NOTE 3: STOCK-BASED COMPENSATION

DeVry maintains four stock-based award plans: the 1994 Stock Incentive Plan, the 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2005 Incentive Plan. Under these plans, directors, key executives and managerial employees are eligible to receive incentive stock or nonqualified options to purchase shares of DeVry's common stock. The 2005 Incentive Plan also permits the award of stock appreciation rights, restricted stock, performance stock and other stock and cash based compensation. Though options remain outstanding under the 1994 and 1999 Stock Incentive Plans, no further stock based awards will be issued from these plans. The 2003 Stock Incentive Plan and the 2005 Incentive Plan are administered by the Compensation Committee of the Board of Directors. Options are granted for terms of up to 10 years and can vest immediately or over periods of up to five years. The requisite service period is equal to the vesting period. The option price under the plans is the fair market value of the shares on the date of the grant.

DeVry accounts for options granted to retirement eligible employees that fully vest upon an employee's retirement under the non-substantive vesting period approach to these options. Under this approach, the entire compensation cost is recognized at the grant date for options issued to retirement eligible employees.

At March 31, 2012, 7,049,214 authorized but unissued shares of common stock were reserved for issuance under DeVry's stock incentive plans.

Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period, reduced by an estimated forfeiture rate.

The following is a summary of options activity for the nine months ended March 31, 2012:


	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ($000)
Outstanding at July 1, 2011		2,804,397		$	35.78
Options Granted		462,775		$	41.68
Options Exercised		(219,606	)	$	27.34
Options Canceled		(80,602	)	$	43.25

Outstanding at March 31, 2012		2,966,964		$	36.46		6.08	$	11,257

Exercisable at March 31, 2012		1,817,416		$	32.56		4.71	$	11,257

The total intrinsic value of options exercised for the nine months ended March 31, 2012 and 2011 was $4.1 million and $2.6 million, respectively.

The fair value of DeVry's stock-based awards was estimated using a binomial model. This model uses historical cancellation and exercise experience of DeVry to determine the option value. It also takes into account the illiquid nature of employee options during the vesting period.

The weighted average estimated grant date fair values, for options granted at market price under DeVry's stock option plans during first nine months of fiscal years 2012 and 2011 were $17.41 and $16.53, per share, respectively. The fair values of DeVry's stock option awards were estimated assuming the following weighted average assumptions:


	Fiscal Year
	2012			2011
Expected Life (in Years)		6.65			6.67
Expected Volatility		42.27	%		41.88	%
Risk-free Interest Rate		1.52	%		1.99	%
Dividend Yield		0.38	%		0.29	%
Pre-vesting Forfeiture Rate		5.00	%		5.00	%

The expected life of the options granted is based on the weighted average exercise life with age and salary adjustment factors from historical exercise behavior. DeVry's expected volatility is computed by combining and weighting the implied market volatility, the most recent volatility over the expected life of the option grant, and DeVry's long-term historical volatility. The pre-vesting forfeiture rate is based on DeVry's historical stock option forfeiture experience.

If factors change and different assumptions are employed in the valuation of stock-based awards in future periods, the stock-based compensation expense that DeVry records may differ significantly from what was recorded in previous periods.

During the first nine months of fiscal year 2012, DeVry granted 316,190 shares of restricted stock to selected employees and non-employee directors. Of these, 64,710 are performance based shares which are earned by the recipients over a three year period based on achievement of specified DeVry return on invested capital targets. The remaining 251,480 shares and all other previously granted non-performance based shares of restricted stock are subject to restrictions which lapse ratably over three and four-year periods, vest in their entirety after four years, or vest upon retirement. The vesting date is the grant anniversary date and vesting is based on the recipient's continued service on the Board of Directors or employment with DeVry. During the restriction period, the recipient of the non-performance based shares shall have a beneficial interest in the restricted stock and all associated rights and privileges of a stockholder, including the right to receive dividends. These rights do not pertain to the performance based shares. The following is a summary of restricted stock activity for the nine months ended March 31, 2012:


	Restricted Stock Outstanding			Weighted Average Grant Date Fair Value
Nonvested at July 1, 2011		437,374		$	44.20
Shares Granted		316,190		$	40.71
Shares Vested		(95,111	)	$	43.31
Shares Canceled		(34,809	)	$	45.67

Nonvested at March 31, 2012		623,644		$	42.26

The following table shows total stock-based compensation expense included in the Consolidated Statement of Earnings. The expense is allocated to Cost of Educational Services and Student Services and Administrative Expense based on an estimate of the number of participants receiving stock-based compensation within each expense category.


	For the Three Months Ended March 31,						For the Nine Months Ended March 31,
	2012			2011			2012			2011
	(Dollars in thousands)						(Dollars in thousands)
Cost of Educational Services	$	1,292		$	919		$	4,125		$	3,581
Student Services and Administrative Expense		2,745			1,954			8,766			7,611
Income Tax Benefit		(1,340	)		(349	)		(4,177	)		(1,391	)

Net Stock-Based Compensation Expense	$	2,697		$	2,524		$	8,714		$	9,801

As of March 31, 2012, $28.9 million of total pre-tax unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of 2.6 years. The total fair value of options and shares vested during the nine months ended March 31, 2012 and 2011 was approximately $8.9 million and $7.1 million, respectively.

There were no capitalized stock-based compensation costs at March 31, 2012 and 2011.

DeVry has an established practice of issuing new shares of common stock to satisfy share option exercises. However, DeVry also may issue treasury shares to satisfy option exercises under certain of its plans.