NOTE 21. STOCK PLANS AND STOCK-BASED COMPENSATION

Historically, the Company grants stock options, SSARs, non-performance-based RSUs and performance-based RSUs to key employees. Stock-based compensation expense is recognized on a straight-line basis ratably over the respective vesting periods. Performance-based RSUs are subject to achievement of a performance metric in addition to grantee service. Stock-based compensation expense for performance-based RSUs is recognized on an accelerated basis by treating each vesting tranche as if it was a separate grant. A summary of the components of stock-based compensation expense recognized during the years ended June 30, 2018, 2017, and 2016, together with the income tax benefits realized, is as follows (in thousands):

	Year ended June 30,
	2018		2017		2016
Stock-based compensation included in indirect costs and selling expense:
Restricted stock and RSU expense	$	23,628	$	21,945	$	17,919
Income tax benefit recognized for stock-based compensation	$	7,769	$	7,498	$	6,476

The Company recognizes the effect of expected forfeitures of equity grants by estimating an expected forfeiture rate for grants of equity instruments. Amounts recognized for expected forfeitures are subsequently adjusted periodically and at major vesting dates to reflect actual forfeitures.

The incremental income tax benefits realized upon the exercise or vesting of equity instruments are reported as operating cash flows. During the years ended June 30, 2018, 2017, and 2016, the Company recognized $6.3 million, $1.6 million, and $1.2 million of excess tax benefits, respectively, which have been reported as operating cash inflows in the accompanying consolidated statements of cash flows.

Equity Grants and Valuation

Under the terms of its 2016 Amended and Restated Incentive Compensation Plan (the 2016 Plan), the Company may issue, among others, non-qualified stock options, restricted stock, RSUs, SSARs, and performance awards, collectively referred to herein as equity instruments. The 2016 Plan was approved by the Company’s stockholders in November 2016 and amended and restated the 2006 Stock Incentive Plan (the 2006 Plan) which was due to expire at the end of the ten-year period. Grants that were made under the 2006 Plan, and equity instruments granted prior to approval of the 2016 Plan continue to be governed by the terms of the 2006 Plan. During the periods presented all equity instrument grants were made in the form of RSUs.

Annual grants under the 2016 Plan, and the 2006 Plan, are generally made to the Company’s key employees during the first quarter of the Company’s fiscal year and to members of the Company’s Board of Directors during the second quarter of the Company’s fiscal year. With the approval of its Chief Executive Officer, the Company also issues equity instruments to strategic new hires and to employees who have demonstrated superior performance.

Upon the vesting of restricted shares and RSUs, the Company fulfills its obligations under the equity instrument agreements by either issuing new shares of authorized common stock or by issuing shares from treasury. As of June 30, 2018, the total number of shares authorized by shareholders for grants under the 2016 Plan and its predecessor plan was 1,200,000 plus any forfeitures from the 2006 Plan. The aggregate number of grants that may be made may exceed this approved amount as forfeited restricted stock and RSUs become available for future grants. As of June 30, 2018, cumulative grants of 318,627 equity instruments underlying the shares authorized have been awarded, and 105,367 of these instruments have been forfeited.

The Company granted performance-based stock awards to key employees in September of 2017, 2016, and 2015. The final number of RSUs that are earned by participants and vest is based on the achievement of a specified EPS for the fiscal year and on the average share price for the 90-day period ended for the following three years. If the 90-day average share price of the Company’s stock in years one, two and three exceeds the 90-day average share price at the grant date by 100 percent or more the number of shares ultimately awarded could range up to 200 percent of the specified target award. In addition to the performance and market conditions, there is a service vesting condition that stipulates 50 percent of the award will vest 3 years from the grant date and 50 percent will vest approximately 4 years from the grant date, depending on the award date.

The annual performance-based awards granted for each of the fiscal years presented were as follows:

	Performance-based stock awards granted		Number of additional shares earned under performance-based stock awards
Fiscal year 2018		185,056		—
Fiscal year 2017		193,420		21,824
Fiscal year 2016		208,160		48,068

We account for share-based payments to employees, including grants of employee stock awards and purchases under employee stock purchase plans, in accordance with ASC 718, Compensation-Stock Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statements of operations based on their fair values. The fair value of RSU grants are determined based on the Company’s common stock closing price on the date of grant. The fair value of RSUs with market-based vesting features is also measured on the grant date but uses a binomial lattice model.

We determine the fair value of our market-based and performance-based RSUs at the date of grant using generally accepted valuation techniques and the closing market price of our stock. The fair value for the annual grant made in September 2017 was determined using a Monte Carlo simulation model incorporating the following factors: 90-day average stock price at the grant date of $127.02 a share, risk free rate of return of 1.53 percent and expected volatility of 26.94 percent. Stock-based compensation cost is recognized as expense on an accelerated basis over the requisite service period for performance-based awards. The weighted-average fair value of RSUs granted during the years ended June 30, 2018, 2017, and 2016, was $146.27, $104.45, and $80.72, respectively.

The Company also issues equity instruments in the form of RSUs under its Management Stock Purchase Plan (MSPP) and Director Stock Purchase Plan (DSPP). In addition, annual grants are made to members of the Company’s Board of Directors in the form of a set dollar value of RSUs. Grants to members of the Board of Directors vest based on the passage of time and continued service as a Director of the Company.

Restricted shares and most non-performance-based RSUs vest in full three years from the date of grant. RSUs granted to the Company’s Chief Operating Officer in February 2012 have longer vesting periods.

Changes in the number of unvested restricted stock and RSUs during each of the years in the three-year period ended June 30, 2018, 2017, and 2016, together with the corresponding weighted-average fair values, are as follows:

	Restricted Stock and Restricted Stock Units
	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at June 30, 2015		864,566		$	64.79
Granted		275,117			80.72
Vested		(209,448	)		49.48
Forfeited		(56,381	)		75.79
Unvested at June 30, 2016		873,854		$	64.79
Granted		256,853			104.45
Vested		(233,296	)		65.07
Forfeited		(62,804	)		93.12
Unvested at June 30, 2017		834,607		$	71.20
Granted		276,871			146.27
Vested		(394,293	)		66.29
Forfeited		(53,198	)		95.03
Unvested at June 30, 2018		663,987		$	107.96

The total intrinsic value of RSUs that vested during the years ended June 30, 2018, 2017, and 2016 was $55.2 million, $26.6 million and $18.4 million, respectively, and the income tax benefit realized was $13.3 million, $4.8 million and $3.3 million, respectively.

As of June 30, 2018, there was no unrecognized compensation cost related to SSARs and stock options and $37.3 million of unrecognized compensation cost related to restricted stock and RSUs scheduled to be recognized over a weighted-average period of 2.7 years.

As of June 30, 2016, all stock options and SSARs are fully vested and exercised. No stock options or SSARs were granted during the years ended June 30, 2018, 2017 or 2016. Activity for all outstanding SSARs and stock options, and the corresponding exercise price and fair value information, for the year ended June 30, 2016, is as follows:

	Number of Shares			Exercise Price		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding, June 30, 2015		42,660		37.67 – 49.36			48.29		17.45
Exercisable, June 30, 2015		42,660		37.67 – 49.36			48.29	$	17.45
Exercised		(35,860	)	37.67 – 49.36			48.18		17.25
Forfeited		—			—		—		—
Expired		(6,800	)		48.83		48.83		18.50
Outstanding, June 30, 2016		—			—		—		—
Exercisable, June 30, 2016		—			—	$	—	$	—

Note: 2017 and 2018 have no outstanding SSARs or stock options.

Information regarding the cash proceeds received, and the intrinsic value and total tax benefits realized resulting from SSARs and stock option exercises is as follows (in thousands):

	Year ended June 30,
	2018		2017		2016
Cash proceeds received	$	—	$	—	$	0
Intrinsic value realized	$	—	$	—	$	1,286
Income tax benefit realized	$	—	$	—	$	465

Stock Purchase Plans

The Company adopted the 2002 Employee Stock Purchase Plan (ESPP), MSPP and DSPP in November 2002, and implemented these plans beginning July 1, 2003. There are 1,250,000, 500,000, and 75,000 shares authorized for grants under the ESPP, MSPP and DSPP, respectively.

The ESPP allows eligible full-time employees to purchase shares of common stock at 95 percent of the fair market value of a share of common stock on the last day of the quarter. The maximum number of shares that an eligible employee can purchase during any quarter is equal to two times an amount determined as follows: 20 percent of such employee’s compensation over the quarter, divided by 95 percent of the fair market value of a share of common stock on the last day of the quarter. The ESPP is a qualified plan under Section 423 of the Internal Revenue Code and, for financial reporting purposes, was amended effective July 1, 2005 so as to be considered non-compensatory. Accordingly, there is no stock-based compensation expense associated with shares acquired under the ESPP. As of June 30, 2018, participants have purchased 1,149,324 shares under the ESPP, at a weighted-average price per share of $54.14. Of these shares, 36,629 were purchased by employees at a weighted-average price per share of $129.83 during the year ended June 30, 2018. During the year ended June 30, 2013, the Company established a 10b5-1 plan to facilitate the open market purchase of shares of Company stock to satisfy its obligations under the ESPP.

The MSPP provides those senior executives with stock holding requirements a mechanism to receive RSUs in lieu of up to 100 percent of their annual bonus. For the fiscal years ended June 30, 2018, 2017, and 2016, RSUs awarded in lieu of bonuses earned were granted at 85 percent of the closing price of a share of the Company’s common stock on the date of the award, as reported by the New York Stock Exchange. RSUs granted under the MSPP vest at the earlier of 1) three-years from the grant date, 2) upon a change of control of the Company, 3) upon a participant’s retirement at or after age 65, or 4) upon a participant’s death or permanent disability. Vested RSUs are settled in shares of common stock. The Company recognizes the value of the discount applied to RSUs granted under the MSPP as stock compensation expense ratably over the three-year vesting period.

Activity related to the MSPP during the year ended June 30, 2018 is as follows:

	MSPP
RSUs outstanding, June 30, 2017		3,167
Granted		1,622
Issued		(463	)
Forfeited		(388	)
RSUs outstanding, June 30, 2018		3,938
Weighted average grant date fair value as adjusted for the applicable discount	$	117.13

The DSPP allows directors to elect to receive RSUs at the market price of the Company’s common stock on the date of the award in lieu of up to 100 percent of their annual retainer fees. Vested RSUs are settled in shares of common stock. There were no DSPP awards outstanding during the year ended June 30, 2018.