Stock-Based Compensation

3 Months Ended

Oct. 31, 2019

Share-based Payment Arrangement [Abstract]

2016 Equity Incentive Plan

At October 31, 2019, 452,221 nonvested restricted stock awards were outstanding under the 2016 plan. No options were outstanding under the 2016 plan. At October 31, 2019, 511,487 shares were collectively available for issuance pursuant to restricted stock and other stock awards, stock options and stock appreciation rights.

2006 Equity Incentive Plan

The 2006 Plan was terminated on January 7, 2016 in conjunction with the adoption of the 2016 Plan. At October 31, 2019, options to purchase 15,000 shares of common stock were outstanding under the 2006 Plan. No additional awards will be granted under this plan.

The following table shows the components of stock-based compensation expense recognized in the condensed consolidated statements of income:



	Three Months Ended October 31,
	2019		2018
Cost of sales	$	260	$	237
Operating expenses:
Selling	536		571
General and administrative	1,527		1,710
Research and development	81		58
Total operating expenses	2,144		2,339
Stock-based compensation expense	$	2,404	$	2,576

At October 31, 2019, total unrecognized stock-based compensation expense related to total nonvested stock options and restricted stock awards was $29,900 with a remaining weighted average period of 21 months over which such expense is expected to be recognized.

We determined the fair value of our market-based restricted stock awards using a Monte Carlo simulation on the date of grant using the following assumptions:



	Three Months Ended October 31,
	2019		2018
Volatility of common stock	30.73	%	27.54	%
Average volatility of peer companies	36.28	%	36.55	%
Average correlation coefficient of peer companies	24.63	%	27.18	%
Risk-free interest rate	1.49	%	2.93	%

A summary of nonvested stock award activity for the three months ended October 31, 2019 follows:



	Number of Time-based Awards		Number of Performance-based Awards		Number of Market-based Awards		Number of Total Awards		Weighted Average Fair Value
July 31, 2019	234,864		40,210		32,079		307,153		$	88.99
Granted	204,206		—		47,967		252,173		$	73.67
Vested⁽¹⁾	(86,937	)	(8,475	)	(3,462	)	(98,874	)	$	90.74
Forfeited	(8,016	)	(215	)	—		(8,231	)	$	80.25
October 31, 2019	344,117		31,520		76,584		452,221		$	80.14

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(1)	The aggregate fair value of all nonvested stock awards which vested was approximately $8,971.

A summary of stock option activity for the three months ended October 31, 2019 follows:



	Number of shares		Weighted Average Exercise Price		Weighted Average Contractual Life Remaining (Years)	Aggregate Intrinsic Value
Outstanding at July 31, 2019	40,000		$	43.70
Exercised	(25,000	)	$	36.70
Outstanding at October 31, 2019	15,000		$	55.36	0.95	$	263
Exercisable at October 31, 2019	15,000		$	55.36	0.95	$	263

During the three months ended October 31, 2019, 25,000 options were exercised, with an aggregate fair value of approximately $1,067. At October 31, 2019, all outstanding options were vested.

Excess tax benefits arise when the ultimate tax effect of the deduction for tax purposes is greater than the income tax benefit on stock-based compensation. For the three months ended October 31, 2019, income tax deductions of $2,022 were generated, of which $2,581 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax expense of $559 was recorded as an increase in income tax expense. For the three months ended October 31, 2018, income tax deductions of $3,059 were generated, of which $2,062 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $997 was recorded as a reduction in income tax expense.