Stock-Based Compensation

9 Months Ended

Apr. 30, 2011

NOTE F —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. Additionally, the Company has a nonqualified stock option plan for non-employee directors under which stock options to purchase shares of Class A Nonvoting Common Stock are available for grant. The stock 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. Stock options issued under these plans, referred to herein as “service-based” stock 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” stock options. Performance-based stock options expire 10 years from the date of grant. Restricted shares have an issuance price equal to the fair market value of the underlying stock at the date of grant. The Company granted restricted shares in fiscal 2008 and fiscal 2011 that have an issuance price equal to the fair market value of the underlying stock at the date of grant. The restricted shares vest at the end of a five-year period, with respect to the restricted shares issued in fiscal 2008, and ratably at the end of years 3, 4 and 5 with respect to the restricted shares issued in fiscal 2011, and upon meeting certain financial performance conditions; these shares are referred to herein as “performance-based restricted shares.”

As of April 30, 2011, the Company has reserved 5,885,249 shares of Class A Nonvoting Common Stock for outstanding stock options and restricted shares and 740,000 shares of Class A Nonvoting Common Stock for future issuance of stock options and restricted shares under the various 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 compensation expense recognized by the Company during the three months ended April 30, 2011 and 2010 was $2,527 ($1,541 net of taxes) and $2,418 ($1,475 net of taxes), respectively, and expense recognized during the nine months ended April 30, 2011 and 2010 was $9,396 ($5,732 net of taxes) and $7,574 ($4,620 net of taxes), respectively. As of April 30, 2011, total unrecognized compensation cost related to share-based compensation awards was $18,384 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.2 years.

The Company has estimated the fair value of its service-based and performance-based option awards granted during the nine months ended April 30, 2011 and 2010 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						Nine Months Ended
	April 30, 2011						April 30, 2010
				Performance-						Performance-
	Service-Based			Based Option			Service-Based			Based Option
Black-Scholes Option Valuation Assumptions	Option Awards			Awards			Option Awards			Awards
Expected term (in years)		5.91			6.57			5.95			6.57
Expected volatility		40.22	%		39.39	%		39.85	%		38.72	%
Expected dividend yield		1.94	%		1.96	%		3.02	%		3.02	%
Risk-free interest rate		1.65	%		2.35	%		2.65	%		3.03	%
Weighted-average market value of underlying stock at grant date	$	29.10			28.43		$	28.73			28.73
Weighted-average exercise price	$	29.10			28.35		$	28.73			29.78
Weighted-average fair value of options granted during the period	$	9.58			9.87		$	8.78			8.70

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 obtained by taking the average of the high and the low stock price on the date of the grant.

The Company granted 100,000 shares of performance-based restricted stock to Frank M. Jaehnert, the Company’s President and Chief Executive Officer, in August of 2010, with a grant price and fair value of $28.35. The Company also granted 210,000 shares of performance-based restricted stock during fiscal 2008, with a grant price and fair value of $32.83. As of April 30, 2011, 310,000 performance-based restricted shares were outstanding.

The Company granted 465,000 performance-based stock options during the nine months ended April 30, 2011, with a weighted average exercise price of $28.35 and a weighted average fair value of $9.87. The Company also granted 897,500 service-based stock options during the nine months ended April 30, 2011, with a weighted average exercise price of $29.10 and a weighted average fair value of $9.58.

A summary of stock option activity under the Company’s share-based compensation plans for the nine months ended April 30, 2011 is presented below:


						Weighted
						Average
				Weighted		Remaining		Aggregate
				Average		Contractual		Intrinsic
Options	Shares			Exercise Price		Term		Value
Outstanding at July 31, 2010		5,108,736		$	28.69
New grants		1,362,500		$	28.84
Exercised		(366,488	)	$	19.43
Forfeited or expired		(292,499	)	$	31.65

Outstanding at April 30, 2011		5,812,249		$	29.16		6.62	$	48,729

Exercisable at April 30, 2011		3,359,215		$	29.70		5.00	$	26,350

There were 3,359,215 and 3,104,089 options exercisable with a weighted average exercise price of $29.70 and $28.34 at April 30, 2011 and 2010, respectively. The cash received from the exercise of options during the quarters ended April 30, 2011 and 2010 was $2,244 and $1,822, respectively. The cash received from the exercise of options during the nine months ended April 30, 2011 and 2010 was $7,154 and $3,494, respectively. The cash received from the tax benefit on stock options exercised during the quarter ended April 30, 2011 and 2010 was $695 and $462, respectively. The cash received from the tax benefit on options exercised during the nine months ended April 30, 2011 and 2010 was $1,398 and $845, respectively.

The total intrinsic value (defined as the amount by which the fair value of the underlying stock exceeds the exercise price of an option) of options exercised during the nine months ended April 30, 2011 and 2010, based upon the average market price during the period, was $4,907 and $2,660, respectively. The total fair value of stock options vested during the nine months ended April 30, 2011 and 2010 was $6,775 and $5,294, respectively.