8. STOCK-BASED COMPENSATION

The Company has two stock-based compensation methods available when determining employee compensation.

Long-Term Management Incentive Compensation Plan – The plan provides for shares of common stock and cash to be awarded to officers and key employees based on performance targets set by the Nominating and Compensation Committee of the Board of Directors (the “Committee”). The Company’s shareholders approved 500,000 shares to be issued under the plan. As of June 30, 2013, 148,213 shares have been issued. The Committee selected consolidated operating results for organic net sales growth and fully-diluted earnings per share for the three-year performance periods beginning July 1, 2010 and ending on June 30, 2013, beginning July 1, 2011 and ending on June 30, 2014, and beginning July 1, 2012 and ending on June 30, 2015. The Committee has also specified that payouts, if any, for awards earned in these performance periods will be 60% stock and 40% cash. Awards will be paid to participants as soon as practicable following the end of the performance periods subject to Committee approval and verification of results. The compensation cost related to the number of shares to be granted under each performance period is fixed on the grant date, which is the date the performance period begins. The compensation cost related to the cash portion of the award is re-measured based on the equity award’s estimated fair value at the end of each reporting period. The accrual is based on the probable outcomes of the performance conditions. The short-term portion of the recorded cash award payable is classified within current liabilities, payroll and related items, and the long-term portion of the recorded cash award payable is classified within other long-term liabilities in the consolidated balance sheets. As of June 30, 2013 and June 30, 2012, the Company has recorded cash awards payable of $0.6 million and $1.1 million within current liabilities and $0.4 million and $0.7 million within long-term liabilities, respectively. During the years ended June 30, 2013, 2012 and 2011, the Company recorded expense of $1.2 million, $1.8 million and $1.3 million, respectively.

The aggregate number of shares and cash that could be awarded to key executives if the minimum, target and maximum performance goals are met, based upon the fair market value at June 30, 2013, is as follows:



(in thousands)	Minimum			Target			Maximum
Performance Period	Shares	Cash		Shares	Cash		Shares	Cash
Fiscal Year 2011 - 2013	12	$	198	35	$	566	56	$	905
Fiscal Year 2012 - 2014	11	$	179	32	$	512	50	$	819
Fiscal Year 2013 - 2015	10	$	168	30	$	481	47	$	769

If the target performance goals would be achieved, the total amount of compensation cost recognized over the requisite service periods would be $0.9 million (2011-2013), $1.0 million (2012-2014) and $1.1 million (2013-2015) based on the estimated fair values at June 30, 2013.

(1)

Stock Option Plans – The stock option plans for key employees and directors provide for the granting of incentive and nonqualified stock options. Under the plans, options are granted at an exercise price equal to the fair market value of the underlying common stock at the date of grant, and may be exercisable for up to 10 years. All options are exercisable when granted.

In fiscal years 2013, 2012 and 2011, the Company issued options for 89,300, 82,500 and 87,500 common shares at weighted average exercise prices of $20.31, $13.87 and $17.23 (the fair market value on the date of grant), respectively. The options were immediately available for exercise and may be exercised for a period of 10 years. The Company recorded compensation expense of $0.5 million, $0.3 million and $0.4 million during fiscal years 2013, 2012 and 2011, respectively. The assumptions used in determining the compensation expense are discussed below.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 2013, 2012 and 2011, respectively; dividend yield of 2.5%, 2.9% and 1.2%, expected volatility of 35.4%, 34.4% and 33.4%; risk-free interest rate of 0.8%, 0.9% and 1.5%; and an expected life of 5, respectively. The expected volatility and expected life are determined based on historical data.

The weighted-average grant date fair value of stock options granted during fiscal years 2013, 2012 and 2011 was $5.06, $3.11 and $4.84, respectively. The cash proceeds from stock options exercised were $1.1 million, $0.9 million and $0.3 million, respectively, for fiscal years ended June 30, 2013, 2012 and 2011. The income tax benefit related to the exercise of stock options was $0.2 million, $0.1 million and $0.0 million for fiscal year ended June 30, 2013, 2012 and 2011, respectively.

At June 30, 2013, 251,900 shares were available for future grants. It is the Company’s policy to issue new shares upon exercise of stock options. The Company accepts shares of the Company’s common stock as payment for the exercise price of options. These shares received as payment are retired upon receipt.

A summary of the status of the Company’s stock option plans as of June 30, 2013, 2012 and 2011 and the changes during the years then ended is presented below:



					Aggregate
	Shares		Weighted Average		Intrinsic Value
	(in thousands)		Exercise Price		(in thousands)
Outstanding and exercisable at June 30, 2011	1,046	$	13.56	$	2,271
Granted	83		13.87
Exercised	(306)		12.57
Canceled	(5)		17.12
Outstanding and exercisable at June 30, 2012	818		13.94		4,783
Granted	89		20.31
Exercised	(109)		13.38
Canceled	(11)		16.09
Outstanding and exercisable at June 30, 2013	787	$	14.71	$	7,609

The following table summarizes information for options outstanding and exercisable at June 30, 2013:



			Weighted Average
	Range of	Options	Remaining		Exercise
	Prices	Outstanding	Life (Years)		Price
		(in thousands)
$	6.81 - 8.55	129	5.9	$	7.62
	12.35-13.90	216	5.1		12.86
	14.40 - 17.23	245	3.5		16.02
	19.21-22.82	197	4.3		19.77
$	6.81-22.82	787	4.6		14.71