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Note 10: Incentive Plans

3 Months Ended

Dec. 31, 2012

Note 10: Incentive Plans

As of December 31, 2012, the Corporation had four share-based compensation plans, which are described below. These plans are the 2010 Equity Incentive Plan (“2010 Plan”), the 2006 Equity Incentive Plan (“2006 Plan”), the 2003 Stock Option Plan and the 1996 Stock Option Plan.

For the quarters ended December 31, 2012 and 2011, the compensation cost for these plans was $105,000 and $244,000, respectively. No income tax benefit was recognized in the quarters ended December 31, 2012 and 2011.

For the six months ended December 31, 2012 and 2011, the compensation cost for these plans was $239,000 and $833,000, respectively. The income tax benefit recognized in the Condensed Consolidated Statements of Operations for share-based compensation plans was $71,000 for the six months ended December 31, 2012 and no income tax benefit was recognized in the six months ended December 31, 2011.

Equity Incentive Plan. The Corporation established and the shareholders approved the 2010 Plan and the 2006 Plan for directors, advisory directors, directors emeriti, officers and employees of the Corporation and its subsidiary. The 2010 Plan authorizes 586,250 stock options and 288,750 shares of restricted stock. The 2010 Plan also provides that no person may be granted more than 117,250 stock options or 43,312 shares of restricted stock in any one year. The 2006 Plan authorizes 365,000 stock options and 185,000 shares of restricted stock. The 2006 Plan also provides that no person may be granted more than 73,000 stock options or 27,750 shares of restricted stock in any one year.

Equity Incentive Plan - Stock Options. Under the 2010 Plan and 2006 Plan (collectively, “the Plans”), options may not be granted at a price less than the fair market value at the date of the grant. Options typically vest over a five-year or shorter period as long as the director, advisory director, director emeritus, officer or employee remains in service to the Corporation. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

There was no activity under the Plans in the second quarter of either fiscal 2013 or 2012, other than the grant of 20,000 options and forfeiture of 20,000 options in the second quarter of fiscal 2013. For the first six months of fiscal 2013 and 2012, there was no activity under the Plans, other than the grant of 20,000 options, the exercise of 28,000 options and the forfeiture of 424,000 options in the first six months of fiscal 2013. As of December 31, 2012 and 2011, there were 188,450 stock options and 184,450 stock options available for future grants under the Plans, respectively.

The following table summarizes the stock option activity in the Plans for the quarter and six months ended December 31, 2012.

			Weighted-
		Weighted-	Average	Aggregate
		Average	Remaining	Intrinsic
		Exercise	Contractual	Value
	Shares	Price	Term (Years)	($000)
Options
Outstanding at October 1, 2012	757,800	$12.35	--	--
Granted	20,000	$16.47	--	--
Exercised	--	$-	--	--
Forfeited	(20,000)	$7.43	--	--
Outstanding at December 31, 2012	725,800	$12.60	6.90	$5,435
Vested and expected to vest at December 31, 2012	644,000	$13.20	6.69	$4,647
Exercisable at December 31, 2012	316,800	$18.70	4.78	$1,497

			Weighted-
		Weighted-	Average	Aggregate
		Average	Remaining	Intrinsic
		Exercise	Contractual	Value
	Shares	Price	Term (Years)	($000)
Options
Outstanding at July 1, 2012	757,800	$12.13	--	--
Granted	20,000	$16.47	--	--
Exercised	(28,000)	$7.03	--	--
Forfeited	(24,000)	$7.41	--	--
Outstanding at December 31, 2012	725,800	$12.60	6.90	$5,435
Vested and expected to vest at December 31, 2012	644,000	$13.20	6.69	$4,647
Exercisable at December 31, 2012	316,800	$18.70	4.78	$1,497

As of December 31, 2012 and 2011, there was $1.1 million and $1.4 million of unrecognized compensation expense, respectively, related to unvested share-based compensation arrangements under the Plans. The expense is expected to be recognized over a weighted-average period of 2.7 years and 3.3 years, respectively. The forfeiture rate during the first six months of fiscal 2013 and 2012 was 20 percent for both periods, and was calculated by using the historical forfeiture experience of all fully vested stock option grants and is reviewed annually.

Equity Incentive Plan – Restricted Stock. The Corporation used 288,750 shares and 185,000 shares of its treasury stock to fund the 2010 Plan and the 2006 Plan, respectively. Awarded shares typically vest over a five-year or shorter period as long as the director, advisory director, director emeriti, officer or employee remains in service to the Corporation. Once vested, a recipient of restricted stock will have all rights of a shareholder, including the power to vote and the right to receive dividends. The Corporation recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

There was no restricted stock activity for either the second quarter of fiscal 2013 and 2012. For the first six months of fiscal 2013, there was no restricted stock activity, other than the vesting and distribution of 800 shares and the forfeiture of 1,500 shares. This compares to the vesting and distribution of 100,300 shares of restricted stock in the first six months of fiscal 2012. As of December 31, 2012 and 2011, there were 169,600 shares and 168,100 shares of restricted stock available for future awards under the Plans, respectively.

The following table summarizes the unvested restricted stock activity in the quarter and six months ended December 31, 2012.

		Weighted-Average
		Award Date
	Shares	Fair Value
Unvested Shares
Unvested at October 1, 2012	144,500	$7.07
Granted	--	$--
Vested	--	$--
Forfeited	--	$--
Unvested at December 31, 2012	144,500	$7.07
Expected to vest at December 31, 2012	115,600	$7.07

		Weighted-Average
		Award Date
	Shares	Fair Value
Unvested Shares
Unvested at July 1, 2012	146,800	$7.13
Granted	--	$--
Vested	(800)	$18.09
Forfeited	(1,500)	$7.07
Unvested at December 31, 2012	144,500	$7.07
Expected to vest at December 31, 2012	115,600	$7.07

As of December 31, 2012 and 2011, the unrecognized compensation expense was $708,000 and $1.0 million, respectively, related to unvested share-based compensation arrangements under the Plans, and reported as a reduction to stockholders’ equity. This expense is expected to be recognized over a weighted-average period of 2.5 years and 3.2 years, respectively. Similar to stock options, a forfeiture rate of 20 percent has been applied for the restricted stock compensation expense calculations in the first six months of fiscal 2013 and 2012, for both periods. For the six months ended December 31, 2012 and 2011, the fair value of shares vested and distributed was $9,000 and $814,000, respectively.

Stock Option Plans. The Corporation established the 2003 Stock Option Plan and the 1996 Stock Option Plan (collectively, the “Stock Option Plans”) for key employees and eligible directors under which options to acquire up to 352,500 shares and 1.15 million shares of common stock, respectively, may be granted. Under the Stock Option Plans, stock options may not be granted at a price less than the fair market value at the date of the grant. Stock options typically vest over a five-year period on a pro-rata basis as long as the employee or director remains in service to the Corporation. The stock options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the stock options granted is 10 years. As of December 31, 2012 and 2011, the number of stock options available for future grants under the 2003 Stock Option Plan was 14,900 stock options. No stock options remain available for future grant under the 1996 Stock Option Plan, which expired in January 2007.

The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions. The expected volatility is based on implied volatility from historical common stock closing prices for the prior 84 months. The expected dividend yield is based on the most recent quarterly dividend on an annualized basis. The expected term is based on the historical experience of all fully vested stock option grants and is reviewed annually. The risk-free interest rate is based on the U.S. Treasury note rate with a term similar to the underlying stock option on the particular grant date.

For the second quarter of fiscal 2013 and 2012, there was no activity in the Stock Option Plans, except forfeitures of 62,700 shares in the second quarter of fiscal 2012. For the first six months of fiscal 2013 and 2012, there was no activity in the Stock Option Plans, except forfeitures of 7,500 shares and 62,700 shares, respectively. As of December 31, 2012 and 2011, there were 14,900 stock options and 14,900 stock options available for future grants under the Stock Options Plans, respectively.

The following is a summary of the activity in the Stock Option Plans for the quarter ended December 31, 2012.

			Weighted-
		Weighted-	Average	Aggregate
		Average	Remaining	Intrinsic
		Exercise	Contractual	Value
	Shares	Price	Term (Years)	($000)
Options
Outstanding at October 1, 2012	412,700	$24.30	--	--
Granted	--	$-	--	--
Exercised	--	$-	--	--
Forfeited	--	$-	--	--
Outstanding at December 31, 2012	412,700	$24.30	2.01	$--
Vested and expected to vest at December 31, 2012	412,700	$24.30	2.01	$--
Exercisable at December 31, 2012	412,700	$24.30	2.01	$-

			Weighted-
		Weighted-	Average	Aggregate
		Average	Remaining	Intrinsic
		Exercise	Contractual	Value
	Shares	Price	Term (Years)	($000)
Options
Outstanding at July 1, 2012	420,200	$24.11	--	--
Granted	--	$--	--	--
Exercised	--	$--	--	--
Forfeited	(7,500)	$13.67	--	--
Outstanding at December 31, 2012	412,700	$24.30	2.01	$-
Vested and expected to vest at December 31, 2012	412,700	$24.30	2.01	$-
Exercisable at December 31, 2012	412,700	$24.30	2.01	$-

As of December 31, 2012, there was no unrecognized compensation expense. This compares to unrecognized compensation expense of $26,000 at December 31, 2011, related to unvested share-based compensation arrangements under the Stock Option Plans. This expense is expected to be recognized over a weighted-average period of 0.6 years. The forfeiture rate during the first six months of fiscal 2012 was 20 percent, and was calculated by using the historical forfeiture experience of all fully vested stock option grants and is reviewed annually.