Share-Based Compensation

Share-Based Incentive Plans

The Company has established various plans under which it is authorized to grant restricted stock, restricted stock units, stock options and stock appreciation rights. Compensation payable under these plans is intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Internal Revenue Code. The Company may also grant cash awards that can be notionally invested in one or more specified measurement funds, including the Company’s common stock. Awards granted under the Company’s share-based incentive plans typically participate in any dividends declared, but such amounts are deferred until delivery of the shares and are forfeitable if the requisite service is not satisfied. Dividends may be paid in cash or may be reinvested in the Company’s common stock.

Share-Based Incentive Compensation

The following is a summary of share-based compensation expense:



Period	Share-Based Compensation Expense		Tax Benefit
2014	$	29.3	$	11.3
2015	34.2		13.2
2016	39.2		15.1

The excess tax benefit recognized from share-based incentive plans was $44.5 million and $5.1 million during the years ended December 31, 2015 and 2016, respectively. The excess tax benefit for the year ended December 31, 2015 was recorded as an increase to Additional paid-in capital and the excess tax benefit for the year ended December 31, 2016 was recorded as a reduction to Income taxes. The excess tax benefit for the year ended December 31, 2015 was classified as a financing cash flow and the excess tax benefit for the year ended December 31, 2016 was classified as an operating cash flow.

There was $70.6 million and $66.4 million of unrecognized compensation expense related to share-based compensation arrangements as of December 31, 2015 and 2016, respectively. The unrecognized compensation expense at December 31, 2016 will be recognized over a weighted average period of approximately three years (assuming no forfeitures).

Stock Options

The following table summarizes the transactions of the Company’s stock options:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
Unexercised options outstanding—January 1, 2016	1.4		$	96.18
Options granted	0.4		122.82
Options exercised	(0.4	)	81.08
Options forfeited	(0.0	)	131.91
Unexercised options outstanding—December 31, 2016	1.4		108.53		2.8
Exercisable at December 31, 2016	0.9		101.38		1.3

The Company granted stock options with fair values of $0.6 million, $1.0 million, and $16.4 million in 2014, 2015 and 2016, respectively. Stock options generally vest over a period of three to five years and expire seven to ten years after the grant date. All options have been granted with exercise prices equal to the fair market value of the Company’s common stock on the date of grant.

The Company generally uses treasury stock to settle stock option exercises. The total intrinsic value of options exercised during the years ended December 31, 2014, 2015 and 2016 was $92.6 million, $130.2 million and $27.7 million, respectively. The cash received for options exercised was $57.8 million and $25.6 million during the years ended December 31, 2015 and 2016, respectively. As of December 31, 2016, the intrinsic value of exercisable options outstanding was $43.1 million, and 3.1 million options were available for grant under the Company’s option plans.

The fair value of options granted was estimated using the Black-Scholes option pricing model. The weighted average fair value of options granted during the years ended December 31, 2014, 2015 and 2016 was $60.20, $54.92, and $39.02 per option, respectively, based on the weighted-average grant date assumptions stated below.



	For the Years Ended December 31,
	2014		2015		2016
Dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility⁽¹⁾	29.7	%	26.7	%	30.7	%
Risk-free interest rate⁽²⁾	1.8	%	1.5	%	1.6	%
Expected life of options (in years)⁽³⁾	5.0		5.0		5.7
Forfeiture rate⁽³⁾	0.0	%	0.0	%	0.0	%

__________________________


⁽¹⁾	Expected volatility is based on historical and implied volatility.


⁽²⁾	Risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant.


⁽³⁾	Expected life of options (in years) is based on the Company’s historical and expected exercise behavior.

Restricted Stock

The following table summarizes the transactions of the Company’s restricted stock:



	Restricted Stock		Weighted Average Grant Date Value
Unvested units—January 1, 2016	0.6		$	192.04
Units granted	0.2		122.59
Units vested	(0.2	)	181.87
Units forfeited	(0.0	)	171.51
Unvested units—December 31, 2016	0.6		168.84

The Company granted awards with fair values of $8.0 million, $50.7 million, and $28.0 million in 2014, 2015 and 2016, respectively. These awards were valued based on the closing price of the Company’s common stock on the date of grant and contain vesting conditions requiring service over a period of four years. In certain circumstances, awards also require certain performance conditions to be satisfied, and the Company may elect to settle the awards in shares of the Company’s common stock or cash.

As of December 31, 2016, the Company had 1.3 million shares available for grant under its plans.