Stock-Based Compensation

The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock or restricted shares of Class A Nonvoting Common Stock to employees and non-employee directors. The options have an exercise price equal to the fair market value of the underlying stock at the date of grant and generally vest ratably over a three-year period, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan, referred to herein as “service-based” options, generally expire 10 years from the date of grant. The Company also grants stock options to certain executives and key management employees that vest upon meeting certain financial performance conditions over the vesting schedule described above. These options are referred to herein as “performance-based” options. Performance-based stock options expire 10 years from the date of grant.

Restricted shares issued under the plan have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares granted in fiscal 2008 were amended in fiscal 2011 to allow for vesting after either a five-year period or a seven-year period based upon both performance and service conditions. The restricted shares granted in fiscal 2011 vest ratably at the end of years 3, 4 and 5 upon meeting certain performance and service conditions. These shares are referred to herein as “performance-based restricted shares.” Restricted shares granted in fiscal 2013 vest at the end of a three-year period based upon service conditions. These shares are referred to herein as “cliff-vested restricted shares.”

The Company also grants restricted stock units to certain executives and key management employees that vest upon meeting certain financial performance conditions over a specified vesting period, referred to herein as “performance-based restricted stock units.” The performance-based restricted stock units granted in fiscal 2013 vest over a two-year period upon meeting both performance and service conditions.

As of April 30, 2013, the Company has reserved 6,205,350 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 4,198,516 shares of Class A Nonvoting Common Stock remain for future issuance of stock options and restricted shares under the active plans. The Company uses treasury stock or will issue new Class A Nonvoting Common Stock to deliver shares under these plans.

The Company recognizes the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Total stock-based compensation expense recognized by the Company during the three months ended April 30, 2013 and 2012, was $155 ($94 net of taxes) and $2,102 ($1,282 net of taxes), respectively, and expense recognized during the nine months ended April 30, 2013 and 2012 was $6,964 ($4,248 net of taxes), and $7,592 ($4,631 net of taxes), respectively. The decrease in stock-based compensation expense in the quarter ended April 30, 2013 was due to a reversal of $2,186. The reversal consisted of $1,286 of stock-based compensation expense on performance-based stock options that will not meet the financial performance conditions, and $900 of stock compensation expense on performance-based restricted shares for which the original service conditions will not be met.

As of April 30, 2013, total unrecognized compensation cost related to share-based compensation awards was $11,484 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 1.7 years.

The Company has estimated the fair value of its service-based and performance-based stock option awards granted during the nine months ended April 30, 2013 and 2012, using the Black-Scholes option valuation model. The weighted-average assumptions used in the Black-Scholes valuation model are reflected in the following table:



	Nine months ended April 30, 2013					Nine months ended April 30, 2012
	Service-Based			Performance- Based		Service-Based			Performance- Based
Black-Scholes Option Valuation Assumptions	Option Awards			Option Awards		Option Awards			Option Awards
Expected term (in years)	5.94			—		5.89			6.57
Expected volatility	38.68		%	—		39.41		%	39.21		%
Expected dividend yield	2.21		%	—		2.07		%	1.99		%
Risk-free interest rate	0.90		%	—		1.16		%	2.05		%
Weighted-average market value of underlying stock at grant date	$	30.54		$	—	$	27.05		$	29.55
Weighted-average exercise price	$	30.54		$	—	$	27.05		$	29.55
Weighted-average fair value of options granted during the period	$	9.05		$	—	$	8.42		$	10.01

The Company uses historical data regarding stock option exercise behaviors to estimate the expected term of options granted based on the period of time that options granted are expected to be outstanding. Expected volatilities are based on the historical volatility of the Company’s stock. The expected dividend yield is based on the Company’s historical dividend payments and historical yield. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the grant date for the length of time corresponding to the expected term of the option. The market value is calculated as the average of the high and the low stock price on the date of the grant.

The Company granted 5,000 cliff-vested restricted shares in December 2012, with a grant price and fair value of $32.99. The Company granted 10,000 shares of performance-based restricted stock units in September 2012, with a grant price and fair value of $30.21. The Company granted 100,000 shares of performance-based restricted stock in August of 2010, with a grant price and fair value of $28.35, and 210,000 shares in fiscal 2008, with a grant price and fair value of $32.83. As of April 30, 2013, 5,000 cliff-vested restricted shares were outstanding, 10,000 performance-based restricted stock units were outstanding and 310,000 performance-based restricted shares were outstanding.

The Company granted 815,450 service-based stock options during the nine months ended April 30, 2013, with a weighted average exercise price of $30.54 and a weighted average fair value of $9.05. There were no performance-based stock options granted during the nine months ended April 30, 2013.

A summary of stock option activity under the Company’s share-based compensation plans for the nine months ended April 30, 2013 is presented below:



Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at July 31, 2012	6,253,751	$	29.24
New grants	815,450	$	30.54
Exercised	(642,579)	$	21.22
Forfeited or expired	(519,272)	$	30.52
Outstanding at April 30, 2013	5,907,350	$	30.18	6.5	$	25,094
Exercisable at April 30, 2013	3,736,320	$	30.70	4.9	$	15,728

There were 3,736,320 and 3,848,048 options exercisable with a weighted average exercise price of $30.70 and $29.67 at April 30, 2013 and 2012, respectively. The cash received from the exercise of options during the three months ended April 30, 2013 and 2012, was $5,837 and $1,441, respectively. The cash received from the exercise of options during the nine months ended April 30, 2013 and 2012, was $10,246 and $3,624, respectively. The tax benefit on stock options exercised during the three months ended April 30, 2013 and 2012, was $495 and $166, respectively. The tax benefit on stock options exercised during the nine months ended April 30, 2013 and 2012, was $1,760 and $761, respectively.

The total intrinsic value of options exercised during the nine months ended April 30, 2013 and 2012, based upon the average market price at the time of exercise during the period, was $7,360 and $2,987, respectively. The total fair value of stock options vested during the nine months ended April 30, 2013 and 2012, was $10,860 and $8,035, respectively.