HR Block 2015 Annual Report Download - page 72

H&R Block, Inc. | 2015 Form 10-K 65
shares and share units based on the closing price of our common stock on the grant date. We measure the fair value
of performance-based share units based on the Monte Carlo valuation model, taking into account as necessary those
provisions of the performance-based nonvested share units that are characterized as market conditions. We generally
expense the grant-date fair value, net of estimated forfeitures, over the vesting period on a straight-line basis.
Options, nonvested shares and nonvested share units (other than performance-based nonvested share units)
granted to employees typically vest pro-rata based upon service over a three-year period with a portion vesting each
year. Performance-based nonvested share units granted to employees typically cliff vest at the end of a three-year
period based upon satisfaction of both service-based and performance-based requirements. The number of
performance-based share units that ultimately vest ranges from zero to 250 percent of the number granted, based
on the form of award, performance metrics such as earnings before interest, taxes, depreciation and amortization
(EBITDA), revenues or pretax earnings and various market conditions such as our total shareholder return (TSR) ranked
against other public companies or our stock price. Deferred stock units granted to non-employee directors vest when
they are granted and are settled six months after the director separates from service as a director of the Company,
except in the case of death.
All share units granted after March 2013 to employees and non-employee directors receive cumulative dividend
equivalents at the time of distribution. Options granted under our Plan have a maximum contractual term of ten years.
STOCK OPTIONS – A summary of options for the fiscal year ended April 30, 2015, is as follows:
(dollars in 000s, except per share amounts)
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Outstanding, beginning of the year 3,123 $ 17.34
Granted 14 30.51
Exercised (492) 15.57
Forfeited or expired (32) 19.62
Outstanding, end of the year 2,613 $ 17.71 6 years $ 32,740
Exercisable, end of the year 2,464 $ 17.64 6 years $ 31,047
Exercisable and expected to vest 2,604 $ 17.69 6 years $ 32,685
The total intrinsic value of options exercised during fiscal years 2015, 2014 and 2013 was $8.4 million, $13.6 million
and $6.0 million, respectively. As of April 30, 2015, we had $0.2 million of total unrecognized compensation cost
related to outstanding options. The cost is expected to be recognized over a weighted-average period of one year.
When valuing our options on the grant date, we typically estimate the expected volatility using our historical stock
price data. 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, 2015 2014 2013
Options - management and director:
Expected volatility 26.25% 30.89% - 31.57% 29.69% - 31.43%
Expected term 4 years 4 years 4 - 5 years
Dividend yield 2.62% 2.77% - 2.87% 4.18% - 5.21%
Risk-free interest rate 1.43% 1.06% - 1.31% 0.61% - 0.75%
Weighted-average fair value $ 5.18 $ 5.57 $ 2.79