Note 12 – Share-Based Compensation

On December 7, 2011 (the “Effective Date”), our shareholders approved the 2012 Stock Option and Incentive Plan (the “2012 Plan”), which is effective through December 7, 2021. As of the Effective Date, no further grants may be granted under our former plan, the Amended and Restated 2002 Stock Option and Incentive Plan, as amended (the “2002 Plan” and together with the 2012 Plan, the “Plans”). On December 4, 2013, we amended the 2012 Plan to (1) increase the number of shares available under the 2012 Plan for the grant of future awards by 2,869,821 shares to an aggregate amount not to exceed 7,269,821 shares of our common stock and (2) modified certain share counting provisions related to the definition of a full-value grant from 1.71 to 1.5 (“Full-Value Grant”). The 2012 Plan provides for two types of awards: (1) a Full-Value Grant under which one award shall reduce the shares available for grant under the 2012 Plan by 1.71 shares if granted prior to December 4, 2013 or 1.5 shares if granted on or after December 4, 2013, and (2) an option or stock appreciation right grant, under which one award shall reduce the shares available for grant under the 2012 Plan by one share. During the six months ended December 31, 2013, 449,704 options to purchase shares of our common stock, 447,434 stock-settled restricted stock units, 613 cash-settled restricted stock units and 5,515 cash-settled stock appreciation rights were granted under the 2012 Plan. As of December 31, 2013, there were 4,493,099 shares available for grant under the 2012 Plan.

Share-based compensation expense, net was $8.7 million and $5.4 million for the three months ended December 31, 2013 and 2012, respectively, and was $15.3 million and $10.2 million for the six months ended December 31, 2013 and 2012, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for share-based compensation arrangements was $2.3 million and $1.2 million for the three months ended December 31, 2013 and 2012, respectively, and was $3.8 million and $2.6 million for the six months ended December 31, 2013 and 2012, respectively.

Fair Value Determination

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, which uses the assumptions noted in the following table.


	Six Months Ended December 31,
	2013	2012
Expected volatility	32.7% - 55.4%	43.0% - 59.3%
Weighted-average volatility	45.9%	50.1%
Expected annual dividend	$1.20	$0.60
Expected term (in years)	2.41 - 4.66	2.32 - 4.47
Risk-free rate	0.3% - 1.8%	0.2% - 0.6%

Groups of option holders (directors, executives and non-executives) that have similar historical behavior are considered separately for valuation purposes. Expected volatilities are based on historical closing prices of our common stock over the expected option term. We use historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is derived using the option valuation model and represents the estimated period of time from the date of grant that the option is expected to remain outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock Option Activity

A summary of option activity under our Plans as of December 31, 2013 and changes during the six months ended December 31, 2013 is presented below:


	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2013		2,124,032		$	57.67		6.29	$	21,077
Granted		449,704			66.39
Exercised		(631,711	)		41.78
Forfeited or expired		(65,454	)		61.99

Outstanding at December 31, 2013		1,876,571			64.95		6.66	$	43,019

Exercisable at December 31, 2013		901,939		$	77.29		4.20	$	15,427

The weighted-average grant-date fair value of options granted for the three months ended December 31, 2013 and 2012 was $20.04 and $15.54, respectively, and for the six months ended December 31, 2013 and 2012 was $20.72 and $15.92, respectively. The total intrinsic value of options exercised for the three months ended December 31, 2013 and 2012 was $6.1 million and $0.4 million, respectively, and for the six months ended December 31, 2013 and 2012 was $18.2 million and $6.0 million, respectively.

Modification of Certain Stock Option Awards

Prior to fiscal year 2011, certain of the award agreements under the 2002 Plan stated that vested options not exercised were forfeited upon termination of employment for any reason other than death or disability. However, such award agreements provided that the Compensation and Option Committee of our Board of Directors (the “Compensation and Option Committee”) could extend the time period to exercise vested options 90 days beyond the employment termination date for certain employees. During the three and six months ended December 31, 2013 and 2012, the Compensation and Option Committee used this authority. This action represented a modification of the terms or conditions of an equity award and therefore was accounted for as an exchange of the original award for a new award. Incremental share-based compensation cost for the excess of the fair value of the new award over the fair value of the original award was immaterial.

Restricted Stock Units

In the six months ended December 31, 2013, we granted 130,616 restricted stock units with earnings per share (“EPS”) performance conditions, and 130,641 restricted stock units with market conditions under the 2012 Plan. Additionally, both the restricted stock units with EPS performance conditions and the restricted stock units with market conditions, secondarily vest based on the achievement of a return on invested capital (“ROIC”) performance condition, specifically, the achievement of a certain average ROIC level over fiscal years 2014 through 2016. The restricted stock units with EPS performance conditions cliff vest three years from the date of grant based on the achievement of certain cumulative EPS levels from fiscal years 2014 through 2016. The restricted stock units with market conditions cliff vest three years from the date of grant based on a comparison of our total shareholder return (“TSR”) to the TSR of a selected peer group of publicly listed multinational companies. The grant date fair value of the restricted stock units with market conditions of $6.0 million was calculated using a Monte Carlo simulation model. Compensation expense is recognized ratably over the three-year vesting period based on the grant date fair value and our assessment of the probability that the applicable targets will be met for the performance conditions, which is reassessed each reporting period.

In the six months ended December 31, 2012, we granted 97,733 restricted stock units with EPS performance conditions, 97,733 restricted stock units with ROIC performance conditions and 97,733 restricted stock units with market conditions, under the 2012 Plan. The restricted stock units with EPS performance conditions cliff vest three years from the date of grant based on the achievement of certain cumulative EPS levels from fiscal years 2013 through 2015. The restricted stock units with ROIC conditions cliff vest three years from the date of grant based on the achievement of a certain average ROIC level over fiscal years 2013 through 2015. The restricted stock units with market conditions cliff vest three years from the date of grant based on a comparison of our TSR to the TSR of a selected peer group of publicly listed multinational companies. The grant date fair value of the restricted stock units with market conditions of $3.7 million was calculated using a Monte Carlo simulation model. Compensation expense, for both the restricted stock units with performance conditions and the restricted stock units with market conditions, is recognized ratably over the three-year vesting period based on the grant date fair value and our assessment of the probability that the applicable targets will be met for awards with performance conditions, which is reassessed each reporting period.

In the six months ended December 31, 2013 and 2012, we also granted 175,425 and 234,825 time vested restricted stock units, respectively, without performance or market conditions that cliff-vest three years from the date of grant, and 10,752 and 21,840 time vested restricted stock units, respectively, without performance or market conditions that vest ratably over the three-year vesting period, under the 2012 Plan.

In the six months ended December 31, 2013 and 2012, we granted 613 and 869 cash-settled restricted stock units, respectively, under the 2012 Plan. These restricted stock units are accounted for as liability awards and are recorded at the fair value at the end of the reporting period in accordance with their vesting schedules. During the six months ended December 31, 2013, and 2012, none of these restricted stock units were settled. At December 31, 2013, 2,632 cash-settled restricted stock units were outstanding.

In January and September 2008, we granted 34,608 and 28,344 cash-settled restricted stock units, respectively, outside the 2002 Plan. These restricted stock units were accounted for as liability awards and were recorded at the fair value at the end of the reporting period in accordance with their vesting schedules. At December 31, 2013, no cash-settled restricted stock units, granted outside the 2002 Plan, were outstanding. During the six months ended December 31, 2013, no cash-settled restricted stock units granted outside the 2002 Plan, were settled. During the six months ended December 31, 2012, 1,608 of these restricted stock units were settled, at a cost of $0.1 million.

A summary of equity classified restricted stock unit activity as of December 31, 2013 and changes during the six months ended December 31, 2013 is presented below:


	Restricted Stock Units
Nonvested at June 30, 2013		1,750,315
Granted		447,434
Vested		(517,563	)
Forfeited		(124,527	)

Nonvested at December 31, 2013		1,555,659

At December 31, 2013, the aggregate intrinsic value of equity-classified restricted stock units was $127.3 million and there was $40.1 million of total unrecognized compensation cost related to equity classified restricted stock unit compensation arrangements. The weighted average recognition period was 1.6 years.

Stock Appreciation Rights

A summary of cash-settled stock appreciation rights as of December 31, 2013 and changes during the six months ended December 31, 2013 is presented below:


	Stock Appreciation Rights
Non-vested at June 30, 2013		12,666
Granted		5,515
Vested		(5,081	)
Forfeited		(478	)

Non-vested at December 31, 2013		12,622

Exercisable		486

These stock appreciation rights are accounted for as liability awards and are recorded at the fair value at the end of the reporting period in accordance with their vesting schedules. The fair value is calculated using the Black-Scholes option valuation model using assumptions consistent with our stock options.