NOTE 9 – STOCK-BASED COMPENSATION

The Company has various stock-based compensation programs (the “Plans”) under which awards, including stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), PSUs based on total stockholder return, long-term PSUs and share units, may be granted. During the second quarter of fiscal 2016, the amount of shares of the Company’s Class A Common Stock that was reserved and available to be granted pursuant to these Plans was increased by 10,600,000 to approximately 17,169,000 shares as of December 31, 2015.

Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options, RSUs, PSUs, PSUs based on total stockholder return, long-term PSUs, and share units. Compensation expense attributable to net stock-based compensation is as follows:


	Three Months Ended December 31				Six Months Ended December 31
(In millions)	2015		2014		2015		2014

Compensation expense	$	42.5	$	38.8	$	111.2	$	100.9
Income tax benefit	14.0		12.6		36.5		33.0

As of December 31, 2015, the total unrecognized compensation cost related to unvested stock-based awards was $207.8 million and the related weighted-average period over which it is expected to be recognized is approximately two years.

Stock Options

The following is a summary of the Company’s stock option programs as of December 31, 2015 and changes during the six months then ended:


(Shares in thousands)	Shares		Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value (1) (in millions)		Weighted- Average Contractual Life Remaining in Years

Outstanding at June 30, 2015	13,437.1		$	47.73
Granted at fair value	2,500.2		77.46
Exercised	(570.0	)	39.19
Expired	(8.9	)	47.00
Forfeited	(91.7	)	70.31

Outstanding at December 31, 2015	15,266.7		52.78		$	538.6	6.4


Vested and expected to vest at December 31, 2015	15,125.7		52.56		$	537.0	6.2


Exercisable at December 31, 2015	8,746.3		37.81		$	439.5	4.8

(1)

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The following is a summary of the per-share weighted-average grant date fair value of stock options granted and total intrinsic value of stock options exercised:


	Three Months Ended December 31				Six Months Ended December 31
(In millions, except per share data)	2015		2014		2015		2014

Per-share weighted-average grant date fair value of stock options granted	$	25.18	$	23.62	$	21.51	$	22.46

Intrinsic value of stock options exercised	$	17.6	$	15.1	$	25.6	$	31.9

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended December 31		Six Months Ended December 31
	2015	2014	2015	2014
Weighted-average expected stock-price volatility	27%	28%	27%	28%
Weighted-average expected option life	9 years	9 years	7 years	7 years
Average risk-free interest rate	2.0%	2.3%	1.9%	2.2%
Average dividend yield	1.2%	1.1%	1.2%	1.1%

The Company uses a weighted-average expected stock-price volatility assumption that is a combination of both current and historical implied volatilities of the underlying stock. The implied volatilities were obtained from publicly available data sources. For the weighted-average expected option life assumption, the Company considers the exercise behavior for past grants and models the pattern of aggregate exercises. The average risk-free interest rate is based on the U.S. Treasury strip rate for the expected term of the options, and the average dividend yield is based on historical experience.

Restricted Stock Units

The Company granted approximately 1,555,400 RSUs during the six months ended December 31, 2015 which, at the time of grant, were scheduled to vest as follows: 544,100 in fiscal 2017, 559,200 in fiscal 2018 and 452,100 in fiscal 2019. All RSUs are subject to the continued employment or retirement of the grantees. Beginning in fiscal 2015, the RSUs granted are accompanied by dividend equivalent rights, payable upon settlement either in cash or shares (based on the terms of the particular award) and, as such, were valued at the closing market price of the Company’s Class A Common Stock on the date of grant.

The following is a summary of the status of the Company’s RSUs as of December 31, 2015 and activity during the six months then ended:


			Weighted-Average
			Grant Date
(Shares in thousands)	Shares		Fair Value Per Share

Nonvested at June 30, 2015	2,592.1		$	70.31
Granted	1,555.4		77.35
Dividend equivalents	10.8		83.98
Vested	(1,242.2	)	67.76
Forfeited	(73.9	)	73.25

Nonvested at December 31, 2015	2,842.2		75.25

Performance Share Units

During the six months ended December 31, 2015, the Company granted approximately 277,400 PSUs, which will be settled in stock subject to the achievement of the Company’s net sales, diluted net earnings per common share and return on invested capital goals for the three fiscal years ending June 30, 2018, all subject to the continued employment or retirement of the grantees. PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement. In September 2015, approximately 276,200 shares of the Company’s Class A Common Stock were issued and related accrued dividends were paid, relative to the target goals set at the time of the issuance, in settlement of 249,900 PSUs which vested as of June 30, 2015.

The following is a summary of the status of the Company’s PSUs as of December 31, 2015 and activity during the six months then ended:


				Weighted-Average
				Grant Date
(Shares in thousands)	Shares			Fair Value Per Share

Nonvested at June 30, 2015	550.4		$	71.59
Granted	277.4			77.35
Vested	—			—
Forfeited	(4.5	)		67.31

Nonvested at December 31, 2015	823.3			73.55

Performance Share Units Based on Total Stockholder Return

During fiscal 2013, the Company granted PSUs to an executive of the Company with an aggregate target payout of 162,760 shares of the Company’s Class A Common Stock, subject to continued employment through the end of the relative performance periods. The first performance period ended June 30, 2015, and the remaining performance periods end June 30, 2016 and 2017. The remaining PSUs will be settled based upon the Company’s relative total stockholder return (“TSR”) over the relevant performance period as compared to companies in the S&P 500 on July 1, 2012. No settlement will occur if the Company’s TSR falls below a minimum threshold, and up to an aggregate of 173,611 shares of the Company’s Class A Common Stock will be issued depending on the extent to which the Company’s TSR equals or exceeds the minimum threshold. The PSUs are accompanied by dividend equivalent rights that will be payable in cash upon settlement.

The grant date fair value of the PSUs of $11.0 million was estimated using a lattice model with a Monte Carlo simulation and the following assumptions for each performance period, respectively: contractual life of 33, 45 and 57 months, average risk-free interest rate of 0.3%, 0.5% and 0.7% and a dividend yield of 1.0%. Using the historical stock prices and dividends from public sources, the Company estimated the covariance structure of the returns on S&P 500 stocks. The volatility for the Company’s stock produced by this estimation was 32%. The average risk-free interest rate is based on the U.S. Treasury strip rates over the contractual term of the grant, and the dividend yield is based on historical experience. In September 2015, 42,549 shares of the Company’s Class A Common Stock were issued and related dividends were paid, in accordance with the terms of the grant, related to the performance period ended June 30, 2015. The remaining PSUs have an aggregate target payout of 108,507 shares as of December 31, 2015.

Long-term Performance Share Units

During September 2015, the Company granted PSUs to an executive of the Company with an aggregate target payout of 387,848 shares (in three tranches of approximately 129,283 each) of the Company’s Class A Common Stock, generally subject to continued employment through the end of relative performance periods, which end June 30, 2018, 2019 and 2020. No portion of the award will generally vest unless the Company has achieved positive Net Earnings, as defined in the PSU award agreement, for the fiscal year ending June 30, 2016. If the Net Earnings goal is met, then performance and vesting of each tranche will be based on the Company achieving positive Cumulative Operating Income, as defined in the performance share unit award agreement, during the relative performance period. Payment with respect to a tranche will be made on the third anniversary of the last day of the respective performance period. The PSUs are accompanied by dividend equivalent rights that will be payable in cash at the same time as the payment of shares of Class A Common Stock. The grant date fair value of these PSUs of $30.0 million was estimated using the closing stock price of the Company’s Class A Common Stock as of September 4, 2015, the date of grant.

Share Units

The Company grants share units to certain non-employee directors under the Non-Employee Director Share Incentive Plan. The following is a summary of the status of the Company’s share units as of December 31, 2015 and activity during the six months then ended:


			Weighted-Average
			Grant Date
(Shares in thousands)	Shares		Fair Value Per Share

Outstanding at June 30, 2015	110.3	$	41.24
Granted	8.9		84.35
Dividend equivalents	0.7		82.89
Converted	—		—

Outstanding at December 31, 2015	119.9		44.69

Cash Units

Certain non-employee directors defer cash compensation in the form of cash payout share units, which are not subject to the Plans. These share units are classified as liabilities and, as such, their fair value is adjusted to reflect the current market value of the Company’s Class A Common Stock. The Company recorded $1.9 million and $0.6 million as compensation expense to reflect additional deferrals and the change in the market value for the three months ended December 31, 2015 and 2014, respectively. The Company recorded $0.7 million and $0.8 million as compensation expense to reflect additional deferrals and the change in the market value for the six months ended December 31, 2015 and 2014, respectively.