Note 5—Stock Options and Share-Based Compensation

The stockholders approved the 2010 Stock Option Plan for Directors (“2010 Plan”) in fiscal year 2011 which allows the Company to grant options on an aggregate of 100,000 shares of the Company’s common stock. Under this plan, each eligible director will be granted options to purchase 10,000 shares at the fair market value at the date of grant for a term of five years. These options will be exercisable in four equal installments, one-fourth becoming exercisable on the next August 1 following the date of grant, and one-fourth becoming exercisable on August 1 of each of the next three years. At April 30, 2015, there were 25,000 shares available for future grants under the 2010 Plan.

The stockholders approved the 2008 Key Employee Stock Option Plan (“2008 Plan”) in fiscal year 2009 which allows the Company to grant options on an aggregate of 300,000 shares of the Company’s common stock. This plan replaced the Company’s previous stock option plan, but certain unexercised options previously granted under the old plan remain outstanding. Under the plans, options were granted at not less than the fair market value at the date of grant and options are exercisable in such installments, for such terms (up to 10 years), and at such times, as the Board of Directors may determine at the time of the grant. At April 30, 2015, there were 29,950 shares available for future grants under the 2008 Plan.

The Company recorded stock-based compensation expense in accordance with ASC 718. In order to determine the fair value of stock options on the date of grant, the Company applied the Black-Scholes option pricing model. Inherent in the model are assumptions related to expected stock-price volatility, option life, risk-free interest rate, and dividend yield. For stock options granted during the fiscal years 2015, 2014 and 2013, the Company believes that its historical share option experience does not provide a reasonable basis upon which to estimate expected term. The stock options granted have the “plain-vanilla” characteristics as defined in SEC Staff Accounting Bulletin No. 107 (SAB 107). The Company utilized the Safe Harbor option “Simplified Method” to determine the expected term of these options in accordance with the guidance of SAB 107 for options granted. The Company intends to continue to utilize the “Simplified Method” for future grants in accordance with the guidance of SAB 110 until such time that the Company believes that its historical share option experience will provide a reasonable basis to estimate expected term. The fair value of the options granted as shown below was estimated using the Black-Scholes model with the following assumptions:


	2015		2014		2013
	2008 Plan	2010 Plan	2008 Plan	2010 Plan	2008 Plan
Options granted	35,800	10,000	36,600	10,000	40,000
Weighted average expected stock price volatility	46.67%	30.37%	50.58%	36.98%	51.18%
Expected option life	6.25 years	3.38 years	6.25 years	3.33 years	6.25 years
Average risk-free interest rate	1.91%	1.28%	1.80%	0.62%	1.35%
Average dividend yield	2.61%	2.69%	3.21%	3.33%	4.34%
Estimated fair value of each option	$6.60	$3.04	$5.84	$2.73	$3.86

The stock-based compensation expense is recorded over the vesting period (4 years) for the options granted, net of tax. The Company recorded $196,000, $238,000 and $239,000 of compensation expense and $75,000, $93,000 and $93,000 deferred income tax benefit in fiscal years 2015, 2014 and 2013, respectively. The remaining compensation expense of $414,000 and deferred income tax benefit of $158,000 will be recorded over the remaining vesting periods.

The Company issued new shares of common stock and treasury stock to satisfy options exercised during fiscal years 2015 and 2014. The Company utilized treasury stock to satisfy stock options exercised during fiscal year 2013. Stock option activity and weighted average exercise price is summarized as follows:


	2015				2014				2013
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of year		228,250	$	12.17		295,550	$	11.84		298,050	$	11.60
Granted		45,800		17.78		46,600		15.26		40,000		11.78
Canceled		(5,400)		11.74		(16,650)		10.10		(15,750)		10.57
Exercised		(29,075)		12.28		(97,250)		13.00		(26,750)		9.86

Outstanding at end of year		239,575	$	13.24		228,250	$	12.17		295,550	$	11.84

Exercisable at end of year		136,700	$	11.66		113,175	$	11.90		157,250	$	12.91

The number of options outstanding, exercisable, and their weighted average exercise prices were within the following price ranges at April 30, 2015:


	Exercise Price Range
	$	8.59-$12.66	$	14.69-$18.14

Options outstanding		143,275		96,300
Weighted average exercise price	$	10.99	$	16.59
Weighted average remaining contractual life		4.0 years		7.41 years
Aggregate intrinsic value	$	690,000	$	16,000

Options exercisable		112,750		23,950
Weighted average exercise price	$	10.93	$	15.13
Aggregate intrinsic value	$	549,000	$	16,000