EXECUTIVE STOCK PLANS AND STOCK-BASED COMPENSATION

Executive Stock Plans

The Company’s shareholders have approved executive stock plans under which officers, directors, and employees of the Company and its subsidiaries may receive grants and awards of common stock, restricted stock, restricted stock units (“RSUs”), performance share awards (“PSAs”), stock appreciation rights (“SARs”), incentive stock options, and non-qualified stock options. Currently, grants are outstanding under the 1997 Executive Stock Plan, the 2002 Executive Stock Plan, and the 2007 Stock Incentive Plan. Together, these plans are referred to in this disclosure as the “Plans.” Up to 2 million shares of the Company’s common stock may be issued under each of the Plans; however, direct awards of common stock, restricted stock, or RSUs are limited to 500,000 shares under the 2002 Executive Stock Plan and 750,000 shares under the 2007 Stock Incentive Plan.

The Company’s practice is to award grants of stock-based compensation to officers at the first regularly-scheduled meeting of the Executive Compensation, Nominating, and Corporate Governance Committee of the Board of Directors (the “Compensation Committee”) in the fiscal year following the public release of the Company’s financial results for the prior year. Since fiscal year 2006, grants have included restricted stock, RSUs, PSAs, and stock-settled SARs. Prior to 2006, non-qualified stock options were the primary form of stock-based compensation awarded, and some of those options remained outstanding at March 31, 2012. Outside directors automatically receive restricted stock units or shares of restricted stock following each annual meeting of shareholders.

Non-qualified stock options and SARs granted under the Plans have an exercise price equal to the market price of a share of common stock on the date of grant. All stock options currently outstanding under the Plans are fully vested and exercisable, and they expire ten years after the grant date. SARs granted under the Plans vest in equal one-third tranches one, two, and three years after the grant date and expire ten years after the grant date, except that SARs granted after fiscal year 2007 expire on the earlier of three years after the grantee’s retirement date or ten years after the grant date. RSUs awarded under the Plans vest five years from the grant date and are then paid out in shares of common stock. Under the terms of the RSU awards, grantees receive dividend equivalents in the form of additional RSUs that vest and are paid out on the same date as the original RSU grant. The PSAs vest three years from the grant date, are paid out in shares of common stock at the vesting date, and do not carry rights to dividends or dividend equivalents prior to vesting. Shares ultimately paid out under PSA grants are dependent on the achievement of predetermined performance measures established by the Compensation Committee and can range from zero to 150% of the stated award. RSUs awarded to outside directors vest three years after the grant date, and restricted stock vests upon the individual’s retirement from service as a director.

Stock Options and SARs

The following tables summarize the Company’s stock option and SAR activity and related information for fiscal years 2010 through 2012:



	Shares		Weighted-Average Exercise Price		Weighted-Average Contractual Term (in years)	Aggregate Intrinsic Value
Fiscal Year Ended March 31, 2010:
Outstanding at beginning of year	719,557		$	50.41
Granted	253,800		35.30
Exercised	(132,892	)	36.09
Cancelled/expired	(8,667	)	24.69
Outstanding at end of year	831,798		48.36

Fiscal Year Ended March 31, 2011:
Granted	153,600		39.71
Cancelled/expired	(62,800	)	62.66
Outstanding at end of year	922,598		45.94

Fiscal Year Ended March 31, 2012:
Granted	170,400		37.86
Exercised	(195,948	)	35.82
Cancelled/expired	(41,200	)	59.25
Outstanding at end of year	855,850		$	46.01	6.08	$	4,023

Exercisable at end of year	521,444		$	51.28	4.54	$	1,078
Expected to vest in future periods	334,406		$	37.79	8.49	$	2,944



	Fiscal Year Ended March 31,
	2012		2011		2010
Total intrinsic value of stock options and SARs exercised	$	1,745	$	—	$	2,238
Total fair value of SARs vested	$	1,713	$	1,849	$	1,611

Intrinsic value and aggregate intrinsic value in the tables above are based on the difference between the market price of the underlying shares at the exercise date or balance sheet date, as applicable, and the exercise prices of the stock options and SARs. The closing market prices used to determine the aggregate intrinsic value at the end of each fiscal year were as follows: $46.60 at March 31, 2012, $43.54 at March 31, 2011, and $52.69 at March 31, 2010.

RSUs, Restricted Stock, and PSAs

The following table summarizes the Company’s RSU, restricted stock, and PSA activity for fiscal years 2010 through 2012:



	RSUs				Restricted Stock				PSAs
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Fiscal Year Ended March 31, 2010:
Unvested at beginning of year	149,130		$	49.84	74,900		$	41.08	30,466		$	45.96
Granted	73,589		35.93		17,550		39.76		63,450		29.67
Vested	(14,955	)	47.21		(7,700	)	40.41		—		—
Forfeited	—		—		—		—		(897	)	45.96
Unvested at end of year	207,764		32.50		84,750		40.87		93,019		34.85

Fiscal Year Ended March 31, 2011:
Granted	63,992		41.40		—		—		38,400		33.95
Vested	(24,940	)	46.35		(7,000	)	41.96		—		—
Unvested at end of year	246,816		44.07		77,750		40.77		131,419		34.59

Fiscal Year Ended March 31, 2012:
Granted	84,290		38.28		—		—		57,383		35.56
Vested	(39,827	)	35.94		(10,350	)	37.52		(44,352	)	45.96
Forfeited	—		—		—		—		(1,984	)	33.30
Unvested at end of year	291,279		$	43.72	67,400		$	41.91	142,466		$	31.45

Shares granted and vested in the above table include dividend equivalents on RSUs and any shares awarded above the base grant under the performance provisions of PSAs. Shares forfeited or canceled include any reductions from the base PSA grant under those same performance provisions.

Stock-Based Compensation Expense

Determination of the Grant Date Fair Value of Stock-Based Compensation

As noted above, the Company granted SARs, RSUs, restricted stock, and PSAs during fiscal years 2010 through 2012. The fair values of the RSUs, restricted stock, and PSAs were based on the market price of the common stock on the grant date. The fair values of the SARs were estimated using the Black-Scholes pricing model and the following assumptions:



	Fiscal Year Ended March 31,
	2012	2011		2010
Assumptions:
Expected term	5 years	5 years		5 years
Expected volatility	35.80%	35.30	%	39.00%
Expected dividend yield	5.07%	4.73	%	5.21%
Risk-free interest rate	1.66%	2.36	%	2.51%

Resulting fair value of SARs granted	$7.46	$8.35		$7.85

The expected term was based on the Company’s historical stock option and SAR exercise data for instruments with comparable features and economic characteristics. The expected volatility was estimated based on historical volatility of the Company’s common stock using weekly closing prices. The expected dividend yield was based on the annualized quarterly dividend rate and the market price of the common stock at grant date. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the grant date for securities with a remaining term equal to the expected term of the SARs. Since all SAR grants were awarded on the same date in each of the three fiscal years 2010 through 2012, the fair values shown in the above table represent the weighted-average grant date fair values for those years.

Recognition of Compensation Expense

Fair value expense for stock-based compensation is recognized ratably over the period from grant date to the earlier of (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For employees who are already eligible to retire at the date an award is granted, the total fair value of the award is recognized as expense at the date of grant. For the fiscal years ended March 31, 2012, 2011, and 2010, total stock-based compensation expense and the related income tax benefit recognized were as follows:



	Fiscal Year Ended March 31,
	2012		2011		2010
Total stock-based compensation expense	$	5,987	$	5,893	$	6,133
Income tax benefit recorded on stock-based compensation expense	$	2,095	$	2,063	$	2,147

At March 31, 2012, the Company had $3.7 million of unrecognized compensation expense related to stock-based awards, which will be recognized over a weighted-average period of approximately 1.1 years. Cash proceeds from the exercise of stock options were not material for the fiscal years ended March 31, 2012, 2011, or 2010.