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STOCK-BASED COMPENSATION

12 Months Ended

Jun. 30, 2020

9. STOCK-BASED COMPENSATION

As of June 30, 2020, we maintained the Amended and Restated 2012 Incentive Award Plan (the “2012 Plan”) and the Amended and Restated 2006 Equity Participation Plan (“2006 Plan”) as stock-based employee compensation plans. No further grants may be made under the 2006 Plan. The 2012 Plan and the 2006 Plan are collectively referred to as the “OSI Plans.”

We recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands):


	2018		2019		2020
Cost of goods sold	$	972	$	732	$	708
Selling, general and administrative		22,293		23,876		22,546
Research and development		581		643		563
Stock based compensation expense	$	23,846	$	25,251	$	23,817

As of June 30, 2020, total unrecognized compensation cost related to share-based compensation grants under the OSI Plans were estimated at $0.4 million for stock options and $13.7 million for RSUs. We expect to recognize these costs over a weighted-average period of 1.9 years with respect to the stock options and 2.0 years for grants of RSUs.

Employee Stock Purchase Plan—We have an employee stock purchase plan under which eligible employees may purchase a limited number of shares of Common Stock at a discount of up to 15% of the market value of such stock at pre-determined, plan-defined dates. During the three years ended June 30, 2018, 2019 and 2020, employees purchased 80,115 70,857, and 69,399 shares, respectively. As of June 30, 2020, there were 601,434 shares of our Common Stock available for issuance under the plan.

OSI Plans

Awards are granted in the form of incentive options, nonqualified options, restricted stock awards, stock appreciation rights, RSUs, performance shares and stock bonuses, amongst other forms of equity, to qualified employees, directors and consultants.

Under the OSI Plans, the exercise price of nonqualified options and incentive stock options may not be less than the fair market value of our Common Stock on the date of grant. The exercise price of nonqualified options and incentive stock options granted to individuals who own more than 10% of our voting stock may not be less than 110% of the fair market value of our Common Stock on the date of grant. Stock options granted under the OSI Plans typically vest over three years based on continued service. Restricted stock and RSUs typically vest over three to four years based on continued service. Certain restricted stock awards granted to senior management vest based on the achievement of pre-established performance criteria.

Stock Option Fair Value Estimation Assumptions. We estimate the fair value of our stock options at the date of grant using the Black-Scholes option-pricing valuation model. Our valuation model is affected by our stock price as well as weighted average assumptions for a number of subjective variables described below.

Expected Dividend. Expected dividend is based on historical patterns and our anticipated dividend payments over the expected holding period.

Risk-Free Interest Rate. The risk-free interest rate for stock options is based on U.S. Treasuries for a maturity matching the expected holding period.

Expected Volatility. Expected volatility is based on our historical share price volatility matching the expected holding period. No single method of estimating volatility is proper under all circumstances and to the extent that a company can derive implied volatility based on the trading of its financial instruments on a public market, it may be appropriate to use both implied and historical volatility in its assumptions. We have certain financial instruments that are publicly traded from which we can derive the implied volatility. Therefore, we use implied and historical volatility for valuing our stock options. We believe that implied and historical volatility is a better indicator of expected volatility because it is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility.

Expected Holding Period. We use historical stock option exercise data to estimate the expected holding period.

Changes in assumptions can materially impact the estimated fair value of stock options. The weighted average assumptions used in the valuation model are presented in the table below.


	2018		2019		2020
Expected dividend	—		—		—
Risk-free interest rate	1.9	%	2.6	%	1.6	%
Expected volatility	29.0	%	28.0	%	26.0	%
Expected holding period (in years)	4.5		4.5		4.5

The following summarizes stock option activity for fiscal years 2018, 2019 and 2020:


		Weighted-
		Average		Weighted-Average	Aggregate
	Number of	Exercise		Remaining Contractual	Intrinsic Value
	Options	Price		Term	(in thousands)
Outstanding at June 30, 2017	780,671		30.00
Granted	25,379		85.83
Exercised	(121,651)		23.53
Expired or forfeited	(6,874)		73.77
Outstanding at June 30, 2018	677,525	$	32.80
Granted	19,259		73.37
Exercised	(169,799)		32.11
Expired or forfeited	(11,101)		70.50
Outstanding at June 30, 2019	515,884	$	33.74
Granted	13,263		101.31
Exercised	(201,150)		20.48
Expired or forfeited	(1,693)		81.79
Outstanding at June 30, 2020	326,304	$	44.41	2.4 years	$	10,403
Exercisable at June 30, 2020	295,533	$	39.89	1.8 years	$	10,378

The per-share weighted-average grant-date fair value of stock options granted under the OSI Plans was $23.64, $20.45 and $24.88 for fiscal 2018, 2019 and 2020, respectively. The total intrinsic value of options exercised during fiscal 2020 was $16.8 million.

Restricted Stock Awards and Restricted Stock Units—A summary of restricted stock award and RSU activity for the periods indicated was as follows:


		Weighted-
		Average
	Shares	Fair Value
Nonvested at June 30, 2017	611,687	$	65.85
Granted	351,034		74.09
Vested	(413,639)		65.33
Forfeited	(22,705)		70.32
Nonvested at June 30, 2018	526,377	$	71.56
Granted	375,580		74.40
Vested	(364,410)		70.92
Forfeited	(16,407)		74.13
Nonvested at June 30, 2019	521,140	$	73.97
Granted	308,431		87.88
Vested	(390,613)		68.63
Forfeited	(15,368)		83.36
Nonvested at June 30, 2020	423,590	$	88.68

The per-share weighted average grant-date fair value of RSUs granted under the OSI Plans was $74.09, $74.40, and $87.88 for fiscal 2018, 2019 and 2020, respectively. The total fair value of shares vested during fiscal 2018, 2019 and 2020 was $27.0 million, $25.8 million, and $26.8 million, respectively.

As of June 30, 2020, there were approximately 1.0 million shares available for grant under the 2012 Plan. Under the terms of the 2012 Plan, RSUs and restricted stock granted from the pool of shares available for grant reduce the pool by 1.87 shares for each award granted. RSUs and restricted stock forfeited and returned to the pool of shares available for grant increase the pool by 1.87 shares for each award forfeited.

We granted 117,346, 97,514, and 81,621 performance-based awards during fiscal 2018, 2019 and 2020, respectively. These performance-based RSU awards are contingent on the achievement of certain performance metrics. The payout related to these awards can range from zero to 280% of the original number of shares or units awarded.