Stock-Based Compensation

The 2010 Master Stock Incentive Plan (the Plan) allows for the granting of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards.

Stock Options

Options under the Plan are granted to key employees whereby the option exercise price is equivalent to the market price of the Company’s common stock at the date of grant. Options are generally exercisable for up to 10 years from the date of grant and vest in equal increments over three years. For the years ended July 31, 2019, 2018 and 2017, the Company recorded pretax stock-based compensation expense associated with stock options of $9.8 million, $8.1 million and $7.5 million, respectively. Compensation costs for stock-based payments are included in selling, general and administrative expenses. The Company issues treasury shares upon option exercise. The Company also recorded tax benefits associated with this compensation expense of $2.0 million, $1.9 million and $2.2 million for the years ended July 31, 2019, 2018 and 2017, respectively.

Stock-based employee compensation expense is recognized using the fair-value method for all stock option awards. The Company determined the fair value of these awards using the Black-Scholes option pricing model with the following assumptions:



	Year Ended July 31,
	2019		2018		2017
Risk-free interest rate	2.1 - 3.1%		2.0 - 2.9%		2.5 - 2.6%
Expected volatility	16.0 - 21.5%		18.2 - 20.6%		20.8 - 24.1%
Expected dividend yield	1.6	%	1.6	%	1.7	%

Expected life:
Director and officer grants	8 years		8 years		8 years
Non-officer original grants	7 years		7 years		7 years

The weighted average fair value for options granted during the years ended July 31, 2019, 2018 and 2017 was $12.27, $9.29 and $10.09 per share, respectively, using the Black-Scholes pricing model.

The following table summarizes stock option activity for the years ended July 31, 2019, 2018 and 2017:



	Options Outstanding		Weighted Average Exercise Price ⁽¹⁾
Outstanding at July 31, 2016	6,822,390		$	30.09
Granted	888,500		42.65
Exercised	(978,193	)	24.04
Canceled	(47,146	)	36.51
Outstanding at July 31, 2017	6,685,551		32.60
Granted	881,050		45.70
Exercised	(738,635	)	26.47
Canceled	(42,154	)	39.52
Outstanding at July 31, 2018	6,785,812		34.93
Granted	908,925		58.02
Exercised	(1,103,054	)	25.07
Canceled	(60,433	)	50.57
Outstanding at July 31, 2019	6,531,250		39.66

(1) Weighted average shares are calculated using the Black-Scholes model.

The total intrinsic value of options exercised during the years ended July 31, 2019, 2018 and 2017 was $30.3 million, $16.0 million and $18.3 million, respectively.

The number of shares reserved at July 31, 2019 for outstanding options and future grants was 7,738,519. Shares reserved consist of shares available for grant plus all outstanding options.

The following table summarizes information concerning outstanding and exercisable options as of July 31, 2019:



Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$16.91 to $32.49	1,493,111	3.9	$	27.46	1,493,111	$	27.46
$32.50 to $37.49	1,211,064	3.0	34.41		1,211,064	34.41
$37.50 to $42.49	1,283,417	5.2	40.30		1,239,817	40.23
$42.50 to $47.49	1,653,643	7.6	44.00		840,920	43.56
$47.50 and above	890,015	9.0	58.27		34,900	52.08
	6,531,250	5.6	39.66		4,819,812	35.48

At July 31, 2019, the aggregate intrinsic value of shares outstanding and exercisable was $74.7 million and $69.9 million, respectively.

The following table summarizes the status of options that contain vesting provisions:



	Options		Weighted Average Grant Date Fair Value
Non-vested at July 31, 2018	1,741,316		$	9.20
Granted	908,925		12.27
Vested	(890,816	)	8.70
Canceled	(47,987	)	10.09
Non-vested at July 31, 2019	1,711,438		11.06

The total fair value of options vested during years ended July 31, 2019, 2018 and 2017, was $44.5 million, $42.0 million and $39.6 million, respectively.

As of July 31, 2019, there was $8.0 million of total unrecognized compensation expense related to non-vested stock options granted under the Plan. This unvested expense is expected to be recognized during fiscal years 2020, 2021 and 2022.

Performance-based awards

The Plan also allows for the granting of performance-based awards to a limited number of key executives. As administered by the Human Resources Committee of the Company’s Board of Directors, these performance-based awards are payable in common stock and are based on a formula that measures performance of the Company over a three-year period. These awards are settled or forfeited after three years with payouts ranging from zero to 200% of the target award value depending on achievement. Performance-based award expense under these plans totaled $3.8 million, $7.5 million and $0.9 million in the years ended July 31, 2019, 2018 and 2017, respectively.

Factors related to the Company’s performance share awards are as follows:



	Year Ended July 31,
	2019		2018		2017
Weighted-average per award fair value at grant date	$	58.35	$	45.43	$	37.39

The table below summarizes the activity during fiscal 2019 for non-vested performance share awards:



	Performance Shares		Weighted Average Grant Date Fair Value
Non-vested at July 31, 2018	174,900		$	40.79
Granted	100,200		58.35
Vested	(101,000	)	37.39
Canceled/forfeited	—		—
Non-vested at July 31, 2019	174,100		52.87

As of July 31, 2019, there was $1.7 million of total unrecognized compensation expense related to non-vested performance shares granted under the Plan. This unvested expense is expected to be recognized over the remaining vesting period.