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 (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”). On December 9, 2015, we further amended the 2012 Plan to increase the number of shares available under the 2012 Plan for the grant of future awards by 2,000,000 shares to an aggregate amount not to exceed 9,269,821 shares of our common stock. 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 common 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 six months ended December 31, 2016, 940,301 stock-settled restricted stock units, 6,136 cash-settled restricted stock units and 1,853 cash-settled stock appreciation rights were granted under the 2012 Plan. As of December 31, 2016, there were 3,844,426 shares available for grant under the 2012 Plan.

Share-based compensation expense, net was $19.9 million and $12.5 million for the three months ended December 31, 2016 and 2015, respectively, and was $30.1 million and $20.9 million for the six months ended December 31, 2016 and 2015, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for share-based compensation arrangements was $5.3 million and $3.4 million for the three months ended December 31, 2016 and 2015, respectively, and was $7.6 million and $5.4 million for the six months ended December 31, 2016 and 2015, respectively.

Fair Value Determination

Stock Options

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. There were no options granted during the six months ended December 31, 2016 and 2015.

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 the Plans as of December 31, 2016 and changes during the six months ended December 31, 2016 is presented below:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at June 30, 2016		667,579		$	73.30		4.57	$	8,044
Granted		-			-
Exercised		(164,636	)		56.30
Forfeited or expired		(43,220	)		112.24
Outstanding at December 31, 2016		459,723		$	75.73		3.70	$	17,373
Exercisable at December 31, 2016		458,166		$	75.56		3.69	$	17,371

The total intrinsic value of options exercised for the three months ended December 31, 2016 and 2015 was $6.0 million and $2.9 million, respectively, and was $7.1 million and $5.3 million for the six months ended December 31, 2016 and 2015, 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, 2016 and 2015, 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, 2016, we granted 210,476 restricted stock units with earnings per share (“EPS”) performance conditions, and 210,476 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 2017 through 2019. 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 2017 through 2019. 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 $11.4 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, 2015, we granted 175,353 restricted stock units with EPS performance conditions and 175,353 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 ROIC performance condition, specifically, the achievement of a certain average ROIC level over fiscal years 2016 through 2018. 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 2016 through 2018. 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 $12.3 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, 2014, we granted 130,616 restricted stock units with EPS performance conditions and 130,641 restricted stock units with market conditions under the 2012 Plan. These restricted stock units cliff-vested in September 2016. 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. Of the restricted stock units with EPS performance conditions, 100 percent vested and of the restricted stock units with market conditions 78 percent vested based on the actual attainment of certain targets.

In the six months ended December 31, 2016 and 2015, we also granted 6,830 and 5,243 time-vested restricted stock units, respectively, without performance or market conditions, that cliff-vest three years from the date of grant, 501,440 and 363,788 time-vested restricted stock units, respectively, without performance or market conditions that vest ratably over the three-year vesting period, and 11,079 and 14,424 time-vested restricted stock units, respectively, without performance or market conditions, that cliff-vest one year from the date of grant, under the 2012 Plan.

In the six months ended December 31, 2016 and 2015, we granted 6,136 and 4,923 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, 2016 and 2015, 2,268 and 869 cash-settled restricted stock units were settled, respectively. At December 31, 2016, 10,260 cash-settled restricted stock units were outstanding.

A summary of equity classified restricted stock unit activity as of December 31, 2016 and changes during the six months ended December 31, 2016 is presented below:

	Restricted Stock Units
Nonvested at June 30, 2016		1,494,947
Granted		940,301
Vested		(528,674	)
Forfeited		(125,880	)
Non-vested at December 31, 2016		1,780,694

At December 31, 2016, the aggregate intrinsic value of equity-classified restricted stock units was $197.9 million and there was $97.6 million of total unrecognized compensation cost related to equity classified restricted stock unit compensation arrangements. The weighted average recognition period was 2.0 years.

Stock Appreciation Rights

A summary of cash-settled stock appreciation rights as of December 31, 2016 and changes during the six months ended December 31, 2016 is presented below:

	Stock Appreciation Rights
Non-vested at June 30, 2016		4,342
Granted		1,853
Vested		(2,707	)
Forfeited		0
Non-vested at December 31, 2016		3,488
Exercisable		2,310

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 of each stock appreciation right award is estimated on the date of grant using the Black-Scholes option valuation model, which uses the assumptions noted below.

	Six Months Ended December 31, 2016		Six Months Ended December 31, 2015
Expected volatility	36.8-38.8%		35.4-39.0%
Weighted-average volatility		38.1%		37.5%
Expected annual dividend	$ 1.40		$ 1.40
Expected term (in years)	3.44-5.44		2.56-4.56
Risk-free rate	0.9-1.3%		1.1-1.6%