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 were not granted in fiscal 2013 or during the first nine months of 2014. During the first nine months of fiscal 2014, 79,500 shares of restricted stock were granted to several employees as incentives for future performance. The market value of the Company's stock on the date of the restricted stock awards ranged between $14.97 and $20.64.

Activity in the Company’s incentive plan for the nine months ended July 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	(28,334	)	$5.69
Canceled	(78,149	)	$12.45
Outstanding at July 31, 2013	255,602		$9.71	6.27	$863
Options exercisable at July 31, 2013	198,937		$9.62	5.77	$694

Options outstanding at November 1, 2013	236,134		$9.93
Options:
Granted	—		$0.00
Exercised	(88,363	)	$9.83
Canceled	(12,333	)	$7.19
Outstanding at July 31, 2014	135,438		$9.79	5.51	$976
Options exercisable at July 31, 2014	125,771		$9.93	5.37	$890

At July 31, 2014, the exercise prices of all of the Company's stock option grants were lower than the market value of the Company's stock. At July 31, 2013, the exercise prices of some of the Company’s stock option grants were higher than the market value of the Company’s stock. The stock option grants whose exercise price is higher than the market value of the Company's stock are excluded from the computation of aggregate intrinsic value of the Company’s outstanding and exercisable stock options.

For the three and nine months ended July 31, 2014 the Company recorded compensation expense related to stock options currently vesting, effectively reducing income before taxes by $21 and $127, respectively. For the three and nine months ended July 31, 2013, the Company recorded compensation expense related to stock options currently vesting, effectively reducing income before taxes by $114 and $342, respectively. For the three months ended July 31, 2014, there was no impact to earnings per share and for the nine months ended July 31, 2014, the impact of stock compensation expense on earnings per share was a reduction of $0.01 per share basic and diluted. For the three months ended July 31, 2013, the impact of stock compensation expense on earnings per share was a reduction of $0.01 per share basic and diluted and for the nine months ended July 31, 2013, the impact of stock compensation expense on earnings per share was a reduction of $0.02 per share basic and diluted. The remaining compensation cost related to unvested stock options not yet recognized is expected to be a combined total of $22 . For the three months ended July 31, 2014 and July 31, 2013, the total compensation cost related to the restricted stock currently vested was $120 and $73, respectively. For the nine months ended July 31, 2014 and 2013, the total compensation cost related to the restricted stock currently vested was $303 and $219, respectively. The total estimated compensation cost related to the non-vested restricted stock is $1,484 over the next four 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 and restricted stock awards outstanding under the Incentive Plan are included in the diluted earnings per share calculation to the extent they are dilutive. For the three and nine months ended July 31, 2014, 42,953 and 35,369, respectively, stock options and restricted stock awards were excluded from the computation of diluted earnings per share because they were anti-dilutive. For the three and nine months ended July 31, 2013, 51,123 and 58,260, respectively, stock options and restricted 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 July 31,				Nine Months Ended July 31,
	2014		2013		2014		2013
Net income available to common stockholders	$	8,349	$	5,282	$	21,417	$	15,115
Basic weighted average shares	17,118		17,007		17,081		16,998
Effect of dilutive securities:
Stock options	57		44		76		47
Diluted weighted average shares	17,175		17,051		17,157		17,045
Basic income per share	$	0.49	$	0.31	$	1.25	$	0.89
Diluted income per share	$	0.49	$	0.31	$	1.25	$	0.89