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. Grants of restricted stock are grants of shares of the Company’s common stock subject to transfer restrictions, which vest in accordance with the terms and conditions established by the Compensation Committee. The Compensation Committee may set vesting requirements based on the achievement of specific performance goals or the passage of time.

Restricted shares are subject to forfeiture if employment or service terminates prior to the vesting date or if any applicable performance goals are not met. 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 goals 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 for which restricted stock may be granted in the event of a stock split, extraordinary dividend or distribution or similar recapitalization event.

On November 25, 2014, the Company granted 41,700 shares 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 first 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 $46.72 per share, 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, 2015:

	Number of Shares		Weighted Average Fair Value At Grant Date
Unvested at September 30, 2014	97,150		$	51.96
Granted	41,700		$	46.72
Forfeited / Canceled	(8,950	)	$	55.54
Vested	(17,450	)	$	56.52
Unvested at March 31, 2015	112,450		$	49.07
Expected to vest	89,250		$	48.70

Compensation expense related to restricted stock for the three months ended March 31, 2014 and 2015 was $486 and $438, respectively, and for the six months ended March 31, 2014 and 2015 was $811 and $769, respectively. The remaining unrecognized compensation expense related to restricted stock at March 31, 2015 was $2,781, to be recognized over a weighted average period of 1.68 years. During the first quarter of fiscal 2015, the Company repurchased 5,221 shares of stock from employees and directors at an average purchase price of $48.04 to satisfy required withholding taxes upon vesting of restricted stock-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 first option plan was adopted in August 2004 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 331/3% per year over three years from the grant date. The amount of compensation cost recognized in the financial statements is measured based upon the grant date fair value.

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 expectations 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 2015:

Grant Date		Fair Value			Dividend Yield		Risk-free Interest Rate		Expected Volatility		Expected Life
November 25, 2014		$	8.17		1.90	%	0.96	%	28	%	3 years

On November 25, 2014, the Company granted 81,100 options at an exercise price of $46.72, the fair market value of the Company’s common stock the day immediately preceding the day of the grant. During the first six months of fiscal 2015, no options were exercised.

The stock-based employee compensation expense for stock options for the three months ended March 31, 2014 and 2015 was $121 and $136, respectively and for the six months ended March 31, 2014 and 2015 was $233 and $262, respectively. The remaining unrecognized compensation expense at March 31, 2015 was $950, to be recognized over a weighted average vesting period of 1.34 years.

The following tables summarize the activity under the stock option plans for the six months ended March 31, 2015 and provide information regarding outstanding stock options:

	Number of Shares	Aggregate Intrinsic Value (000s)		Weighted Average Exercise Prices		Weighted Average Remaining Contractual Life
Outstanding at September 30, 2014	282,001			$	51.61
Granted	81,100			$	46.72
Exercised	—			—
Canceled	—			—
Outstanding at March 31, 2015	363,101	$	677	$	50.52	5.95
Vested or expected to vest	342,016	$	665	$	50.66	5.81
Exercisable at March 31, 2015	239,367	$	677	$	51.66	4.26

Grant Date	Exercise Price Per Share	Remaining Contractual Life in Years	Outstanding Number of Shares	Exercisable Number of Shares
March 31, 2006	31.00	1.00	10,000	10,000
March 30, 2007	72.93	2.00	47,500	47,500
March 31, 2008	54.00	3.00	58,000	58,000
October 1, 2008	46.83	3.50	20,000	20,000
March 31, 2009	17.82	4.00	12,084	12,084
January 8, 2010	34.00	4.75	12,400	12,400
November 24, 2010	40.26	5.67	19,667	19,667
November 25, 2011	55.88	6.67	19,700	19,700
November 20, 2012	47.96	7.67	35,600	23,734
December 10, 2012	48.39	7.67	1,800	1,200
November 26, 2013	52.78	8.67	45,250	15,082
November 25, 2014	46.72	9.67	81,100	—
			363,101	239,367