HR Block 2010 Annual Report Download - page 71

employees. These awards entitle the holder to shares or the right to purchase shares of common stock as the
award vests, typically over a three-year period with one-third vesting each year. Nonvested shares receive
dividends during the vesting period and performance nonvested share units receive cumulative dividends at the
end of the vesting period. We measure the fair value of options on the grant date or modification date using the
Black-Scholes option valuation model. We measure the fair value of nonvested shares and performance nonvested
share units based on the closing price of our common stock on the grant date. Generally, we expense the grant-date
fair value, net of estimated forfeitures, over the vesting period on a straight-line basis. Awards granted to
employees who are of retirement age or reach retirement age at least one year after the grant date, but prior to the
end of the service period of the awards, are expensed over the shorter of the two periods. Options are generally
granted at a price equal to the fair market value of our common stock on the grant date and have a contractual term
of ten years.
Our 1999 Stock Option Plan for Seasonal Employees, which provided for awards of nonqualified options to
certain employees, was terminated effective December 31, 2009, except for outstanding awards thereunder. These
awards were granted to seasonal employees in our Tax Services segment and entitled the holder to the right to
purchase shares of common stock as the award vests, typically over a two-year period. We measure the fair value
of options on the grant date using the Black-Scholes option valuation model. We expense the grant-date fair value,
net of estimated forfeitures, over the seasonal service period. Options were granted at a price equal to the fair
market value of our common stock on the grant date, are exercisable during September through November in each
of the two years following the calendar year of the grant, and have a contractual term of 29 months.
Our 1989 Stock Option Plan for Outside Directors, which provided for awards of nonqualified options to outside
directors, was terminated effective June 11, 2008, except for outstanding awards thereunder. The plan was
replaced by the 2008 Deferred Stock Unit Plan for Outside Directors. The number of deferred stock units credited
to an outside director’s account pursuant to an award is determined by dividing the dollar amount of the award by
the average current market value per share of common stock for the ten consecutive trading dates ending on the
date the deferred stock units are granted to the outside directors. Each deferred stock unit granted is vested upon
award and the settlement of shares occurs six months after separation of service from the Board of Directors. The
vested shares receive dividends prior to settlement, which are reinvested and settled in shares at the time of
settlement.
Our 2000 Employee Stock Purchase Plan (ESPP) provides employees the option to purchase shares of our
common stock through payroll deductions. The purchase price of the stock is 90% of the lower of either the fair
market value of our common stock on the first trading day within the Option Period or on the last trading day of the
Option Period. The Option Periods are six-month periods beginning on January 1 and July 1 each year. We measure
the fair value of options on the grant date utilizing the Black-Scholes option valuation model. The fair value of the
option includes the value of the 10% discount and the look-back feature. We expense the grant-date fair value over
the six-month vesting period.
A summary of options for the year ended April 30, 2010, is as follows:
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(in 000s, except per share amounts)
Outstanding, beginning of the year 16,401 $ 21.85
Granted 4,634 17.37
Exercised (1,293) 14.44
Forfeited or expired (4,660) 23.51
Outstanding, end of the year 15,082 $ 20.58 4 years $ 9,324
Exercisable, end of the year 8,973 $ 21.60 3 years $ 4,647
Exercisable and expected to vest 14,866 20.60 4 years 9,205
The total intrinsic value of options exercised during fiscal years 2010, 2009 and 2008 was $5.4 milllion,
$33.0 million and $12.9 million, respectively. As of April 30, 2010, we had $7.5 million of total unrecognized
compensation cost related to these options. The cost is expected to be recognized over a weighted-average period
of two years.
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
H&R BLOCK 2010 Form 10K 55