NOTE 15 – COMMON SHARES AND STOCK-BASED COMPENSATION

At February 28, 2015 and 2014 the Corporation had 100 shares of common stock authorized and outstanding. In conjunction with the Merger and pursuant to the Corporation’s amended and restated articles of incorporation all previously authorized Class A and Class B shares were canceled and replaced by the new class of common stock.

Prior to the Merger, the Corporation maintained various stock-based compensation plans for the benefit of its directors, officers and other key employees. These plans provided for the granting of stock options, performance shares and restricted stock units. In conjunction with the Merger, all stock-based compensation awards were cash-settled, canceled or modified to cash-based liability awards. As a result, no stock-based compensation expense has been recognized subsequent to the second quarter of 2014. The expense attributable to the modified cash-based liability awards for post-Merger vesting service is included with other cash-based incentive compensation.

Stock Options

Under the Corporation’s prior stock option plans, when options to purchase common shares were granted to directors, officers or other key employees, they were granted at the then-current market price. In general, subject to continuing service, options became exercisable commencing twelve months after the date of grant in annual installments and expired over a period of not more than ten years from the date of grant. The Corporation generally issued new shares when options to purchase Class A common shares were exercised and treasury shares when options to purchase Class B common shares were exercised.

Pursuant to the Merger Agreement, all outstanding stock options held by directors and employees, excluding the Family Shareholders, were settled in 2014 through cash payments totaling $7,159. Included in this amount was $3,933 for “in the money” stock options that were settled at fair value as of the Merger Date and were therefore recognized as a reduction of Capital in Excess of Par Value on the Consolidated Statement of Shareholder’s Equity. The remaining $3,226 was paid to settle stock options that had an exercise price in excess of fair value as of the Merger Date and was recognized as additional compensation expense in 2014.

The outstanding stock options held by the Family Shareholder employees at the Merger date were canceled without a replacement award or the payment of any consideration. Because these options were fully vested, no additional compensation expense was recognized upon cancellation. See Note 2 for further information.

Performance Shares

Prior to the Merger, performance shares represented the right to receive common shares, at no cost to the employee, upon the achievement of management objectives over a predefined performance period and the satisfaction of service-based vesting requirements. In 2013, the Corporation introduced a performance share program that was designed to reward the Corporation’s officers and certain management employees for the attainment of performance objectives over a three-year measurement period. The shares granted in 2013 were equally divided into three tranches, each containing specified performance goals over three separate, but sequentially cumulative performance periods extending from March 1, 2012 to February 28, 2015.

Achievement of performance criteria may range from 0% to 200% of the initial number of shares awarded in each tranche. All shares credited to participants under this program upon the achievement of specified performance goals will, subject to service-based vesting requirements, vest on February 28, 2015. The expense recognized each period is dependent upon an estimate of the number of shares that will ultimately vest. Compensation expense is recognized on a straight line basis over the vesting period, beginning on the date the awards were made.

In connection with the Merger, all performance shares granted to employees, excluding the Family Shareholders, were converted from share-based equity awards to cash-based liability awards. Under this award modification, each outstanding performance share will be settled at $19.00 upon satisfaction of performance and vesting conditions. An expense of $1,545, representing the cumulative effect on previously recognized compensation cost attributable to the difference between the $19.00 per unit cash settlement value and the award’s grant date fair value, was recorded following the completion of the Merger in 2014.

The outstanding performance shares held by the Family Shareholders at the Merger date were canceled without a replacement award or the payment of any consideration. Accordingly, the previously unrecognized compensation cost of $2,603 attributable to these awards was recognized as incremental stock-based compensation expense upon cancellation.

Restricted Stock Units

Prior to the Merger, the Corporation awarded restricted stock units to directors, officers and other key employees. The restricted stock units represented the right to receive Class A common shares or Class B common shares, at no cost to the holder, upon the satisfaction of a two or three-year continuous service-based vesting period. The awards have a graded-vesting feature with compensation expense being recognized over the requisite service period for each separately vesting tranche. The expense recognized each period is dependent upon an estimate of the number of stock units that will ultimately vest.

In connection with the Merger, all restricted stock units held by employees, excluding the Family Shareholders, were converted from share-based equity awards to cash-based liability awards, whereupon each restricted stock unit entitles the holder to receive $19.00 upon satisfaction of the award’s vesting conditions. Except for the cash settlement feature, the modified awards retained the same terms and conditions, including service-based vesting, of the original equity-based awards. An expense of $464 representing the cumulative effect on previously recognized compensation cost attributable to the difference between the $19.00 per unit cash settlement value and each award’s grant date fair value was recorded following the completion of the Merger in 2014.

The Merger Agreement also provided that each outstanding restricted stock unit held by members of the board of directors, other than the Family Shareholders, became fully vested and was settled for a cash payment equal to $19.00. The accelerated vesting of these awards resulted in the recognition of incremental compensation expense of $512 in 2014.

The outstanding restricted stock units held by the Family Shareholders were canceled at the closing of the Merger without a replacement award or the payment of any consideration. Accordingly, the previously unrecognized compensation cost of $1,363 attributable to these awards was recognized as incremental stock-based compensation expense upon cancellation.

For the years ended February 28, 2014 and 2013, stock-based compensation expense, recognized in “Administrative and general expenses” on the Consolidated Statement of Income, was $13,812 and $10,743, respectively. Stock-based compensation expense for 2014 included the expense attribution of equity-based awards prior to the Merger of $4,125 and the incremental stock-based compensation expense, caused as a direct result of the Merger, associated with the cancellation of the outstanding performance shares and restricted stock units held by the Family Shareholders of $3,966. The combined amount of $8,091 is included as stock-based compensation on the Consolidated Statement of Cash Flows. Stock-based compensation expense for 2014 also included the cumulative effect through the Merger Date on previously recognized compensation cost attributable to the modified awards’ $19.00 per unit cash settlement value of $5,721.

The table below summarizes the incremental compensation expense, caused as a direct result of the Merger, which includes both stock-based and non-stock-based compensation expense, and the adjustments to Capital in Excess of Par Value resulting from the settlement, modification and cancellation of the outstanding equity-based awards in 2014.


	Compensation Expense		Capital in Excess of Par Value
Settlement of stock options	$	3,226	$	(3,933	)
Modification and settlement of non-executive directors’ awards		512		(371	)
Net tax deficiency from settlement and cancellation of stock-based awards		—		(6,885	)
Conversion of performance share and restricted stock awards to cash-based liability awards		2,897		(6,498	)
Cancellation of the Family Shareholders’ performance share and restricted stock awards		3,966		3,966


	$	10,601	$	(13,721	)

For the years ended February 28, 2014 and 2013, cash received from stock options exercised was $1,718 and $1,259, respectively. The total intrinsic value from the exercise of stock-based payment awards was $6,298 and $7,423 in 2014 and 2013, respectively. The actual tax benefit realized from the exercise of stock-based payment awards totaled $2,486 and $2,929 for 2014 and 2013, respectively.