HR Block 2009 Annual Report Download - page 63

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We utilize the Black-Scholes option valuation model to value our options on the grant date. We typically estimate
the expected volatility using our historical stock price data, unless historical volatility is not representative of
expected volatility. We also use historical exercise and forfeiture behaviors to estimate the options expected term
and our forfeiture rate. The dividend yield is calculated based on the current dividend and the market price of our
common stock on the grant date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve
in effect on the grant date. Both expected volatility and the risk-free interest rate are based on a period that
approximates the expected term.
The following assumptions were used to value options during the periods:
Year Ended April 30, 2009 2008 2007
Options – management and director:
Expected volatility 23.41% - 25.20% 21.92% - 25.74% 21.70% - 29.06%
Expected term 4 years 4-7 years 4-7 years
Dividend yield 2.35% - 3.04% 2.36% - 3.12% 2.15% - 2.62%
Risk-free interest rate 2.54% - 3.26% 2.35% - 5.01% 4.33% - 5.10%
Weighted-average fair value $ 3.80 $ 4.44 $ 5.15
Options – seasonal:
Expected volatility 25.35% 20.75% 20.05%
Expected term 2 years 2 years 2 years
Dividend yield 2.80% 2.44% 2.26%
Risk-free interest rate 2.54% 4.81% 5.11%
Weighted-average fair value $ 2.83 $ 3.07 $ 3.17
ESPP options:
Expected volatility 29.13% - 43.82% 29.96% - 31.10% 19.55% - 26.30%
Expected term 0.5 years 0.5 years 0.5 years
Dividend yield 2.67% - 2.78% 2.46% - 3.06% 2.26% - 2.33%
Risk-free interest rate 0.27% - 2.13% 3.32% - 4.98% 5.08% - 5.24%
Weighted-average fair value $ 4.38 $ 3.87 $ 3.90
A summary of nonvested shares and performance nonvested share units for the year ended April 30, 2009, is as
follows:
Shares
Weighted-Average
Grant Date
Fair Value
(shares in 000s)
Outstanding, beginning of the year 1,727 $ 23.79
Granted 1,016 22.14
Released (1,024) 23.83
Forfeited (262) 22.93
Outstanding, end of the year 1,457 22.73
The total fair value of shares vesting during fiscal years 2009, 2008 and 2007 was $21.1 million, $21.4 million and
$24.9 million, respectively. Upon the grant of nonvested shares and performance nonvested share units, unearned
compensation cost is recorded as an offset to additional paid-in capital and is amortized as compensation expense
over the vesting period. As of April 30, 2009, we had $17.4 million of total unrecognized compensation cost related
to these shares. This cost is expected to be recognized over a weighted-average period of two years.
NOTE 13: INCOME TAXES
The components of income from continuing operations upon which domestic and foreign income taxes have been
provided are as follows:
Year Ended April 30, 2009 2008 2007
(in 000s)
Domestic $ 815,614 $ 700,162 $ 600,964
Foreign 23,756 34,909 26,297
$ 839,370 $ 735,071 $ 627,261
H&R BLOCK 2009 Form 10K 59