Share-Based Compensation

We maintain a long-term incentive plan that makes available common shares for grants, at the discretion of the Compensation Committee of the Board of Directors to officers, directors, and key employees in the form of stock options, restricted shares, restricted share units, and stock appreciation rights. Stock options provide the right to purchase our common shares at the market price on the date of grant, subject to the terms of the option plans and agreements. Generally, one-fourth of the stock options granted become exercisable for each full year of employment following the grant date. Stock options granted generally expire 10 years after the grant date, or earlier if the option holder is no longer employed by us. Restricted shares and restricted share units may cliff vest after three or four year period or vest in tranches of one-fourth of the number granted for each full year of employment after the grant date. As of June 30, 2011, 2,982,457 shares remained available for grant under the long-term incentive plan.

The fair value of share-based compensation awards was estimated at their grant date using the Black-Scholes-Merton option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics that are not present in our option grants. If the model permitted consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock options could be different. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Income. The expense is classified as cost of goods sold or selling, general and administrative expenses in a manner consistent with the employee’s compensation and benefits.

The following weighted-average assumptions were used for options granted during the first three months of fiscal 2012 and fiscal 2011:



	Fiscal 2012		Fiscal 2011
Risk-free interest rate	2.40	%	2.73	%
Expected life of options	5.53 years		5.52 years
Expected dividend yield of stock	1.31	%	1.54	%
Expected volatility of stock	29.92	%	30.19	%

The risk-free interest rate is based upon the U.S. Treasury yield curve. The expected life of options is reflective of historical experience, vesting schedules and contractual terms. The expected dividend yield of stock represents our best estimate of the expected future dividend yield. The expected volatility of stock is derived by referring to our historical stock prices over a time frame similar to that of the expected life of the grant. An estimated forfeiture rate of 2.08% percent and 2.27% percent was applied in fiscal 2012 and 2011, respectively. This rate is calculated based upon historical activity and represents an estimate of the granted options not expected to vest. If actual forfeitures differ from this calculated rate, we may be required to make additional adjustments to compensation expense in future periods. The assumptions used above are reviewed at the time of each significant option grant, or at least annually.

A summary of share option activity is as follows:



	Number of Options		Weighted Average Exercise Price		Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at March 31, 2011	3,274,395		$	25.95
Granted	293,088		36.08
Exercised	(119,238	)	22.23
Forfeited	(100	)	27.68
Canceled	(1,150	)	27.88
Outstanding at June 30, 2011	3,446,995		$	26.94	5.81	$	28,044
Exercisable at June 30, 2011	2,471,947		$	25.72	4.79	$	22,889

We estimate that 952,860 of the non-vested stock options outstanding at June 30, 2011 will ultimately vest.

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $34.98 closing price of our common shares on June 30, 2011 over the exercise price of the stock option, multiplied by the number of options outstanding or outstanding and exercisable, as applicable. The aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on the daily changes in the fair market value of our common shares.

The total intrinsic value of stock options exercised during the first three months of fiscal 2012 and fiscal 2011 was $1,578 and $1,695, respectively. Net cash proceeds from the exercise of stock options were $2,457 and $2,226 for the first three months of fiscal 2012 and fiscal 2011, respectively. The tax benefit from stock option exercises was $610 and $659 for the first three months of fiscal 2012 and fiscal 2011, respectively.

The weighted average grant date fair value of stock option grants was $9.97 and $8.82 for the first three months of fiscal 2012 and fiscal 2011, respectively.

Stock appreciation rights (“SARS”) carry generally the same terms and vesting requirements as stock options except that they are settled in cash upon exercise and therefore, are classified as liabilities. The fair value of the outstanding SARS as of June 30, 2011 and 2010 was $1,198 and $864, respectively. The fair value of each outstanding SAR is revalued at each reporting date and the related liability and expense are adjusted appropriately.

A summary of the non-vested restricted share activity is presented below:



	Number of Restricted Shares		Weighted-Average Grant Date Fair Value
Non-vested at March 31, 2011	400,951		$	29.70
Granted	213,271		36.07
Vested	(65,390	)	30.84
Canceled	(750	)	33.98
Non-vested at June 30, 2011	548,082		$	32.04

Restricted shares granted are valued based on the closing stock price at the grant date. The value of restricted shares that vested during the first three months of fiscal 2012 was $2,017.

Cash settled restricted share units carry generally the same terms and vesting requirements as stock settled restricted share units except that they are settled in cash upon vesting and therefore, are classified as liabilities. The fair value of outstanding cash-settled restricted share units as of June 30, 2011 and 2010 was $1,614 and $1,120, respectively. The fair value of each cash-settled restricted share unit is revalued at each reporting date and the related liability and expense are adjusted appropriately.

As of June 30, 2011, there was a total of $16,603 in unrecognized compensation cost related to nonvested share-based compensation granted under our share-based compensation plans. We expect to recognize the cost over a weighted average period of 2.84 years.