Share-Based Compensation

3 Months Ended

Nov. 30, 2013

Share-Based Compensation [Abstract]

Share-Based Compensation

NOTE 3 – SHARE-BASED COMPENSATION

We utilize various share-based compensation plans as integral components of our overall compensation and associate retention strategy.  The compensation cost of our share-based compensation plans is included in selling, general, and administrative expenses in the accompanying condensed consolidated income statements.  The total cost of our share-based compensation plans was as follows for the periods presented (in thousands).

		Quarter Ended
		November 30,		December 1,
		2013		2012
Performance awards	$	1,136	$	346
Unvested share awards		100		88
Employee stock purchase plan		26		17
Fully vested share awards		-		22
	$	1,262	$	473

During the quarter ended November 30, 2013, we issued approximately 508,000 shares of our common stock to employees from our various share-based compensation plans.  The following is a description of recent developments in our share-based compensation plans.

Performance Awards

During the quarter ended November 30, 2013, the Organization and Compensation Committee of the Board of Directors (the Compensation Committee) granted new performance-based equity awards for our executive officers.  A total of 89,418 shares may be awarded to the participants based on six individual vesting conditions that are divided into two performance measures, adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) and increased sales of courses related to The 7 Habits of Highly Effective People(the 7 Habits).  Three tranches of 20,864shares will immediately vest to the participants when consolidated trailing four-quarter Adjusted EBITDA totals $37.0million, $43.0million, and $49.0million.  Another three tranches of 8,942shares will immediately vest when trailing four-quarter sales of courses related to the 7 Habits increase $5.0million, $10.0million, and $12.5million over the previous trailing four quarters.  These performance awards have a maximum life of six years.  Compensation expense is recognized as the Company determines it is probable that the shares will vest.  Adjustments to compensation expense to reflect the timing of and the number of shares expected to be awarded will be made on a cumulative basis at the date of the adjustment.

On November 22, 2013, the Compensation Committee granted two of our employees performance-based awards for a total of 8,352shares.  These awards have the same vesting conditions as the fiscal 2013 common stock price performance award.  For the participants to receive this award, the closing price of our common stock must average $22.00 per share over five days.  If the price of our common stock reaches this price within three years of the grant date, 100 percent of the award shares will vest.  If the price of our common stock averages $22.00per share between three and five years from the grant date, 50 percent of the shares will vest.  No shares will vest after five years from the grant date.

On September 18, 2013, the Company’s share price closed at $17.62 per share and the specified five-day vesting price ($17.00 per share) for the fiscal 2011 tranche of the common stock price performance award was reached and these shares vested to participants.  The fiscal 2012 grant of this award vested on October 2, 2013 when the Company’s share price closed at $19.00per share and the five-day average vesting price of $18.05 per share was reached. 

Compensation expense recognized during the quarter ended November 30, 2013 for performance awards includes expense related to awards granted in previous periods for which the performance targets are probable of being achieved.

Unvested Share Awards

Our annual unvested share awards granted to non-employee members of our Board of Directors is administered under the terms of the Franklin Covey Co. Second Amended and Restated 1992 Stock Incentive Plan, and is designed to provide our non-employee directors, who are not eligible to participate in our employee stock purchase plan, an opportunity to obtain an interest in the Company through the acquisition of shares of our common stock.  The annual unvested award is generally granted in January (following the annual shareholders’ meeting) of each year.  For the fiscal 2013 award, each eligible director received a whole-share grant equal to $50,000 with a one-year vesting period, which resulted in a total of 30,672shares granted to members of the Board of Directors under this program.  At November30, 2013, there was $33,000of unrecognized compensation expense associated with the fiscal 2013 Board of Director unvested share award.

Employee Stock Purchase Plan

We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day of the calendar month in each fiscal quarter.  During the quarter ended November30, 2013, we issued 9,928shares to participants in the ESPP.

Stock Options

Our stock option activity during the quarter ended November 30, 2013 consisted of the following:

			Weighted
			Avg. Exercise
	Number of		Price Per
	Stock Options		Share
Outstanding at August 31, 2013	675,000	$	11.25
Granted	-		-
Exercised	(43,750)		9.00
Forfeited	-		-
Outstanding at November 30, 2013	631,250	$	11.41
Options vested and exercisable at
November 30, 2013	631,250	$	11.41

The stock options exercised during the quarter ended November 30, 2013 were exercised on a net share basis and had an aggregate intrinsic value of $0.5 million.