Note J – Stock-Based Compensation

Under our employee and non-employee director stock-based compensation plans (the “Plans”), we may grant incentive or non-qualified stock options, restricted common shares and performance shares to employees and non-qualified stock options and restricted common shares to non-employee directors. We classify share-based compensation expense within SG&A expense to correspond with the same financial statement caption as the majority of the cash compensation paid to employees. A total of 5,039,014 of our common shares have been authorized and are available for issuance in connection with the stock-based compensation plans in place at May 31, 2015.

We recognized pre-tax stock-based compensation expense of $17,916,000 ($11,500,000 after-tax), $22,017,000 ($13,778,000 after-tax), and $13,270,000 ($8,339,000 after-tax) under the Plans during fiscal 2015, fiscal 2014 and fiscal 2013, respectively. At May 31, 2015, the total unrecognized compensation cost related to non-vested awards was $16,367,000, which will be expensed over the next three fiscal years.

Non-Qualified Stock Options

Stock options may be granted to purchase common shares at not less than 100% of fair market value on the date of the grant. All outstanding stock options are non-qualified stock options. The exercise price of all stock options granted has been set at 100% of the fair market value of the underlying common shares on the date of grant. Generally, stock options granted to employees vest and become exercisable at the rate of (i) 20% per year for options issued before June 30, 2011, and (ii) 33% per year for options issued on or after June 30, 2011, in each case beginning one year from the date of grant, and expire ten years after the date of grant. Non-qualified stock options granted to non-employee directors vest and become exercisable on the earlier of (a) the first anniversary of the date of grant or (b) the date on which the next annual meeting of shareholders is held following the date of grant for any stock option granted as of the date of an annual meeting of shareholders of Worthington Industries, Inc. Stock options can be exercised through net-settlement, at the election of the option holder.

U.S. GAAP requires that all share-based awards be recorded as expense in the statement of earnings based on their grant-date fair value. We calculate the fair value of our non-qualified stock options using the Black-Scholes option pricing model and certain assumptions. The computation of fair values for all stock options incorporates the following assumptions: expected volatility (based on the historical volatility of our common shares); risk-free interest rate (based on the United States Treasury strip rate for the expected term of the stock options); expected term (based on historical exercise experience); and dividend yield (based on annualized current dividends and an average quoted price of our common shares over the preceding annual period).

The table below sets forth the non-qualified stock options granted during each of the last three fiscal years. For each grant, the exercise price was equal to the closing market price of the underlying common shares at each respective grant date. The fair values of these stock options were based on the Black-Scholes option pricing model, calculated at the respective grant dates. The calculated pre-tax stock-based compensation expense for these stock options, which is after an estimate of forfeitures, will be recognized on a straight-line basis over the respective vesting periods of the stock options.


(in thousands, except per share amounts)	2015		2014		2013
Granted		97		130		1,034
Weighted average exercise price, per share	$	42.95	$	32.21	$	20.83
Weighted average grant date fair value, per share	$	17.96	$	12.92	$	7.71
Pre-tax stock-based compensation	$	1,553	$	1,539	$	7,165

The weighted average fair value of stock options granted in fiscal 2015, fiscal 2014 and fiscal 2013 was based on the Black-Scholes option pricing model with the following weighted average assumptions:


	2015			2014			2013
Assumptions used:
Dividend yield		1.88	%		2.28	%		2.95	%
Expected volatility		50.92	%		52.23	%		52.88	%
Risk-free interest rate		1.88	%		1.69	%		0.91	%
Expected life (years)		6.0			6.0			6.0

The following tables summarize our stock option activity for the years ended May 31:


	2015					2014					2013
(in thousands, except per share)	Stock Options			Weighted Average Exercise Price		Stock Options			Weighted Average Exercise Price		Stock Options			Weighted Average Exercise Price
Outstanding, beginning of year		4,752		$	17.58		5,517		$	17.19		7,511			16.65
Granted		97			42.95		130			32.21		1,034			20.83
Exercised		(758	)		17.24		(828	)		17.39		(2,858	)		17.18
Forfeited		(47	)		17.00		(67	)		16.13		(170	)		15.86

Outstanding, end of year		4,044			18.25		4,752			17.58		5,517			17.19

Exercisable at end of year		3,276			17.63		2,996			17.57		2,682			17.70


	Number of Stock Options (in thousands)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
May 31, 2015
Outstanding		4,044		4.82	$	38,277
Exercisable		3,276		4.42		31,625

May 31, 2014
Outstanding		4,752		5.50	$	107,970
Exercisable		2,996		4.67		68,108

May 31, 2013
Outstanding		5,517		6.06	$	94,860
Exercisable		2,682		4.50		44,752

During fiscal 2015, the total intrinsic value of stock options exercised was $13,218,000. The total amount of cash received from the exercise of stock options during fiscal 2015 was $2,015,000, and the related excess tax benefit realized from the exercise of these stock options was $7,178,000.

The following table summarizes information about non-vested stock option awards for fiscal 2015:


	Number of Stock Options (in thousands)			Weighted Average Grant Date Fair Value Per Share
Non-vested, beginning of year		1,756		$	6.38
Granted		97			15.98
Vested		(1,038	)		6.32
Forfeited		(47	)		6.33

Non-vested, end of year		768		$	7.66

Service-Based Restricted Common Shares

We have awarded restricted common shares to certain employees and non-employee directors that contain service-based vesting conditions. Service-based restricted common shares granted to employees cliff vest three years from the date of grant. Service-based restricted common shares granted to non-employee directors vest under the same parameters as the stock options discussed above. These restricted common shares are valued at the closing market price of our common shares on the date of the grant.

The table below sets forth the restricted common shares we granted during each of fiscal 2015, fiscal 2014, and fiscal 2013. The calculated pre-tax stock-based compensation expense for these restricted common shares will be recognized on a straight-line basis over their respective vesting periods.


(in thousands, except per share amounts)	2015		2014		2013
Granted		240		380		121
Weighted average grant date fair value, per share	$	40.05	$	33.14	$	20.77
Pre-tax stock-based compensation	$	8,660	$	11,307	$	2,299

The following tables summarize our restricted common share activity for the years ended May 31:


	2015					2014					2013
(in thousands, except per share)	Restricted Common Shares			Weighted Average Grant Date Fair Value		Restricted Common Shares			Weighted Average Grant Date Fair Value		Restricted Common Shares			Weighted Average Grant Date Fair Value
Outstanding, beginning of year		573		$	28.36		399		$	18.74		513			17.08
Granted		240			40.05		380			33.14		121			20.76
Vested		(142	)		23.32		(185	)		17.17		(233	)		16.10
Forfeited		(36	)		32.62		(21	)		30.70		(2	)		22.09

Outstanding, end of year		635			33.65		573			28.36		399			18.74

Weighted average remaining contractual life of out standing restricted common shares (in years)		1.41					1.61					1.31
Aggregate intrinsic value of outstanding restricted common shares	$	17,269				$	23,112				$	13,701
Aggregate intrinsic value of restricted common shares vested during the year	$	5,400				$	7,499				$	5,559

Market-Based Restricted Common Shares

During fiscal 2015, we granted an aggregate of 50,000 restricted common shares to two key employees under one of our stock-based compensation plans. Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $60.00 per share and remaining at or above that price for 30 consecutive days during the five-year period following the date of grant and the completion of a five-year service vesting period. The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $32.06 per share. The Monte Carlo simulation 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	1.60	%
Expected volatility	44.00	%
Risk-free interest rate	1.70	%

The calculated pre-tax stock-based compensation expense for these restricted common shares is $1,603,000 and will be recognized on a straight-line basis over the five-year service vesting period.

During fiscal 2014, we granted 360,000 restricted common shares to certain key employees under our stock-based compensation plans. Vesting of these restricted common share awards is contingent upon the price of our common shares reaching $50.00 per share within a five-year period from the date of grant and remaining at or above that price for 30 consecutive days and the completion of a three-year service vesting period. The grant-date fair value of these restricted common shares, as determined by a Monte Carlo simulation model, was $24.19 per share. The following assumptions were used to determine the grant-date fair value and the derived service period for these restricted common shares:


Dividend yield	2.28	%
Expected volatility	53.40	%
Risk-free interest rate	1.41	%

The calculated pre-tax stock-based compensation expense for these restricted common shares was determined to be $8,708,000 and will continue to be recognized on a straight-line basis over the remaining vesting period.

Performance Shares

We have awarded performance shares to certain key employees that are contingent (i.e., vest) upon achieving corporate targets for cumulative corporate economic value added, earnings per share growth and, in the case of business unit executives, business unit operating income targets for the three-year periods ended or ending May 31, 2015, 2016 and 2017. These performance share awards will be paid, to the extent earned, in common shares of the Company in the fiscal quarter following the end of the applicable three-year performance period. The fair value of our performance shares is determined by the closing market prices of the underlying common shares at their respective grant dates and the pre-tax stock-based compensation expense is based on our periodic assessment of the probability of the targets being achieved and our estimate of the number of common shares that will ultimately be issued.

The table below sets forth the performance shares we granted (at target levels) during fiscal 2015, fiscal 2014, and fiscal 2013:


(in thousands, except per share amounts)	2015		2014		2013
Granted		61		59		108
Weighted average grant date fair value, per share	$	42.71	$	33.33	$	22.08
Pre-tax stock-based compensation	$	2,611	$	1,958	$	2,383