Note 14—Shareholders’ Equity and Share-Based Compensation

Preferred Stock

As of June 30, 2014 and 2013, we had no shares of preferred stock outstanding. We are authorized to issue 5 million shares of preferred stock, $0.01 par value.

Common Stock

We have 200 million authorized shares of common stock, $0.01 par value. At June 30, 2014 and 2013, we had 98,408,042 and 97,044,572 shares issued; 30,319,785 and 28,992,092 shares in treasury stock and 68,088,257 and 68,052,480 shares outstanding (net of treasury stock), respectively.

Share Buyback Program

On October 26, 2011, our Board of Directors authorized the repurchase of up to $200 million of our common stock under the Buyback Program. The Buyback Program allowed us to purchase shares of our common stock in accordance with applicable securities laws on the open market, or through privately negotiated transactions. We entered into an agreement with an external broker that provided the structure under which the program was facilitated, which expired on October 25, 2012. The Buyback Program was set to expire on October 26, 2012, but on October 23, 2012 our Board of Directors approved an extension of the Buyback Program through October 25, 2013. On June 19, 2013 we entered into a new agreement with an external broker which expired on October 25, 2013 (the “10b5-1 Plan”). On June 26, 2013, our Board of Directors authorized the repurchase of up to an additional $200 million of our common stock under the New Buyback Program which expired on June 26, 2014. On August 26, 2013 we amended the 10b5-1 Plan to incorporate both board authorizations up until each of their respective expiration dates (the “Amended 10b5-1 Plan”). The Amended 10b5-1 Plan expired on June 25, 2014. During the fiscal year ended June 30, 2014, we repurchased 1,327,693 shares at a cost of $90.8 million for a total cumulative buyback of 4,719,968 shares at a cost of $220.1 million under the Buyback Program and the New Buyback Program.

The Buyback Program and the New Buyback Program have expired and therefore no additional shares may be repurchased under such programs. We will determine the timing and the amount of any future buyback programs based on an evaluation of market conditions, share price and other factors.

Share-Based Compensation

On June 30, 2014 we had one share-based plan with shares available for future grants, the 2012 Stock Option and Incentive Plan (the “2012 Plan”), which is described below. The compensation expense for share-based compensation was $28.6 million, $17.6 million and $17.4 million for the fiscal years ended June 30, 2014, 2013 and 2012, respectively. The total income tax benefit recognized in our Consolidated Statements of Income for share-based compensation arrangements was $6.6 million, $4.1 million and $5.6 million for the fiscal years ended June 30, 2014, 2013 and 2012, respectively. Share-based compensation was higher for the fiscal year ended June 30, 2014 compared to the prior fiscal year due to an increase in expense related to performance awards. Share-based compensation expense was flat for the year ended June 30, 2013 compared to the prior fiscal year.

2012 Plan

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 (i) 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 (ii) 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: (i) 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 (ii) 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. Shares may be issued as original issuances, treasury shares or a combination of both. Option awards are granted with an exercise price equal to the market price of our stock on the date of the grant. The option awards generally vest over three to five years of continuous service commencing one year from the date of the grant and expire after ten years. During the fiscal year ended June 30, 2014, 455,626 options to purchase shares of our common stock, 459,140 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 June 30, 2014, there were 4,542,735 shares available for grant under the 2012 Plan.

2002 Plan

Prior to the Effective Date, we had one share-based compensation plan with shares available for grants, the 2002 Plan. On December 8, 2010, we amended the 2002 Plan to increase the number of shares available under the 2002 Plan for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units by 1,100,000 to an aggregate amount not to exceed 7,860,000 shares of our common stock. Under the 2002 Plan, shares were permitted to be issued as original issuances, treasury shares or a combination of both. Option awards were granted with an exercise price equal to the market price of our stock on the date of the grant. The option awards granted under the 2002 Plan generally vest over three to five years of continuous service commencing one year from the date of the grant and expire after ten years. During the fiscal year ended June 30, 2014, there were no options to purchase shares of our common stock or restricted stock units granted under the 2002 Plan. At June 30, 2014, there were no shares available for grant under the 2002 Plan.

Restricted Stock Awards

A grant of restricted stock involves the immediate transfer of ownership of a specified number of shares of common stock with a “substantial risk of forfeiture” for a period of at least three years. A participant who receives a restricted stock grant is immediately entitled to voting, dividend and certain other share ownership rights associated with the underlying shares of common stock. At June 30, 2014, no shares of restricted stock were outstanding.

Restricted Stock Units

A grant of restricted stock units involves an agreement by our Company to deliver a specified number of shares of common stock or cash to the participant when the award vests. A participant has no ownership or voting rights associated with the underlying shares of common stock. Our Board of Directors may, at its discretion, authorize the payment of dividend equivalents on the restricted stock units. At June 30, 2014, a total of 1,546,557 restricted stock units were outstanding, all of which were granted under the Plans.

Stock Appreciation Rights

Stock appreciation rights allow the holders to receive 100 percent of the spread between the option price and the fair market value of the shares on the date of exercise. The performance period will not be less than three years. We granted 5,515 and 7,281 stock appreciation rights in fiscal years 2014 and 2013, respectively, under the 2012 Plan. At June 30, 2014, a total of 12,517 stock appreciation rights were outstanding.

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.


	Year Ended June 30,
	2014			2013			2012
Expected volatility		32.7—55.4	%		41.8—60.3	%		48.8—66.2	%
Weighted-average volatility		45.8	%		50.0	%		59.1	%
Expected annual dividend	$	1.20		$	0.60		$	0.30
Expected term (in years)		2.05—4.66			2.32—6.25			1.70—5.54
Risk-free rate		0.3—1.8	%		0.2—1.0	%		0.2—1.0	%

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. The expected annual dividend was applicable for grants in fiscal years 2014, 2013 and 2012, as dividends were declared in all quarters of fiscal years 2014, 2013 and 2012.

Stock Option Activity

A summary of option activity under our Plans as of and for the fiscal year ended June 30, 2014 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		455,626			66.92
Exercised		(1,030,452	)		50.10
Forfeited or expired		(129,608	)		60.10

Outstanding at June 30, 2014		1,419,598			65.90		6.70	$	62,204

Exercisable at June 30, 2014		554,972		$	83.10		4.04	$	16,749

The weighted-average grant-date fair value of options granted during the fiscal years ended June 30, 2014, 2013 and 2012 was $20.80, $15.87 and $14.30, respectively. The total intrinsic value of options exercised during the fiscal years ended June 30, 2014, 2013 and 2012 was $33.7 million, $8.9 million and $7.0 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 each of the fiscal years ended June 30, 2014, 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 fiscal year ended June 30, 2014, 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 fiscal year ended June 30, 2013, 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 fiscal year ended June 30, 2012, we granted 118,546 restricted stock units with EPS performance conditions, 118,546 restricted stock units with ROIC performance conditions and 118,546 restricted stock units with market conditions, under the 2002 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 2012 through 2014. The restricted stock units with ROIC conditions cliff vest three years from the date of grant based on the achievement of a certain ROIC level in fiscal year 2014. 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 $3.3 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.

We granted 191,721 restricted stock units with EPS performance conditions and 191,715 restricted stock units with market conditions in the fiscal year ended June 30, 2011, under the 2002 Plan. These restricted stock units cliff vested in September 2013. Compensation expense, for both the restricted stock units with performance conditions and the restricted stock units with market conditions, was 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 would be met, for awards with performance conditions. Approximately 41 percent of the restricted stock units with EPS performance conditions vested and 100 percent of the restricted stock units with market conditions vested based on the actual attainment of certain targets.

In the fiscal years ended June 30, 2014, 2013 and 2012, we also granted 183,343, 232,617 and 281,711, respectively, time vested restricted stock units, without performance or market conditions, that vest three years from the date of grant, and 14,540, 41,037 and 29,790, respectively, time vested restricted stock units, without performance or market conditions that vest ratably over the three-year vesting period under the Plans.

In the fiscal years ended June 30, 2014, 2013 and 2012, we granted 613, 970 and 1,150 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 year ended June 30, 2014, none of these restricted stock units were settled. At June 30, 2014, 2013 and 2012, 2,632, 2,120 and 1,150 cash-settled restricted stock units were outstanding, respectively.

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 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 fiscal years ended June 30, 2014, 2013 and 2012 0, 1,608 and 1,608 of these restricted stock units were settled, respectively, at a cost of $0, $0.1 million and $0.1 million, respectively. At June 30, 2014 and 2013, no cash-settled restricted stock units, granted outside the 2002 Plan were outstanding.

A summary of equity classified restricted stock unit activity as of and for the fiscal year ended June 30, 2014 is presented below:


	Restricted Stock Units
Non-vested at June 30, 2013		1,750,315
Granted		459,140
Vested		(522,191	)
Forfeited		(143,339	)

Non-vested at June 30, 2014		1,543,925

At June 30, 2014 the aggregate intrinsic value of equity classified restricted stock units was $165.9 million. As of June 30, 2014, there was $34.5 million of total unrecognized compensation cost related to equity classified restricted stock unit compensation arrangements. The weighted average recognition period was 1.1 years.

Stock Appreciation Rights

A summary of cash-settled stock appreciation rights as of and for the fiscal year ended June 30, 2014 is presented below:


	Shares
Non-vested at June 30, 2013		12,666
Granted		5,515
Vested		(5,081	)
Forfeited		(1,069	)

Non-vested at June 30, 2014		12,031

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.