Note 10. Stock-Based Compensation

Restricted Stock Plan

On February 23, 2009, the Company adopted a restricted stock plan that reserved 400,000 shares of common stock for issuance. Shares of restricted stock vest in accordance with the terms and conditions established by the Compensation Committee. The Compensation Committee may set restrictions on certain grants based on the achievement of specific performance goals, and vesting of grants to participants may also be time-based.

Restricted stock grants are subject to forfeiture if employment or service terminates prior to the end of the vesting period or if the performance goal is not met, if applicable. The Company will assess, on an ongoing basis, the probability of whether the performance criteria will be achieved. The Company will recognize compensation expense over the performance period if it is deemed probable that the goal will be achieved. The fair value of the Company’s restricted stock is determined based upon the closing price of the Company’s common stock on the trading day immediately preceding the grant date. The plan provides for the adjustment of the number of shares covered by an outstanding grant and the maximum number of shares of restricted stock that may be granted under the plan in the event of a stock split, extraordinary dividend or distribution or similar recapitalization event. Holders of outstanding shares of restricted stock are entitled to receive dividends on shares of common stock.

On November 20, 2012, November 26, 2012, and December 10, 2012, the Company granted 31,950, 3,000 and 1,100 shares, respectively, of restricted stock to certain key employees and non-employee directors. The shares of restricted stock granted to employees will vest on the third anniversary of their grant date, provided that (a) the recipient is still an employee of the Company and (b) the Company has met a three-year net income performance goal, if applicable. The shares of restricted stock granted to non-employee directors will vest on the earlier of (a) the third anniversary of the date of grant or (b) the failure of such non-employee director to be re-elected at an annual meeting of the stockholders of the Company as a result of such non-employee director being excluded from the nominations for any reason other than cause. The fair value of the grants were $47.96, $47.62 and $48.39 per share respectively, the closing price of the Company’s common stock on the trading day immediately preceding the day of the applicable grant.

The following table summarizes the activity under the restricted stock plan for the six months ended March 31, 2013:

	Number of Shares		Weighted Average Fair Value At Grant Date
Unvested at September 30, 2012	111,000		$	42.32
Granted	36,050		$	47.94
Forfeited / Canceled	(11,400	)	$	41.84
Vested	(38,500	)	$	34.00
Unvested at March 31, 2013	97,150		$	47.77
Expected to vest	97,150		$	47.77

Compensation expense related to restricted stock for the three months ended March 31, 2012 and 2013 was $419 and $387, respectively, and for the six months ended March 31, 2012 and 2013 was $742 and $503, respectively. The remaining unrecognized compensation expense at March 31, 2013 was $2,732, to be recognized over a weighted average period of 1.77 years.

In the three months ended March 31, 2013, the Company repurchased 9,993 shares of stock from employees at an average purchase price paid per share of $50.51 to satisfy employee-owned taxes on share-based compensation.

Stock Option Plans

The Company has two stock option plans that authorize the granting of non-qualified stock options to certain key employees and non-employee directors for the purchase of a maximum of 1,500,000 shares of the Company’s common stock. The original option plan was adopted in August 2004 pursuant to the plan of reorganization and provides for the grant of options to purchase up to 1,000,000 shares of the Company’s common stock. In January 2007, the Company’s Board of Directors adopted a second option plan that provides for options to purchase up to 500,000 shares of the Company’s common stock. Each plan provides for the adjustment of the maximum number of shares for which options may be granted in the event of a stock split, extraordinary dividend or distribution or similar recapitalization event. Unless the Compensation Committee determines otherwise, options granted under the option plans are exercisable for a period of ten years from the date of grant and vest 33 1/3% per year over three years from the grant date.

The fair value of option grants was estimated as of the date of the grant. The Company has elected to use the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected life, risk-free interest rates, expected forfeitures and dividend yields. The volatility is based on historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the stock option granted. The Company uses historical volatility because management believes such volatility is representative of prospective trends. The expected term of an award is based on historical exercise data. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the awards. The expected forfeiture rate is based upon historical experience. The dividend yield assumption is based on the Company’s history and expectation regarding dividend payouts at the time of the grant. Valuation of future grants under the Black-Scholes model will include a dividend yield. The following assumptions were used for grants in the first quarter of fiscal 2013:

Grant Date	Fair Value		Dividend Yield		Risk-free Interest Rate		Expected Volatility		Expected Life
November 20, 2012	$	13.92	1.83	%	0.32	%	47	%	3 years
December 10, 2012	$	14.12	1.82	%	0.33	%	47	%	3 years

On November 20, 2012 and December 10, 2012, the Company granted 35,600 and 1,800 options, respectively, at an exercise price of $47.96 and $48.39, the fair market value of the Company’s common stock the day of the grant. During the first six months of fiscal 2013, 30,545 options were exercised and 5,801 options were forfeited/canceled.

The stock-based employee compensation expense for stock options for the three months ended March 31, 2012 and 2013 was $165 and $107, and for the six months ended March 31, 2012 and 2013 was $302 and $209, respectively. The remaining unrecognized compensation expense at March 31, 2013 was $737, to be recognized over a weighted average vesting period of 1.62 years.

The following table summarizes the activity under the stock option plans for the six months ended March 31, 2013:

	Number of Shares		Aggregate Intrinsic Value (000s)		Weighted Average Exercise Prices		Weighted Average Remaining Contractual Life
Outstanding at September 30, 2012	318,776				$	44.05
Granted	37,400				$	47.98
Exercised	(30,545	)			$	19.57
Canceled	(5,801	)			$	44.39
Outstanding at March 31, 2013	319,830		$	3,768	$	46.84	5.59 yrs.
Vested or expected to vest	311,263		$	3,699	$	43.88	5.59 yrs.
Exercisable at March 31, 2013	262,129		$	3,389	$	46.40	4.79 yrs.

Grant Date	Exercise Price Per Share		Remaining Contractual Life in Years	Outstanding Number of Shares	Exercisable Number of Shares
August 31, 2004	$	12.80	1.42	32,207	32,207
March 31, 2006	31.00		3.00	10,000	10,000
March 30, 2007	72.93		4.00	59,500	59,500
March 31, 2008	54.00		5.00	73,000	73,000
October 1, 2008	46.83		5.50	20,000	20,000
March 31, 2009	17.82		6.00	20,089	20,089
January 8, 2010	34.00		6.75	25,801	25,801
November 24, 2010	40.26		7.67	20,967	13,802
November 25, 2011	55.88		8.67	20,866	7,730
November 20, 2012	47.96		9.67	35,600	—
December 10, 2012	48.39		9.67	1,800	—
				319,830	262,129