Equity Matters

For the Company, FASB ASC Topic 718 “Compensation – Stock Compensation” affects the stock options that have been granted and requires the Company to expense share-based payment (“SBP”) awards with compensation cost for SBP transactions measured at fair value. The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated based upon the Company’s historical experience.

1993 Key Employee Stock Incentive Plan

The Company maintains the Amended and Restated 1993 Key Employee Stock Incentive Program (as amended and restated December 12, 2002 and December 10, 2009) (the “Incentive Plan”), which authorizes grants to officers and other key employees of the Company and its subsidiaries of (i) stock options that are intended to qualify as incentive stock options, (ii) nonqualified stock options and (iii) restricted stock awards. An aggregate of 2,700,000 shares of Common Stock, subject to adjustment upon occurrence of certain events to prevent dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events, was reserved for issuance pursuant to the Incentive Plan. An individual’s award of stock options is limited to 500,000 shares in a five-year period.

Non-qualified stock options, incentive stock options and restricted stock awards have been granted to date and all options have been granted at the market price at the date of grant. Options expire over a period not to exceed ten years from the date of grant and vest ratably over a three year period. Restricted stock awards vest ratably over a four year period. Incentive stock options have not been granted in fiscal 2013 or during the first quarter of 2014. On December 19, 2013, 67,000 shares of restricted stock were granted to several employees determined by the chief executive officer as incentives for future performance. The market value of the Company's stock on the date of award was $20.64.

Activity in the Company’s stock option plan for the three months ended January 31, 2014 and 2013 was as follows:



	Number of Shares		Weighted Average Exercise Price Per Share	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at November 1, 2012	362,085		$9.99
Options:
Granted	—		$0.00
Exercised	(13,667	)	$5.58
Canceled	(6,500	)	$7.45
Outstanding at January 31, 2013	341,918		$10.21	6.54	$734
Options exercisable at January 31, 2013	267,585		$10.20	6.09	$621

Options outstanding at November 1, 2013	236,134		$9.93
Options:
Granted	—		$0.00
Exercised	(33,468	)	$9.18
Canceled	(8,333	)	$8.10
Outstanding at January 31, 2014	194,333		$10.13	5.68	$962
Options exercisable at January 31, 2014	184,666		$10.24	5.56	$894

At January 31, 2014 the exercise price of all of the Company's stock option grants was higher than the market value of the Company's stock and at January 31, 2013, the exercise price of some of the Company’s stock option grants was higher than the market value of the Company’s stock. These grants are excluded from the computation of aggregate intrinsic value of the Company’s outstanding and exercisable stock options.

For the three months ended January 31, 2014 and 2013, the Company recorded compensation expense related to stock options currently vesting, effectively reducing income before taxes by $83 and $114, respectively. For the first quarter of fiscal 2014, there was no impact on earnings per share and for the first quarter of fiscal 2013 the impact on earnings per share was a reduction of $0.01 per share basic and diluted. The total compensation cost related to unvested awards not yet recognized is expected to be a combined total of $67 over the next two fiscal years. For the three months ended January 31, 2014 and 2013, the total compensation cost related to the restricted stock currently vested was $67 and $73, respectively. The total estimated compensation cost related to the non-vested restricted stock is $339 over the next two fiscal years.

Earnings per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. In addition, the shares of Common Stock issuable pursuant to stock options outstanding under the Incentive Plan are included in the diluted earnings per share calculation to the extent they are dilutive. For the three months ended January 31, 2014, 118,572 stock awards were excluded from the computation of diluted earnings per share because they were anti-dilutive. For the three months ended January 31, 2013, 329,906 stock awards were excluded from the computation of diluted earnings per share because they were anti-dilutive. The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for net income per share:



(Shares in thousands)	Three Months Ended January 31,
	2014		2013
Net income available to common stockholders	$	4,939	$	2,583
Basic weighted average shares	17,113		16,988
Effect of dilutive securities:
Stock options	95		52
Diluted weighted average shares	17,208		17,040
Basic income per share	$	0.29	$	0.15
Diluted income per share	$	0.29	$	0.15

Comprehensive Income

Comprehensive income for the three months ended January 31, 2014 and 2013 was $4,531 and $2,583, respectively. Beginning with the first quarter of fiscal year 2014, the pension plan will be remeasured on a quarterly basis. Comprehensive income includes an adjustment of $249 to estimated deferred taxes associated with the pension adjustments included in accumulated other comprehensive income.