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Effective June 1, 2006, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment,” utilizing the modified-prospective
method of accounting. Stock-based compensation represents the cost related to stock-based awards granted to our employees and
directors; these awards include restricted stock, stock options and stock appreciation rights (“SARs”). We measure stock-based
compensation cost at the date of grant, based on the estimated fair value of the award. We recognize the cost as expense on a
straight-line basis (net of estimated forfeitures) over the related vesting period.
The following table represents total stock-based compensation expense included in our Consolidated Statements of Income:
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Total unrecognized compensation cost related to non-vested
awards at May 31, 2007 was $3.2 million, and is expected to be
recognized over a weighted-average period of approximately
three years.
We grant stock-based incentive awards to our employees
and/or directors of the company under various share-based
compensation plans. Plans which include stock option grants or
share-based payment awards include the 1996 Key Employees
Stock Option Plan and the 2004 Omnibus Equity and Incentive
Plan (the “Omnibus Plan”), which includes provisions for
grants of restricted stock, restricted stock units, performance
stock, performance stock units and SARs. Other plans, which
provide for restricted stock grants only, include the 2007
Restricted Stock Plan (the “2007 Plan”), the 2003 Restricted
Stock Plan for Directors (the “2003 Plan”), the 2002
Performance Accelerated Restricted Stock Plan (the “PARS
Plan”) and the 1997 Restricted Stock Plan (“1997 Plan”).
Stock options are awards which allow our employees to
purchase shares of RPM International Inc. common stock at a
fixed price. We grant stock options at an exercise price equal
to the stock price on the date of the grant. The fair value of
stock options and SARs granted is estimated as of the date of
grant using a Black-Scholes option-pricing model with the
following weighted-average assumptions:
The Black-Scholes option pricing model was developed for use
in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. The risk-free rate
for periods within the contractual life of the option is based on
the U.S. Treasury yield curve in effect at the time of grant.
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The expected life of options granted is derived from the input
of the option-pricing model and represents the period of time
that options granted are expected to be outstanding. Expected
volatilities are based on historical volatility of our shares of
common stock.
The 1996 Key Employees Stock Option Plan, which expired
by its terms on August 15, 2006, provided for the granting of
stock options for up to 9,000,000 shares. Stock options were
granted to employees and directors at an exercise price equal
to the fair market value of RPM International Inc. stock at
the date of grant. These options are generally exercisable
cumulatively in equal annual installments commencing one
year from the grant date, and have expiration dates ranging
from October 2007 to October 2014. Compensation cost for
these awards is recognized on a straight-line basis over the
related vesting period. The total fair value of shares vested
during the year ended May 31, 2007 was $3.1 million. Shares
of common stock under option are not eligible for dividend
payments until the shares are exercised.
The Omnibus Plan was approved by our stockholders on
October 8, 2004, and is intended to be the primary stock-based
award program for covered employees. A wide variety of
stock and stock-based awards, as well as dollar-denominated
performance-based awards, may be granted under the
Omnibus Plan. A total of 6,000,000 shares of our common
stock may be subject to awards under the Omnibus Plan.
Of the 6,000,000 shares of common stock issuable under the
Omnibus Plan, any number of shares that remain available
after “full-value” awards are granted, or up to a maximum
of 6,000,000 shares, may be in the form of SARs grants or
other types of awards other than “full-value” awards such
as restricted stock awards, restricted stock unit awards,
performance share awards or performance unit awards.
SARs are issued at fair value at the date of grant, have up to
ten-year terms and have graded-vesting terms over four years.
Compensation cost for these awards is recognized on a
straight-line basis over the related vesting period. Currently
all SARs outstanding are to be settled with stock. As of
May 31, 2007, there were 921,500 SARs outstanding.
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