14. Share-Based Compensation

Carpenter has two share-based compensation plans: the 1993 Plan covering officers and key employees and the Director’s Plan covering non-employee directors. The Company recognizes compensation cost based on the fair value of the awards on the date of grant. The compensation cost is recognized over the requisite service period of the award, which is generally the shorter of the vesting period that the holder is required to provide service, or the period from the grant date to the date on which the employee is eligible to retire. Upon retirement, as defined in the Company’s share-based compensation plans, outstanding awards are subject to certain accelerated vesting terms.

Awards granted under the share-based compensation plans are paid from shares held in treasury and newly issued shares. The total compensation cost that has been charged against income related to these share-based compensation plans was $11.4 million, $13.1 million, and $13.3 million for the years ended June 30, 2014, 2013 and 2012, respectively.

1993 Plan

The 1993 plan provides that the Board of Directors or a designated committee may grant stock options, restricted stock and restricted stock units, and determine the terms and conditions of each grant. The 1993 plan provides the Chief Executive Officer with limited authority to grant awards. As of June 30, 2014, 2,030,020 shares were available for awards which may be granted under this plan.

Director’s Plan

The Director’s plan provides for the granting of stock options and stock units to non-employee Directors. As of June 30, 2014, 752,532 shares were reserved for awards which may be granted under this plan.

Stock Options (all plans)

Stock options granted under the plans above are granted with an exercise price equal to at least the fair market value of the Company’s common stock on the date of grant. The options are typically exercisable after one to three years of service and expire no longer than ten years from the grant date.

The fair value of stock options awarded in fiscal years 2014, 2013 and 2012 were estimated on the date of each grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	Years Ended June 30,
	2014		2013		2012
Expected volatility	49	%	55	%	54	%
Dividend yield	1.3	%	1.5	%	1.3	%
Risk-free interest rate	1.4	%	0.7	%	1.4	%
Expected term (in years)	5.0		5.0		5.0

The assumptions are based on multiple factors, including historical exercise patterns of employees in relatively homogeneous groups with respect to exercise and post-vesting employment termination behaviors, expected future exercising patterns for these same homogeneous groups and the implied volatility of our stock price based on historical performance for the same expected term of the options granted. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of each grant.

	Number of Awards		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In Millions)
Outstanding at June 30, 2011	956,807		$	29.23
Granted	152,450		55.04
Exercised	(79,444	)	23.57
Cancelled	(7,207	)	27.11
Outstanding at June 30, 2012	1,022,606		33.54
Granted	198,904		48.60
Exercised	(115,600	)	19.82
Cancelled	(17,182	)	48.42
Outstanding at June 30, 2013	1,088,728		37.51
Granted	243,292		54.65
Exercised	(236,540	)	30.19
Cancelled	(31,585	)	49.83
Outstanding at June 30, 2014	1,063,895		$	42.69	6.5 Years	$	21.9

Exercisable at June 30, 2014	694,469		$	37.15	5.5 Years	$	18.1

Outstanding and Exercisable Options

Exercise Price Range	Number Outstanding at June 30, 2014	Weighted Average Remaining Contractual Term (in Years)	Weighted Average Exercise Price		Number Exercisable at June 30, 2014	Weighted Average Exercise Price
$5.00 - $20.00	73,412	5.1	$	17.29	73,412	$	17.29
$20.01 - $30.00	185,293	5.0	22.67		185,293	22.67
$30.01 - $40.00	139,350	6.1	34.66		139,350	34.66
$40.01 - $50.00	214,858	7.0	46.75		118,199	45.68
$50.01 - $63.54	450,982	7.2	55.60		178,215	56.70
	1,063,895		$	42.69	694,469	$	37.15

The weighted average grant date fair value of options awarded during fiscal years 2014, 2013 and 2012 was $21.31, $20.37 and $23.46, respectively. Share-based compensation charged against income related to stock options for the years ended June 30, 2014, 2013 and 2012 was $3.5 million, $3.4 million and $3.1 million, respectively. As of June 30, 2014, $3.2 million of compensation cost related to nonvested stock options remains to be recognized over a weighted average remaining life of 1.8 years.

Of the options outstanding at June 30, 2014, 848,921 relate to the 1993 plan and 214,974 relate to the Directors’ Plan.

Restricted Stock Unit Awards (1993 Plan)

Restricted stock unit awards are granted to employees with performance and/or service conditions. Earned restricted stock unit awards receive non-forfeitable cash dividends during the restriction period. The fair value of the restricted stock unit awards is determined based on the close price of the Company’s stock on the grant date.

Performance-based restricted stock unit awards are earned depended upon how certain performance goals are achieved during a specified performance period according to the terms determined at the date of the grant. These shares typically vest zero to two years from the date of the attainment of the specified performance goals. Compensation cost is determined and charged to expense beginning in the performance period through the vesting period.

Time-based restricted stock unit awards typically vest three years from the date of grant. Compensation cost related to time-based stock unit awards is recognized over the vesting period of the award.

Amounts charged to compensation expense for restricted stock unit awards was $2.8 million, $4.8 million and $6.1 million for the years end June 30, 2014, 2013 and 2012, respectively. As of June 30, 2014, $1.6 million of compensation cost related to restricted stock unit awards remains to be recognized over a weighted average remaining life of 1.3 years.

	Number of Awards		Weighted- Average Grant Date Fair Value
Restricted Balance at June 30, 2011	480,741		$	28.17
Time-based granted	43,408		49.75
Performance-based granted	77,423		55.69
Vested	(171,140	)	28.00
Forfeited	(11,101	)	21.75
Restricted Balance at June 30, 2012	419,331		35.71
Time-based granted	22,838		50.15
Performance-based granted	41,816		47.85
Vested	(254,967	)	31.39
Forfeited	(13,603	)	51.85
Restricted Balance at June 30, 2013	215,415		43.75
Time-based granted	14,086		52.58
Performance-based granted	20,794		48.85
Vested	(120,117	)	43.96
Forfeited	(16,615	)	48.02
Restricted Balance at June 30, 2014	113,563		$	44.99

Total Stockholder Return Awards

The Company granted Total Stockholder Return (“TSR”) awards in fiscal years 2014, 2013 and 2012. The TSR awards are granted at a target number of shares. The fiscal 2013 and 2012 TSR awards are earned based on the Company’s total stockholder return compared to the total stockholder returns of a group of peer companies at the end of a three-year period. Beginning with fiscal year 2014, TSR awards are earned based on the Company’s total stockholder return compared to the total stockholder returns of the Russell Materials and Processing Growth Index at the end of a three-year period. The actual number of shares awarded may range from a minimum of 50 percent of the target shares to a maximum of 200 percent of the target shares. Participants do not have any rights to dividends (or equivalents) during the performance period. The fair value of the TSR awards was estimated using Monte Carlo valuation models. Compensation cost recognized in fiscal years 2014, 2013 and 2012 related to TSR awards was $3.9 million, $3.7 million and $3.0 million, respectively.

Director Stock Units

According to the provisions of the Director’s plan, on the date of each annual stockholders’ meeting or on such other regularly scheduled date as the Board of Directors may determine from time to time in light of the Company’s prevailing practices for the grant of equity awards to employees, each Director shall be granted, in place of cash compensation, a number of stock units determined by dividing 50 percent of the Director’s annual retainer by the fair market value of the Company’s common stock on that date. These stock units vest as to one-quarter of the units for every three months of service following the grant date and are fully vested on the first anniversary of the grant date. At the Director’s election, the remaining 50 percent of the annual retainer and 100 percent of committee chair fees may be paid in stock units in lieu of cash. These units are immediately vested.

In addition to the grant of retainer stock units described above, each Director may be granted annually an additional award of stock units as the Board may determine by resolution. These stock units vest as to one-quarter of the units for every three months of service following the grant date and are fully vested on the first anniversary of the grant date.

Additional units are credited to each Director on a quarterly basis to reflect dividend equivalents on the Company’s common stock.

In the case of separation from service due to death or disability, all stock units shall immediately vest.

Following a Director’s separation from service, or such other elected distribution date or event, the number of stock units credited to the Director’s account will be converted to an equivalent number of the Company’s common stock.

	Number of Units	Weighted- Average Grant Date Fair Value
Outstanding at June 30, 2011	195,701	$	25.81
Granted	22,660	47.89
Dividend equivalents	3,049	—
Outstanding at June 30, 2012	221,410	27.10
Granted	21,710	53.53
Dividend equivalents	3,399	—
Outstanding at June 30, 2013	246,519		30.06
Granted	19,770	59.47
Dividend equivalents	3,026	—
Outstanding at June 30, 2014	269,315	$	32.25

Compensation cost is determined using the grant date fair value and charged to expense over the vesting period of one year and amounted to $1.2 million, $1.2 million and $1.1 million for the years ended June 30, 2014, 2013 and 2012, respectively. As of June 30, 2014, $0.3 million of compensation cost related to director stock units remains to be recognized over a weighted average remaining life of 0.3 years.