Stock-Based Compensation

Total stock-based compensation expense for the twelve months ended June 30, 2014, June 30, 2013, and June 30, 2012 was $5.7 million, $3.8 million and $3.5 million, respectively. Measured but unrecognized stock-based compensation expense at June 30, 2014 was $9.7 million, of which $9.5 million related to nonvested deferred shares and $0.2 million related to stock options. These amounts are expected to be recognized as expense over a weighted average period of 1.8 years. The recognized tax benefit related to the stock-based compensation expense for the 12 months ended June 30, 2014, June 30, 2013 and June 30, 2012 totaled $2.8 million, $1.6 million and $1.3 million, respectively.

Plan Information

Matrix Service Company's 2012 Stock and Incentive Compensation Plan ("2012 Plan") provides stock-based and cash-based incentives for officers, other key employees and directors. Stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and cash-based awards can be issued under this plan. All future grants of stock and cash-based awards will be made through the 2012 Plan. Upon approval of the 2012 Plan by the Company's stockholders, the 2004 Stock Incentive Plan ("2004 Plan") was frozen with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2004 Plan. Awards totaling 2,300,000 shares and 1,300,000 shares have been authorized under the 2004 and 2012 Plans, respectively. At June 30, 2014 there were 713,223 shares available for grant under the 2012 Plan.

Stock Options

Stock options are granted at the market value of the Company’s common stock on the grant date and expire after 10 years. The Company’s policy is to issue shares upon the exercise of stock options from its treasury shares, if available. The Company did not award any new stock options in fiscal years 2013 or 2014.

Stock option activity and related information for the year ended June 30, 2014 is as follows:



	Number of Options		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Aggregate Intrinsic Value
			(Years)			(In thousands)
Outstanding at June 30, 2013	392,000		5.5	$	9.38
Granted	—			$	—
Exercised	(134,450	)		$	8.78	$	2,394
Cancelled	(12,250	)		$	10.19
Outstanding at June 30, 2014	245,300		6.4	$	9.68	$	5,669
Vested or expected to vest at June 30, 2014	243,477		6.4	$	9.68	$	5,627
Exercisable at June 30, 2014	37,000		1.0	$	6.84	$	960

The Company uses the Black-Scholes option pricing model to estimate grant date fair value for each stock option granted. Expected volatility is based on the historic volatility of the Company’s stock. The risk-free rate is based on the applicable United States Treasury Note rate. The expected life of the option is based on historical and expected future exercise behavior.

Assumptions used to calculate the fiscal 2012 grant date fair value and the fair value calculated was as follows:




	2012
Grant date fair value	$5.61
Risk-free interest rate	0.88%
Expected volatility	66.19%
Expected life in years	5.00
Expected dividend yield	—

The total intrinsic value of stock options exercised during fiscal 2014, 2013, and 2012 was $2.4 million, $0.6 million and $0.1 million, respectively.

The following table summarizes information about stock options at June 30, 2014:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Price	Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Options Exercisable	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life
				(Years)				(Years)
$4.60 – $ 5.49	20,500	$	5.16	1	20,500	$	5.16	1.0
8.93 – 12.20	224,800	10.10		6.9	16,500	8.93		1.3
$4.60 – $12.20	245,300	$	9.68	6.4	37,000	$	6.84	1.0

Nonvested Deferred Shares

The Company has issued nonvested deferred shares under the following types of arrangements:


•	Time-based awards—Employee awards generally vest in four or five equal annual installments beginning one year after the grant date. Director awards cliff vest on the earlier of three years or upon retirement from the Board.

•

Market-based awards—These awards are in the form of performance units which vest 3 years after the grant date only if the Company’s common stock achieves certain levels when compared to the total shareholder return of a peer group of companies as selected by the Compensation Committee of the Board of Directors. The payout is pro-rated and can range from zero to 200% of the original award. These awards are settled entirely in stock. As of June 30, 2014, there are approximately 218,000 and 154,000 performance units that are scheduled to vest in fiscal 2016 and fiscal 2017, respectively.

All awards vest upon the death or disability of the participant or upon a change of control of the Company.

The grant date fair value of the time-based awards is determined by the market value of the Company's common stock on the grant date. The grant date fair value of the market-based awards is calculated using a Monte Carlo model. For the fiscal 2014 grant, the model estimated the fair value of the award based on approximately 100,000 simulations of the future prices of the Company's common stock compared to the future prices of the common stock of its peer companies based on historical volatilities. The model also took into account the expected dividends over the performance period.

Nonvested deferred share activity for the twelve months ended June 30, 2014 is as follows:



	Shares		Weighted Average Grant Date Fair Value per Share
Nonvested shares at June 30, 2013	1,030,660		$	10.71
Shares granted	381,038		$	18.01
Shares vested and released	(266,029	)	$	10.41
Shares cancelled	(39,968	)	$	11.87
Nonvested shares at June 30, 2014	1,105,701		$	13.22

There were 503,268 and 364,600 deferred shares granted in fiscal 2013 and 2012 with average grant date fair values of $10.96 and $9.99, respectively. There were 266,029, 367,449 and 184,149 deferred shares that vested and were released in fiscal 2014, 2013 and 2012 with weighted average fair values of $22.38, $10.69 and $10.23 per share, respectively.