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, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

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, 2017, there were 589,238 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. As of March 31, 2017, there were no stock options outstanding.

Note 6. Share-Based Payments (continued)

With respect to outstanding restricted share grants, for grants made prior to fiscal 2013, generally one-half of the shares vested 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 three or 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 issues restricted shares from treasury shares.

For the three-month periods ended March 31, 2017 and 2016, stock-based compensation cost totaled $2,920 and $2,741, respectively. For the six-month periods ended March 31, 2017 and 2016, stock-based compensation cost totaled $9,017 and $5,267, respectively. The six-month period ended March 31, 2017 included $3,337 of stock-based compensation cost that was recognized at the time of grant for retirement-eligible employees. The associated future income tax benefit recognized was $1,139 and $1,069 for the three-month periods ended March 31, 2017 and 2016, respectively, and $3,517 and $2,054 for the six-month periods ended March 31, 2017 and 2016, respectively.

There were no stock options exercised during the three-month periods ended March 31, 2017 and 2016, respectively. For the six-month periods ended March 31, 2017 and 2016, the amount of cash received from the exercise of stock options was $14 and $1,798, respectively. In connection with these exercises, the tax benefits realized by the Company were $3 and $283 for the six-month periods ended March 31, 2017 and 2016, respectively.

The transactions for restricted stock for the six months ended March 31, 2017 were as follows:



	Shares		Weighted- average grant-date fair value
Non-vested at September 30, 2016	522,710		$	45.10
Granted	216,655		66.61
Vested	(185,180	)	47.24
Expired or forfeited	(6,950	)	50.29
Non-vested at March 31, 2017	547,235		$	52.83

As of March 31, 2017, the total unrecognized compensation cost related to unvested restricted stock was $12,339 and is expected to be recognized over a weighted average period of 1.6 years.

The transactions for shares under options for the six months ended March 31, 2017 were as follows:



	Shares		Weighted- average exercise price		Weighted- average remaining contractual term	Aggregate intrinsic value
Outstanding, September 30, 2016	77,733		$	40.56
Exercised	(333	)	40.56
Expired or forfeited	(77,400	)	40.56
Outstanding, March 31, 2017	—		—		—	$	—
Exercisable, March 31, 2017	—		$	—	—	$	—

No options vested during the three-month and six-month periods ended March 31, 2017 and 2016, 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, 2017 and 2016 was $9 and $898, respectively.

Note 6. Share-Based Payments (continued)

The transactions for non-vested options for the six-months ended March 31, 2017 were as follows:



			Weighted-average grant-date
	Shares		fair value
Non-vested at September 30, 2016	77,400		$	12.29
Expired or forfeited	(77,400	)	12.29
Non-vested at March 31, 2017	—		$	—

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 the fair value of restricted stock granted during the six-month periods ended March 31, 2017 and 2016.



	Six Months Ended March 31,
	2017		2016
Expected volatility	20.2	%	20.7	%
Dividend yield	1.1	%	1.0	%
Average risk-free interest rate	1.7	%	1.7	%
Average expected term (years)	2.1		2.1

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, 2016, 2015 and 2014 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 Amended and Restated 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 Amended and Restated 2014 Director Fee Plan, non-employee directors (except for the Chairman of the Board) each receive, as an annual retainer fee for fiscal 2017, either cash or shares of the Company's Class A Common Stock with a value equal to $75. The annual retainer fee for fiscal 2017 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 22,942 shares had been deferred under the Director Fee Plans as of March 31, 2017. 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 $125 for fiscal 2017. A total of 22,300 stock options have been granted under the Director Fee Plans. At March 31, 2017, there were no options outstanding. Additionally, 161,724 shares of restricted stock have been granted under the Director Fee Plans, 58,574 of which were issued under the Amended and Restated 2014 Director Fee Plan. 25,157 share of restricted stock are unvested at March 31, 2017. A total of 150,000 shares have been authorized to be issued under the Amended and Restated 2014 Director Fee Plan.