HR Block 2016 Annual Report Download - page 62

54 2016 Form 10-K | H&R Block, Inc.
NOTE 11: STOCK-BASED COMPENSATION
We have a stock-based Long Term Incentive Plan (Plan), under which we can grant stock options, restricted shares,
performance-based share units, restricted share units, deferred stock units and other forms of equity to employees,
non-employee directors and consultants. Stock-based compensation expense of our continuing operations totaled
$23.5 million, $26.1 million and $20.1 million in fiscal years 2016, 2015 and 2014, respectively, net of related tax
benefits of $9.5 million, $9.9 million and $7.6 million, respectively. We realized tax benefits of $20.9 million, $12.5
million and $10.6 million in fiscal years 2016, 2015 and 2014, respectively.
As of April 30, 2016, we had 8.7 million shares reserved for future awards under our Plan. We issue shares from
our treasury stock to satisfy the exercise or vesting of stock-based awards and believe we have adequate treasury
stock balances available for future issuances.
We measure the fair value of options on the grant date or modification date using the Black-Scholes-Merton (Black-
Scholes) option valuation model based upon the expected term of the options. We measure the fair value of nonvested
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), return on equity, return on invested capital, total shareholder return 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, 2016, is as follows:
(in 000s, except per share amounts)
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Outstanding, beginning of the year 2,613 $ 17.71
Granted 112 34.73
Exercised (707) 16.85
Forfeited or expired (42) 27.15
Outstanding, end of the year 1,976 $ 18.76 5 years $ 4,812
Exercisable, end of the year 1,871 $ 17.85 5 years $ 4,812
Exercisable and expected to vest 1,961 $ 18.64 5 years $ 4,812
The total intrinsic value of options exercised during fiscal years 2016, 2015 and 2014 was $11.7 million, $8.4 million
and $13.6 million, respectively. As of April 30, 2016, we had $0.4 million of total unrecognized compensation cost
related to outstanding options. The cost is expected to be recognized over a weighted-average period of two years.
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