Share-Based Compensation

Share-Based Compensation Plans

The Company has awards outstanding from two share-based compensation plans (the 2002 Long-Term Incentive Plan and the 2013 Long-Term Incentive Plan). Awards are currently only being granted under the 2013 Long-Term Incentive Plan. As of June 30, 2018, there were 3,786,727 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 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"), restricted stock unit ("RSU") or a performance unit ("PU"). 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,
	2018		2017		2016
	(in thousands)
Share-based compensation related to:
Equity classified stock options	$	1,184	$	1,356	$	1,479
Equity classified restricted stock	5,275		5,246		5,614
Total share-based compensation	$	6,459	$	6,602	$	7,093

Stock Options

During the fiscal year ended June 30, 2018, the Company granted stock options for 119,132 shares. These options vest annually over 3 years and have a 10-year contractual life. These options were granted with an exercise price that is no less than 100% of the fair market value of the underlying 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 the Company's 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,
	2018			2017			2016
Expected term	5 years			5 years			4.02 years
Expected volatility	30.70		%	30.88		%	28.70		%
Risk-free interest rate	2.17		%	1.84		%	1.47		%
Dividend yield	0.00		%	0.00		%	0.00		%
Weighted-average fair value per option	$	10.60		$	11.26		$	9.53

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 predominantly 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 United States governmental bonds that have a remaining life similar to the expected option term. The dividend yield assumption was based on the Company's dividend payment history and management's expectations of future dividend payments.

A summary of activity under our stock option plans is presented below:



	Fiscal Year Ended June 30, 2018
	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, beginning of year	872,989		$	37.63
Granted during the period	119,132		34.27
Exercised during the period	(62,701	)	35.72
Canceled, forfeited, or expired during the period	(32,300	)	37.17
Outstanding, end of year	897,120		37.33		5.95	$	3,089,365
Vested and expected to vest at June 30, 2018	895,187		37.34		5.94	$	3,078,179
Exercisable, end of year	685,554		$	37.84	5.07	$	2,113,769

The aggregate intrinsic value was calculated using the market price of the Company's stock on June 30, 2018, 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, 2018, 2017 and 2016 was $0.5 million, $1.6 million and $1.3 million, respectively.

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



	Fiscal Year Ended June 30, 2018
	Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair- Value
Unvested, beginning of year	215,970		$	38.48	$	10.39
Granted	119,132		34.27		10.60
Vested	(123,536	)	39.20		10.33
Unvested, end of year	211,566		$	35.69	$	10.54

As of June 30, 2018, there was approximately $1.6 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 1.12 years. The total fair value of options vested during the fiscal years ended June 30, 2018, 2017 and 2016 is $1.3 million, $1.5 million and $1.5 million, respectively. The following table summarizes information about stock options outstanding and exercisable as of June 30, 2018:



	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	2,800	0.43	$	18.14	2,800	$	18.14
$22.27 - $26.38	25,000	1.43	24.57		25,000	24.57
$26.38 - $30.49	20,731	4.44	29.80		20,731	29.80
$30.49 - $34.60	197,971	7.17	34.21		82,839	34.27
$34.60 - $38.71	371,169	5.67	37.04		274,735	36.87
$38.71 - $42.82	279,449	6.02	41.83		279,449	41.83
	897,120	5.95	$	37.33	685,554	$	37.84

The Company issues shares to satisfy the exercise of options.

Restricted Stock

Grants of Restricted Shares

During the fiscal year ended June 30, 2018, the Company granted 138,665 shares of restricted stock to employees and non-employee directors, all of which were issued in the form of RSUs or PUs:



	Fiscal Year Ended June 30, 2018
	Shares granted	Date granted	Grant date fair value		Vesting period
Employees
Certain employees based on performance	92,469	December 8, 2017	$	34.35	Annually over 3 years
Certain employees based on performance⁽¹⁾	31,296	February 1, 2018	$	34.95	January 1, 2018 through December 31, 2020
Non-Employee Directors⁽²⁾
Certain Directors	500	September 11, 2017	$	37.75	6 months
Certain Directors	14,400	December 8, 2017	$	34.35	6 months

(1) The RSU's granted on February 1, 2018 contains both service and performance-based vesting conditions for the period January 1, 2018 through December 31, 2020 (the "performance cycle") as determined by the Compensation Committee of the Company's Board of Directors. The total number for target shares granted could differ from the actual shares vested at the conclusion of the performance cycle. See the Company's 2018 Proxy Statement for more information about these grants.

(2) Under the 2013 Long-Term Incentive Plan, non-employee directors receive annual awards of restricted stock, as opposed to stock options. The number of shares of restricted stock to be granted is 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 is 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. The equity award value means the value per share based on a 45-day averaging of the fair market value of the common stock over a specified period of time, or the fair market value of the common stock on a specified date. 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, 2018
	Shares		Weighted-Average Grant Date Fair Value
Outstanding, beginning of year	267,386		$	37.86
Granted during the period	138,665		34.50
Target shares adjustment during the period ⁽¹⁾	(216	)	36.33
Vested during the period	(146,046	)	38.16
Cancelled, forfeited, or expired during the period	(6,270	)	34.77
Outstanding, end of year	253,519		$	35.93

(1) These target shares granted as RSUs during fiscal year 2015 have service based and performance based vesting conditions. The actual number of shares granted for each of the three tranches, for the period June 1, 2014 through June 30, 2017, is determined after the date of the Company's financial statements. Therefore, the adjustment recognized during fiscal year 2018 represents the variance between the shares assumed to be granted versus at June 30, 2017 the actual shares granted for the third tranche.

As of June 30, 2018, there was approximately $6.6 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 1.23 years. The Company withheld 47,470 shares for income taxes during the fiscal year ended June 30, 2018.