Share-Based Compensation

Share-Based Compensation Plans

The Company has awards outstanding from four share-based compensation plans (the 1997 Stock Incentive Plan, the 1999 Director Plan, the 2002 Long-Term Incentive Plan, and the 2013 Long-Term Incentive Plan). Awards are currently only granted under the 2013 Long-Term Incentive Plan. As of June 30, 2014, there were 2,754,984 shares available for future grant under the 2013 Long-Term Incentive Plan. All of the Company’s share-based compensation plans are shareholder approved, and it is the Company’s belief that such awards better align the interests of its employees and directors with those of its shareholders. Under the plans, the Company is authorized to award officers, employees, consultants and non-employee members of the Board of Directors various share-based payment awards, including options to purchase common stock and restricted stock. Restricted stock can be in the form of a restricted stock award ("RSA") or a restricted stock unit ("RSU"). An RSA is common stock that is subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions. An RSU represents the right to receive shares of common stock in the future with the right to future delivery of the shares subject to risk of forfeiture or other restrictions that lapse upon satisfaction of specified conditions.

The Company accounts for its share-based compensation awards in accordance with ASC 718 – Stock Compensation, which requires all share-based compensation to be recognized in the income statement based on fair value and applies to all awards granted, modified, canceled, or repurchased after the effective date. Total share-based compensation included as a component of selling, general, and administrative expenses in our Consolidated Income Statements was as follows:



	Fiscal Year Ended June 30,
	2014		2013		2012
	(in thousands)
Share-based compensation related to:
Equity classified stock options	$	1,577	$	2,125	$	2,875
Equity classified restricted stock	3,671		3,493		3,965
Total share-based compensation	$	5,248	$	5,618	$	6,840

Stock Options

During the fiscal year ended June 30, 2014, the Company granted stock options for 122,856 shares to certain employees. These options vest annually over 3 years and have a 10-year contractual life. In accordance with the requirements of the Company’s Equity Award Grant Policy and the 2013 Long-Term Incentive Plan, the options issued during the fiscal year were granted with an exercise price that is no less than 100% of the fair market value of those shares on the date of the grant.

The fair value of each option (for purposes of calculation of share-based compensation) was estimated on the date of grant using the Black-Scholes-Merton option pricing formula that uses assumptions determined at the date of grant. Use of this option pricing model requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of our common stock price over the expected term ("expected volatility") and the number of options that will ultimately not complete their vesting requirements ("forfeitures"). Changes in the subjective assumptions can materially affect the estimate of the fair value of share-based compensation and, consequently, the related amount recognized in the Consolidated Income Statements.

The Company used the following weighted average assumptions for the options granted during the following fiscal years:



	Fiscal Year Ended June 30,
	2014			2013			2012
Expected term	4.00 years			4.64 years			6.77 years
Expected volatility	33.70		%	42.90		%	41.33		%
Risk-free interest rate	1.07		%	0.64		%	1.42		%
Dividend yield	0.00		%	0.00		%	0.00		%
Weighted average fair value per option	$	11.91		$	10.48		$	14.94

The weighted average expected term of the options represents the period of time the options are expected to be outstanding based on historical trends and behaviors of certain groups and individuals receiving these awards. The expected volatility is predominately based on the historical volatility of our common stock for a period approximating the expected term. The risk-free interest rate reflects the interest rate at grant date on zero-coupon U.S. governmental bonds that have a remaining life similar to the expected option term. The dividend yield assumption was based on our dividend payment history and expectations of future dividend payments.

A summary of our stock option plans is presented below:



	Fiscal Year Ended June 30, 2014
	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, beginning of year	1,478,283		$	31.18
Granted during the period	122,856		42.57
Exercised during the period	(498,971	)	27.96
Canceled, forfeited, or expired during the period	(31,071	)	34.06
Outstanding, end of year	1,071,097		33.91		5.51	$	5,025,390
Vested and expected to vest at June 30, 2014	1,070,718		33.91		5.51	$	5,024,582
Exercisable, end of year	820,165		$	32.98	4.51	$	4,181,791

The aggregate intrinsic value was calculated using the market price of our stock on June 30, 2014 and the exercise price for only those options that have an exercise price that is less than the market price of our stock. This amount will change as the market price per share changes. The aggregate intrinsic value of options exercised during the fiscal years ended June 30, 2014, 2013, and 2012 was $5.4 million, $3.1 million, and $5.8 million, respectively.

A summary of the status of the Company’s shares subject to unvested options is presented below:



	Fiscal Year Ended June 30, 2014
	Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair- Value
Unvested, beginning of year	261,280		$	32.28	$	12.40
Granted	122,856		42.57		11.91
Vested	(122,350	)	33.29		13.39
Canceled or forfeited	(10,854	)	29.80		11.52
Unvested, end of year	250,932		$	36.93	$	11.72

As of June 30, 2014, there was approximately $2.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans in the form of stock options. This cost is expected to be recognized over a weighted-average period of 1.08 years. The total fair value of options vested during the fiscal years ended June 30, 2014, 2013, and 2012 is $1.6 million, $2.6 million and $2.9 million, respectively. The following table summarizes information about stock options outstanding and exercisable as of June 30, 2014:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$18.13 - $22.27	15,758	4.43	$	18.14	15,758	$	18.14
$22.27 - $26.38	30,000	5.43	24.57		30,000	24.57
$26.38 - $30.49	230,739	4.99	28.95		152,936	28.55
$30.49 - $34.60	338,644	4.93	33.21		288,371	33.02
$34.60 - $38.71	335,600	5.11	36.44		333,100	36.44
$38.71 - $42.82	120,356	9.43	42.69		—	—
	1,071,097	5.51	$	33.91	820,165	$	32.98

The Company issues shares to satisfy the exercise of options.

Restricted Stock

Grants of Restricted Shares

During the fiscal year ended June 30, 2014, the Company elected to grant 131,038 shares of restricted stock to employees and non-employee directors, all of which were issued in the form of RSUs:



	Fiscal Year Ended June 30, 2014
	Shares granted	Date granted	Grant date fair value		Vesting period
Employees
Certain employees based on promotions	3,172	August 27, 2013	$	31.54	Annually over 3 years
Certain employees	115,766	December 6, 2013	42.82		Annually over 3 years
Non-Employee Directors⁽¹⁾
Certain Directors	10,800	December 6, 2013	$	42.82	6 months
Newly appointed Director	1,300	June 1, 2014	$	37.10	6 months

(1)

Per the 2013 Long-Term Incentive Plan, non-employee directors will receive annual awards of restricted stock, as opposed to stock options. The number of shares of restricted stock to be granted will be established from time to time by the Board of Directors. Currently, the number of shares of restricted stock awarded annually to each non-employee director generally will be determined by dividing $100,000 by the equity award value of the common stock on the date of grant, as defined in the 2013 Long-Term Incentive Plan. These awards will generally vest in full on the day that is six months after the date of grant or upon the earlier occurrence of (i) the director’s termination of service as a director by reason of death, disability or retirement, or (ii) a change in control by the Company. The compensation expense associated with these awards will be recognized on a pro-rata basis over this period.

A summary of the status of the Company’s outstanding restricted stock is presented below:



	Fiscal Year Ended June 30, 2014
	Shares		Weighted Average Grant Date Fair Value
Outstanding, beginning of year	212,421		$	31.82
Granted during the period	131,038		42.49
Vested during the period	(101,452	)	33.23
Cancelled, forfeited, or expired during the period	(21,899	)	33.54
Outstanding, end of year	220,108		$	37.36

As of June 30, 2014, there was approximately $5.8 million of unrecognized compensation cost related to unvested restricted stock awards and restricted stock units granted, which is expected to be recognized over a weighted average period of 1.08 years. The Company withheld 32,751 shares for income taxes during the fiscal year ended June 30, 2014.