Stock-Based Compensation

3 Months Ended

Aug. 31, 2011

Stock-Based Compensation

Stock-Based Compensation

NOTE I – Stock-Based Compensation

Non-Qualified Stock Options

During the three months ended August 31, 2011, we granted non-qualified stock options covering a total of 446,188 common shares under our stock-based compensation plans. The option price of $23.10 per share was equal to the market price of the underlying common shares at the grant date. The fair value of these stock options, based on the Black-Scholes option-pricing model, calculated at the grant date, was $9.11 per share. The calculated pre-tax stock-based compensation expense for these stock options, after an estimate for forfeitures, is $3,621,000, which will be recognized on a straight-line basis over the three-year vesting period. The following assumptions were used to value these stock options:

Dividend yield	2.72	%
Expected volatility	51.72	%
Risk-free interest rate	2.13	%
Expected term (years)	6.0

Expected volatility is based on the historical volatility of our common shares and the risk-free interest rate is based on the United States Treasury strip rate for the expected term of the stock options. The expected term was developed using historical exercise experience.

Service-Based Restricted Common Shares

During the three months ended August 31, 2011, we granted 71,425 restricted common shares under our stock-based compensation plans that vest after three years of service. The fair values of these restricted common shares were equal to the closing market prices of the underlying common shares on the date of grant, or $23.10 per share. The calculated pre-tax stock-based compensation expense for these restricted common shares of $1,470,000 will be recognized on a straight-line basis over the three-year vesting period.

Market-Based Restricted Common Shares

During the three months ended August 31, 2011, we granted 370,000 restricted common shares under our stock-based compensation plans to certain key employees. Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $30.00 per share and remaining at or above that price for 30 consecutive days. The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $19.53 per share. The Monte Carlo model is a statistical technique that incorporates multiple assumptions to determine the probability that the market condition will be achieved. The following assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:

Dividend yield	2.30	%
Expected volatility	52.60	%
Risk-free interest rate	1.76	%

The calculated pre-tax stock-based compensation expense for these restricted common shares was determined to be $7,226,000. Based on the derived service period of 0.81 years, approximately $1,487,000 of expense was recognized during the first quarter of fiscal 2012. However, on September 14, 2011, these restricted stock award agreements were amended to include a three-year service-based vesting condition in addition to the market-based vesting condition established in the original agreements. The amended awards were accounted for as a modification of the original awards in accordance with the applicable accounting guidance. No incremental compensation expense was recognized in connection with the modification, as the fair value of the modified awards did not exceed the fair value of the original awards. Accordingly, the remaining unrecognized compensation expense of the original awards as of the modification date will be recorded on a straight-line basis over the modified service period, or approximately three years.