10.STOCK-BASED COMPENSATION PLANS

Overview

We utilize various stock-based compensation plans as integral components of our overall compensation and associate retention strategy. Our shareholders have approved various stock incentive plans that permit us to grant performance awards, unvested share awards, stock options, and employee stock purchase plan (ESPP) shares. In addition, our Board of Directors and shareholders may, from time to time, approve fully vested stock awards. The Organization and Compensation Committee of the Board of Directors (the Compensation Committee) has responsibility for the approval and oversight of our stock-based compensation plans.

On January 23, 2015, our shareholders approved the 2015 Omnibus Incentive Plan (the 2015 Plan), which authorized an additional 1.0 million shares of common stock for issuance to employees and members of the Board of Directors as stock-based payments. We believe that the 2015 Plan will provide sufficient available shares to grant awards over the next several years, based on current expectations of grants in future periods. A more detailed description of the 2015 Plan is set forth in the Company’s Proxy Statement filed with the SEC on December 22, 2014. At August 31, 2016, the 2015 Plan had approximately 705,000 shares available for future grants and our ESPP had approximately 440,000 shares remaining for purchase by plan participants.

The total compensation expense of our stock-based compensation plans was as follows (in thousands):



YEAR ENDED
AUGUST 31,		2016		2015		2014
Performance awards	$	2,492	$	1,890	$	2,716
Unvested stock awards		450		400		334
Fully vested stock awards		60		125		371
Compensation cost of the ESPP		119		121		113
	$	3,121	$	2,536	$	3,534

The compensation expense of our stock-based compensation plans was included in selling, general, and administrative expenses in the accompanying consolidated income statements, and no stock-based compensation was capitalized during fiscal years 2016, 2015, or 2014. During fiscal 2016, we issued 81,757 shares of our common stock from shares held in treasury for various stock-based compensation plans. Certain of our stock-based compensation plans allow recipients to have shares withheld from the award to pay minimum statutory tax liabilities. We withheld 2,260 shares of our common stock for minimum statutory taxes during fiscal 2016.

The following is a description of our stock-based compensation plans.

Performance Awards

In fiscal 2015, the Compensation Committee approved a modification to exclude the effects of foreign exchange on the measurement of performance criteria on the outstanding tranches of our long-term incentive plan (LTIP) awards. Accordingly, we calculated incremental compensation expense based upon the fair value of (closing price) our common stock on the modification date, which totaled $0.7 million. We recognized $0.5 million of the incremental compensation expense during fiscal 2015 for service provided in the current and previous fiscal years associated with the modification.

Each of the LTIP performance awards described below have a maximum life of six years and compensation expense is recognized as we determine 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 are made on a cumulative basis at the date of the adjustment. No tranches of performance awards vested to participants during fiscal 2016.

Fiscal 2016 LTIP Award – On November 12, 2015, the Compensation Committee granted new performance-based awards for our executive officers and members of senior management. A total of 231,276 shares may be awarded to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) and increased sales of Organizational Development Suite (OD Suite) offerings as shown below. The OD Suite is defined as Leadership, Productivity, and Trust practice sales.



	Adjusted EBITDA				OD Suite Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	36.0	53,964	not vested	$	107.0	23,128	not vested
$	40.0	53,964	not vested	$	116.0	23,128	not vested
$	44.0	53,964	not vested	$	125.0	23,128	not vested
		161,892				69,384

Fiscal 2015 LTIP Award – During fiscal 2015, the Compensation Committee granted a new performance-based award for our executive officers and certain members of senior management. A total of 112,464 shares may be awarded to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and increased sales of OD Suite sales as shown below.



	Adjusted EBITDA				OD Suite Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	39.6	26,241	not vested	$	107.0	11,247	not vested
$	45.5	26,241	not vested	$	118.0	11,247	not vested
$	52.3	26,241	not vested	$	130.0	11,247	not vested
		78,723				33,741

Fiscal 2014 LTIP Award – During the first quarter of fiscal 2014, 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, trailing four-quarter Adjusted EBITDA and trailing four-quarter increased sales of courses related to The 7 Habits of Highly Effective People (the 7 Habits). The following information applies to the fiscal 2014 LTIP award as of August 31, 2016.



	Adjusted EBITDA				7 Habits Increased Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	37.0	20,864	not vested	$	5.0	8,942	vested
$	43.0	20,864	not vested	$	10.0	8,942	vested
$	49.0	20,864	not vested	$	12.5	8,942	not vested
		62,592				26,826

Fiscal 2013 LTIP Award – During the first quarter of fiscal 2013, the Compensation Committee granted a new performance-based equity award for the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the Chief People Officer (CPO). A total of 68,085 shares may be issued to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and Productivity Practice sales. The following information applies to the fiscal 2013 LTIP award as of August 31, 2016.



	Adjusted EBITDA				Productivity Practice Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	33.0	15,887	vested	$	23.5	6,808	vested
$	40.0	15,887	not vested	$	26.5	6,808	not vested
$	47.0	15,887	not vested	$	29.5	6,808	not vested
		47,661				20,424

Fiscal 2012 LTIP Award - During fiscal 2012, the Compensation Committee granted a performance-based equity award for the CEO, CFO, and CPO similar to the fiscal 2013 executive award described above. A total of 106,101 shares may be issued to the participants based on six individual vesting conditions that are divided into two performance measures, Adjusted EBITDA and Productivity Practice sales. The following information applies to the fiscal 2012 LTIP award as of August 31, 2016.



	Adjusted EBITDA				Productivity Practice Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	26.0	24,757	vested	$	20.5	10,610	vested
$	33.0	24,757	vested	$	23.5	10,610	vested
$	40.0	24,757	not vested	$	26.5	10,610	not vested
		74,271				31,830

Common Stock Price Performance Award – On July 15, 2011, the Compensation Committee approved a stock-based compensation plan that would allow certain members of our management team to receive shares of the Company’s common stock if the closing price of our common stock averaged specified levels over a five-day period. If the price of our common stock achieved the specified levels within three years of the grant date, 100 percent of the awarded shares would vest. If the price of our common stock reached the specified levels between three and five years from the grant date, only 50 percent of the performance shares would vest. No shares would vest to participants if the specified price targets were met after five years from the grant date. This award was designed to grant approximately one-half of the total award shares in fiscal 2011, approximately one-fourth of the award shares in fiscal 2012, and approximately one-fourth in fiscal 2013. Additional supplemental awards were made to three employees during fiscal 2014 as shown on the table below. This award program was designed to increase shareholder value as shares would only be awarded to participants if our share price increased significantly over a relatively short period of time. During fiscal 2014, the specified common share prices for all grants were achieved and all tranches of the award as described below vested to the participants.

Since this performance award had market-based vesting conditions, the fair value and derived service periods of the grants within this award were determined using Monte Carlo simulation valuation models. The following table presents key information related to the tranches granted in this award.


Model Input	Fiscal 2014 Grant 2	Fiscal 2014 Grant 1	Fiscal 2013 Grant	Fiscal 2012 Grant	Fiscal 2011 Grant
Number of shares	13,477	8,352	120,101	177,616	294,158
Vesting price per share	$18.05; 22.00	$22.00	$22.00	$18.05	$17.00
Grant date price per share	$20.01	$19.68	$16.03	$9.55	$11.34
Volatility	47.1%	52.8%	54.2%	54.6%	49.8%
Dividend yield	0.0%	0.0%	0.0%	0.0%	0.0%
Risk-free rate	1.70%	1.39%	1.37%	0.62%	1.48%
Grant date	April 16, 2014	Nov. 22, 2013	July 18, 2013	July 19, 2012	July 15, 2011
Fair value of award (thousands)	$265	$155	$1,651	$1,188	$2,647
Derived service period (years)	0.2	0.2	0.6	1.4	0.9

The April 2014 grant shown above included 9,557 shares with a vesting price of $18.05 per share (equal to the fiscal 2012 grant vesting price) and 3,920 shares with a $22.00 per share vesting price. Since our share price on the grant date was greater than the vesting price for the 9,557 shares granted, the fair value of these shares was determined by multiplying the number of shares by the grant date price per share, which resulted in $0.2 million of stock-based compensation expense. The $0.2 million of compensation expense for these shares was recorded on the summary stock-based compensation table above as a component of fully vested share award expense.

Unvested Stock Awards

The annual Board of Director unvested stock award, which is administered under the terms of the Franklin Covey Co. 2015 Omnibus Incentive Plan, 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. Each eligible director is entitled to receive a whole-share grant equal to $75,000 with a one-year vesting period, which is generally granted in January (following the Annual Shareholders’ Meeting) of each year. Shares granted under the terms of this annual award are ineligible to be voted or participate in any common stock dividends until they are vested.

Under the terms of this program, we issued 25,032 shares, 24,210 shares, and 14,616 shares of our common stock to eligible members of the Board of Directors during the fiscal years ended August 31, 2016, 2015, and 2014. The fair value of shares awarded to the directors was $0.5 million in each of fiscal years 2016 and 2015, and $0.3 million in fiscal 2014 as calculated on the grant date of the awards. The corresponding compensation cost is recognized over the vesting period of the awards, which is one year. The cost of the common stock issued from treasury for these awards was $0.3 million, $0.3 million, and $0.2 million for the fiscal years ended August 31, 2016, 2015, and 2014. The following information applies to our unvested stock awards for the fiscal year ended August 31, 2016:



			Weighted-
			Average Grant-
			Date Fair
	Number of		Value Per
	Shares		Share
Unvested stock awards at
August 31, 2015	24,210	$	18.59
Granted	25,032		17.98
Forfeited	-		-
Vested	(24,210)		18.59
Unvested stock awards at
August 31, 2016	25,032	$	17.98

At August 31, 2016, there was $0.2 million of unrecognized compensation cost related to unvested stock awards, which is expected to be recognized over the remaining weighted-average vesting period of approximately three months. The total recognized tax benefit from unvested stock awards totaled $0.1 million for each of the fiscal years ended August 31, 2016, 2015, and 2014, respectively. The intrinsic value of our unvested stock awards at August 31, 2016 was $0.4 million.

Stock Options

We have an incentive stock option plan whereby options to purchase shares of our common stock may be issued to key employees at an exercise price not less than the fair market value of the Company’s common stock on the date of grant. Information related to our stock option activity during the fiscal year ended August 31, 2016 is presented below:



				Weighted
			Weighted	Average
			Avg. Exercise	Remaining		Aggregate
	Number of		Price Per	Contractual		Intrinsic Value
	Stock Options		Share	Life (Years)		(thousands)
Outstanding at August 31, 2015	631,250	$	11.41
Granted	-		-
Exercised	-		-
Forfeited	-		-
Outstanding at August 31, 2016	631,250	$	11.41	3.8	$	3,052

Options vested and exercisable at
August 31, 2016	631,250	$	11.41	3.8	$	3,052

During fiscal 2014, we had 43,750 stock options exercised on a net share basis, which had an aggregate intrinsic value of $0.5 million. At August 31, 2016, there was no remaining unrecognized compensation expense related to our stock options and no options were exercised during fiscal 2016 or 2015.

The following additional information applies to our stock options outstanding at August 31, 2016:



		Weighted
	Number	Average		Options
	Outstanding	Remaining	Weighted	Exercisable at	Weighted
	at August 31,	Contractual	Average	August 31,	Average
Exercise Prices	2016	Life (Years)	Exercise Price	2016	Exercise Price
$9.00	125,000	3.9	$9.00	125,000	$9.00
$10.00	168,750	3.8	$10.00	168,750	$10.00
$12.00	168,750	3.8	$12.00	168,750	$12.00
$14.00	168,750	3.8	$14.00	168,750	$14.00
	631,250			631,250

Fully Vested Stock Awards

Client Partner and Consultant Award – During fiscal 2011, we implemented a new fully vested stock-based award program that is designed to reward our client partners and training consultants for exceptional long-term performance. The program grants shares of our common stock with a total value of $15,000 to each client partner who has sold over $20.0 million in cumulative sales or training consultant who has delivered over 1,500 days of training during their career. During fiscal 2016, four individuals qualified for this award; in fiscal 2015, five individuals earned this award; and 12 individuals qualified for the award in fiscal 2014.

In the fourth quarter of fiscal 2015, the Compensation Committee approved a fully vested award equal to $10,000 for each general manager or area director that achieved a specified sales goal. Five individuals achieved their sales goals and qualified for the award. This award was only for fourth quarter fiscal 2015 sales performance and no additional awards may be granted under the terms of this award.

Employee Stock Purchase Plan

The Company has 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 each quarter. We issued a total of 49,375 shares, 42,687 shares, and 36,761 shares to ESPP participants during the fiscal years ended August 31, 2016, 2015, and 2014, which had a corresponding cost basis of $0.7 million, $0.6 million, and $0.5 million, respectively. We received cash proceeds for these shares from ESPP participants totaling $0.7 million, $0.7 million, and $0.6 million during the fiscal years ended August 31, 2016, 2015, and 2014.