those shares expected to vest on a straight-line basis over the requisite service period of the award. The Company estimates the forfeiture rates based upon its historical experience.

Stock Incentive Plans

At April 30, 2016, the Company had stock option and RSU awards outstanding under four different plans: (1) second amended and restated 2004 stock incentive plan for employees; (2) 2006 non-employee directors equity ownership plan; and (3) 2011 non-employee directors equity ownership plan. As of April 30, 2016, there were 935,626 shares of common stock available for future stock-based compensation awards under the Company’s stock incentive plans.

Methodology Assumptions

For purposes of valuing stock option grants, the Company has identified one employee group and one non-employee director group, based upon observed option exercise patterns. The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for each of the groups. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from the Company’s historical exercise experience and represents the period of time that stock option awards granted are expected to be outstanding for each of the identified groups. The expected term assumption incorporates the contractual term of an option grant, which is generally ten years for employees and from four to ten years for non-employee directors, as well as the vesting period of an award, which is typically three years. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

For purposes of determining the fair value of RSUs, the Company uses the closing stock price of its common stock as reported on the NASDAQ Global Select Market on the date of grant. The fair value of the Company’s RSU awards is expensed on a straight-line basis over the vesting period of the RSUs to the extent the Company believes it is probable the related performance criteria, if any, will be met. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the vesting period of the RSU grant.

The weighted-average assumptions and valuation of the Company’s stock options were as follows:



	FISCAL YEARS ENDED APRIL 30
	2016			2015			2014
Weighted-average fair value of grants	$	18.59		$	9.25		$	14.46
Expected volatility	29.8		%	27.4		%	38.2		%
Expected term in years	5.8			5.9			6.1
Risk-free interest rate	2.16		%	2.19		%	1.59		%
Expected dividend yield	—		%	—		%	—		%

Stock Option Activity

Stock options granted and outstanding under each of the Company’s plans vest evenly over a three-year period and have contractual terms of ten years. The exercise price of all stock options granted is equal to the fair market value of the Company’s common stock on the option grant date.

The following table presents a summary of the Company’s stock option activity for the fiscal years ended April 30, 2016, 2015 and 2014 (remaining contractual term in years and exercise prices are weighted-averages):



	NUMBER OF OPTIONS		REMAINING CONTRACTUAL TERM	WEIGHTED AVERAGE EXERCISE PRICE	AGGREGATE INTRINSIC VALUE (in thousands)
Outstanding at April 30, 2013	1,401,813		4.8	$27.27	$	9,272

Granted	60,500		9.1	36.74	—
Exercised	(551,485	)	—	26.61	5,156
Cancelled or expired	(59,514	)	—	30.17	—
Outstanding at April 30, 2014	851,314		4.3	$28.16	$	3,121

Granted	66,600		9.1	29.92	—
Exercised	(508,639	)	—	28.05	7,209
Cancelled or expired	(11,200	)	—	32.64	—
Outstanding at April 30, 2015	398,075		5.0	$28.46	$	8,851

Granted	30,700		9.1	57.11	—
Exercised	(287,975	)	—	27.99	11,089
Cancelled or expired	(14,167	)	—	40.43	—
Outstanding at April 30, 2016	126,633		5.8	$35.15	$	4,773

Vested and expected to vest in the future at April 30, 2016	120,715		5.7	$34.97	$	4,572
Exercisable at April 30, 2016	46,599		1.7	$26.72	$	2,149

The aggregate intrinsic value in the previous table of the outstanding options on April 30, 2016 represents the total pre-tax intrinsic value (the excess, if any, of the Company’s closing stock price on the last trading day of fiscal 2016 over the exercise price, multiplied by the number of in-the-money options) of the shares of the Company’s common stock that would have been received by the option holders had all option holders exercised their options on April 30, 2016. This amount changes based upon the fair market value of the Company’s common stock. The total fair value of options vested for the fiscal years ended April 30, 2016, 2015 and 2014 was $0.7 million, $0.7 million and $0.7 million, respectively.

As of April 30, 2016, there was $0.6 million of total unrecognized compensation expense related to unvested stock options granted under the Company’s stock-based compensation plans. This expense is expected to be recognized over a weighted-average period of 1.7 years.

Cash received from option exercises for the fiscal years ended April 30, 2016, 2015 and 2014, was an aggregate of $8.1 million, $14.3 million and $14.7 million, respectively. The actual tax benefit realized for the tax deduction from option exercises of stock option awards totaled $4.3 million, $2.8 million and $2.0 million for the fiscal years ended April 30, 2016, 2015 and 2014, respectively.

The following table summarizes information about stock options outstanding at April 30, 2016 (remaining lives in years and exercise prices are weighted-averages):



	OPTIONS OUTSTANDING			OPTIONS EXERCISABLE
OPTION PRICE		REMAINING	EXERCISE		EXERCISE
PER SHARE	OPTIONS	LIFE	PRICE	OPTIONS	PRICE
$22.77-$23.96	27,900	2.2	$23.32	27,900	$23.32
$29.92-$34.11	57,766	5.8	30.52	18,633	31.79
$36.74-$36.74	14,867	7.1	36.74	66	36.74
$57.11-$57.11	26,100	9.1	57.11	—	—
	126,633			46,599

Restricted Stock Unit Activity:

The Company’s RSUs granted to employees cliff-vest over a three-year period from date of grant, while RSUs granted to non-employee directors vest daily over a two-year period from date of grant. Directors were granted service-based RSUs only, while employees were awarded both service-based and performance-based RSUs ("PBRSUs") in fiscal years 2016, 2015 and 2014. The PBRSUs granted in fiscal 2016 are earned based on achievement of a number of goals pertaining to the Company’s operational and financial performance during the performance period of fiscal 2016. Employees who satisfy the vesting criteria will receive a proportional amount of PBRSUs based upon the Compensation Committee’s assessment of the Company’s achievement of the performance criteria.

The following table contains a summary of the Company’s RSU activity for the fiscal years ended April 30, 2016, 2015 and 2014:



	PERFORMANCE-BASED RSUs		SERVICE-BASED RSUs		TOTAL RSUs		WEIGHTED AVERAGE GRANT DATE FAIR VALUE
Issued and outstanding, April 30, 2013	279,105		155,000		434,105		$17.96

Granted	75,600		44,092		119,692		$36.09
Cancelled due to non-achievement of performance goals	(23,384	)	—		(23,384	)	$17.62
Settled in common stock	(74,935	)	(60,310	)	(135,245	)	$19.75
Forfeited	(20,591	)	(15,407	)	(35,998	)	$23.12
Issued and outstanding, April 30, 2014	235,795		123,375		359,170		$22.79

Granted	79,500		40,100		119,600		$30.82
Cancelled due to non-achievement of performance goals	(16,218	)	—		(16,218	)	$36.18
Settled in common stock	(79,407	)	(54,861	)	(134,268	)	$17.45
Forfeited	(8,726	)	(4,764	)	(13,490	)	$27.78
Issued and outstanding, April 30, 2015	210,944		103,850		314,794		$27.15

Granted	48,201		22,349		70,550		$57.83
Cancelled due to non-achievement of performance goals	(19,657	)	—		(19,657	)	$29.92
Settled in common stock	(89,665	)	(46,950	)	(136,615	)	$19.57
Forfeited	(9,056	)	(3,537	)	(12,593	)	$40.99
Issued and outstanding, April 30, 2016	140,767		75,712		216,479		$40.88

As of April 30, 2016, there was $3.3 million of total unrecognized compensation expense related to unvested RSUs granted under the Company’s stock-based compensation plans. This expense is expected to be recognized over a weighted-average period of 1.7 years.

For the fiscal years ended April 30, 2016, 2015 and 2014 stock-based compensation expense was allocated as follows:



(in thousands)	2016		2015		2014
Cost of sales and distribution	$	608	$	518	$	505
Selling and marketing expenses	1,079		954		801
General and administrative expenses	1,922		2,025		1,989
Stock-based compensation expense, before income taxes	$	3,609	$	3,497	$	3,295

Restricted Stock Tracking Units:

During fiscal 2016, the Board of Directors of the Company approved grants of 7,616 cash-settled performance-based restricted stock tracking units ("RSTUs") and 2,499 cash-settled service-based RSTUs for more junior level employees who previously received RSU grants under the Company’s shareholder approved plan. Each performance-based RSTU entitles the recipient to receive a payment in cash equal to the fair market value of a share of the Company’s common stock as of the payment date if applicable performance conditions are met and the recipient remains continuously employed with the Company until the units vest. The service-based RSTUs entitle the recipients to receive a payment in cash equal to the fair market value of a share of our common stock as of the payment date if they remain continuously employed with the Company until the units vest. The RSTUs cliff-vest three years from the grant date. Since the RSTUs will be settled in cash, the grant date fair value of these awards is recorded as a liability until the date of payment. The fair value of each cash-settled RSTU award is remeasured at the end of each reporting period and the liability is adjusted, and related expense recorded, based on the new fair value. The Company recognized expense of $0.8 million, $0.4 million and $0.1 million related to RSTUs for the fiscal years ended April 30, 2016, 2015 and 2014, respectively. A liability for payment of the RSTUs is included in the Company's balance sheets in the amount of $1.2 million and $0.4 million as of April 30, 2016 and 2015, respectively.