Matthews International Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Share-Based Payments

Share-Based Payments

6 Months Ended

Mar. 31, 2016

Note 6. Share-Based Payments

The Company maintains an equity incentive plan (the "2012 Equity Incentive Plan") that provides for grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards. The Company also maintains an equity incentive plan (the "2007 Equity Incentive Plan") and a stock incentive plan (the "1992 Incentive Stock Plan") that previously provided for grants of stock options, restricted shares and certain other types of stock-based awards. Under the 2012 Equity Incentive Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,500,000. There will be no further grants under the 2007 Equity Incentive Plan or the 1992 Incentive Stock Plan. At March 31, 2016, there were 1,028,548 shares reserved for future issuance under the 2012 Equity Incentive Plan. All plans are administered by the Compensation Committee of the Board of Directors.

The option price for each stock option granted under any of the plans may not be less than the fair market value of the Company's Class A Common Stock on the date of grant. Outstanding stock options are generally exercisable in one-third increments upon the attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. In addition, options generally vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the market value thresholds). The options expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company generally settles employee stock option exercises with treasury shares.

With respect to outstanding restricted share grants, for grants made prior to fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. For grants made in and after fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company's Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date. Unvested restricted shares generally expire on the earlier of five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company generally issues restricted shares from treasury shares.

For the three-month periods ended March 31, 2016 and 2015, stock-based compensation cost totaled $2,741 and $2,039, respectively. For the six-month periods ended March 31, 2016 and 2015, stock-based compensation cost totaled $5,267 and $4,564, respectively. The associated future income tax benefit recognized was $1,069 and $795 for the three-month periods ended March 31, 2016 and 2015, respectively, and $2,054 and $1,780 for the six-month periods ended March 31, 2016 and 2015, respectively.

There were no stock options exercised during the three-month period ended March 31, 2016. For the three-month period ended March 31, 2015, the amount of cash received from the exercise of stock options was $51. For the six-month periods ended March 31, 2016 and 2015, the amount of cash received from the exercise of stock options was $1,798 and $3,778, respectively. In connection with these exercises, the tax benefits realized by the Company were $6 for the three-month period ended March 31, 2015, and $283 and $321 for the six-month periods ended March 31, 2016 and 2015, respectively.

The transactions for restricted stock for the six months ended March 31, 2016 were as follows:

				Weighted-
				average
				grant-date
	Shares			fair value
Non-vested at September 30, 2015		570,567		$	33.66
Granted		224,125			51.91
Vested		(260,947	)		30.17
Expired or forfeited		(3,385	)		39.55
Non-vested at March 31, 2016		530,360		$	45.21

As of March 31, 2016, the total unrecognized compensation cost related to unvested restricted stock was $13,497 and is expected to be recognized over a weighted average period of 1.8 years.

The transactions for shares under options for the six months ended March 31, 2016 were as follows:

						Weighted-
				Weighted-		average		Aggregate
				average		remaining		intrinsic
	Shares			exercise price		contractual term		value
Outstanding, September 30, 2015		337,938		$	39.19
Exercised		(47,834	)		37.59
Expired or forfeited		(98,745	)		37.33
Outstanding, March 31, 2016		191,359			40.56		0.6	$	2,089
Exercisable, March 31, 2016		114,193		$	40.56		0.6	$	1,246

No options vested during the three-month and six-month periods ended March 31, 2016 and 2015, respectively. The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the six-month periods ended March 31, 2016 and 2015 was $744 and $856, respectively.

The transactions for non-vested options for the six months ended March 31, 2016 were as follows:

				Weighted-average
				grant-date
Non-vested shares	Shares			fair value
Non-vested at September 30, 2015		166,406		$	12.43
Expired or forfeited		(89,240	)		12.56
Non-vested at March 31, 2016		77,166		$	12.29

The fair value of each restricted stock grant is estimated on the date of grant using a binomial lattice valuation model. The following table indicates the assumptions used in estimating fair value of restricted stock granted during the six-month periods ended March 31, 2016 and 2015.

	Six Months Ended March 31,
	2016			2015
Expected volatility		20.7	%		22.2	%
Dividend yield		1.0	%		1.0	%
Average risk-free interest rate		1.7	%		1.7	%
Average expected term (years)		2.1			1.8

The risk-free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date. Expected volatilities are based on the historical volatility of the Company's stock price. The expected term for grants in the years ended September 30, 2015, 2014 and 2013 represents an estimate of the average period of time for restricted shares to vest. The option characteristics for each grant are considered separately for valuation purposes.

The Company maintains the 1994 Director Fee Plan and the 2014 Director Fee Plan (collectively, the "Director Fee Plans"). There will be no further fees or share-based awards granted under the 1994 Director Fee Plan. Under the 2014 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2016, either cash or shares of the Company's Class A Common Stock with a value equal to $75. The annual retainer fee for fiscal 2016 paid to a non-employee Chairman of the Board is $175. Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The value of deferred shares is recorded in other liabilities. A total of 17,005 shares had been deferred under the Director Fee Plans at March 31, 2016. Additionally, non-employee directors each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares) with a value of $110 for fiscal 2016. A total of 22,300 stock options have been granted under the Director Fee Plans. At March 31, 2016, there were no options outstanding. Additionally, 152,290 shares of restricted stock have been granted under the Director Fee Plans, 49,140 of which were issued under the 2014 Director Fee Plan. 31,787 share of restricted stock are unvested at March 31, 2016. A total of 150,000 shares have been authorized to be issued under the 2014 Director Fee Plan.