Share-Based Compensation and Capital Stock

Dividends

The Company currently pays a quarterly dividend on its common stock of $0.215 per share, however the declaration of future dividends is subject to the discretion of the board of directors. During the year ended December 31, 2014, the Company maintained its quarterly dividend rate of $0.185 per share for the first three quarters of 2014. In the fourth quarter of 2014, the Company's board of directors announced an increase in the quarterly dividend rate to $0.195 per share for an annual rate of $0.75 or $43.4 million. During the year ended December 31, 2015, the Company maintained its quarterly dividend rate of $0.195 per share for the first three quarters of 2015. In the fourth quarter of 2015, the Company's board of directors announced an increase in the quarterly dividend rate to $0.205 per share. As a result, annual dividends declared during the year ended December 31, 2015 were $0.79 per share or $45.1 million. During the year ended December 31, 2016, the Company maintained its quarterly dividend rate of $0.205 per share for the first three quarters of 2016. In the fourth quarter of 2016, the Company's board of directors announced an increase in the quarterly dividend rate to $0.215 per share. As a result, annual dividends declared during the year ended December 31, 2016 were $0.83 per share or $46.7 million.

In addition, during the years ended December 31, 2016, 2015 and 2014, the Company paid previously declared but unrecorded dividends totaling $0.1 million, $0.5 million and $0.4 million, respectively, that were contingent upon the vesting of performance vested restricted units.

Share-Based Compensation

The Company recognizes compensation cost related to share-based payment transactions in the financial statements based on the fair value of the equity or liability instruments issued. Compensation expense related to the fair value of share-based awards is recognized over the requisite service period based on an estimate of those awards that will ultimately vest. The Company estimates the share-based compensation expense for awards that will ultimately vest at the inception of the grant. Over the life of the grant, the estimate of share-based compensation expense for awards with performance and/or service requirements is adjusted so that compensation cost is recognized only for awards that ultimately vest.

The Company has stock compensation plans pursuant to which it is authorized to grant stock-based awards of up to 7.6 million shares of the Company’s common stock, of which 1.2 million shares remain available for grant as of December 31, 2016. The Company’s policy allows the issuance of new or treasury shares to satisfy stock-based awards. Restricted stock, stock options, stock appreciation rights and performance share awards may be granted to officers, key employees and non-employee directors with contractual terms set by the Compensation and Management Development Committee of the Board of Directors.

Stock Options

The Company granted approximately 0.7 million, 0.5 million and 0.7 million options to certain employees of the Company at a fair value of approximately $6.9 million, $6.2 million and $5.7 million during the years ended December 31, 2016, 2015 and 2014, respectively. The stock options granted by the Company had an exercise price equal to the market price of the Company’s common stock on the date of grant. The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:



	2016			2015			2014
Risk-free interest rate	1.22		%	1.45		%	1.56		%
Expected volatility	23.76		%	23.94		%	25.01		%
Expected life of stock option	4.6 years			4.6 years			4.5 years
Dividend yield	1.59		%	1.23		%	1.62		%
Requisite service period	4 years			4 years			4 years
Contractual life	7 years			7 years			7 years
Weighted average fair value of options granted (per option)	$	9.30		$	12.39		$	8.82

The expected life of the options and volatility are based on the historical data which is believed to be indicative of future exercise patterns and volatility. Historical volatility is calculated based on a period that corresponds to the expected life of the stock option. The dividend yield and the risk-free rate of return are calculated on the grant date based on the then current dividend rate and the risk-free rate for the period corresponding to the expected life of the stock option. Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those awards that ultimately vest.

The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2016 was $20.4 million and $13.3 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $12.6 million, $10.5 million and $10.1 million, respectively.

The Company received $13.0 million, $7.1 million, and $10.1 million in proceeds from the exercise of 0.5 million, 0.3 million and 0.4 million employee stock options during the years ended December 31, 2016, 2015 and 2014, respectively.

The following table summarizes information about stock options outstanding at December 31, 2016:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2016	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at December 31, 2016	Weighted Average Exercise Price
$24.38 to $29.25	154,880	2.1 years	$	27.03	154,880	$	27.03
$29.26 to $34.12	144,696	1.1 years	$	31.31	144,696	$	31.31
$34.13 to $39.00	154,537	3.1 years	$	36.76	115,893	$	36.76
$39.01 to $43.87	—	—	$	—	—	$	—
$43.88 to $48.75	582,017	4.2 years	$	45.59	289,114	$	45.59
$48.76 to $65.00	1,157,372	5.8 years	$	56.09	112,386	$	63.47
	2,193,502	4.6 years	$	48.26	816,969	$	40.75

Restricted Stock

The following table is a summary of activity related to restricted stock grants for the year ended December 31:



	2016		2015		2014
Restricted shares granted	204,333		125,510		154,833
Weighted average grant date fair value per share	$	51.53	$	61.41	$	46.81
Aggregate grant date fair value ($000)	$	10,529	$	7,707	$	7,248
Restricted shares forfeited	28,996		19,833		23,804
Vesting service period of shares granted	12 - 48 months		12 - 48 months		12 - 48 months
Fair value of shares vested ($000)	$	7,506	$	12,311	$	10,280

Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those restricted stock grants that ultimately vest. The fair value of grants is measured by the market price of the Company’s common stock on the date of grant. Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date. Awards granted to retirement eligible non-employee directors are recognized over the shorter of the requisite service period or the length of time until retirement since the terms of the grant provide that awards will vest upon retirement.

Performance Vested Restricted Stock Units

The Company has granted performance vested restricted stock units (“PVRSU”) to certain employees. The fair value is measured by the market price of the Company’s common stock on the date of grant. The vesting of these stock awards is contingent upon the Company achieving performance targets at the end of specified performance periods and the employees’ continued employment. The performance conditions affect the number of shares that will ultimately vest. The range of possible stock-based awards vesting is generally between 0% and 200% of the initial target. If minimum performance targets are not attained then no awards will vest under the terms of the various PVRSU agreements. Compensation expense related to these awards is recognized over the requisite period based on the Company's estimate of the achievement of the various performance targets. The Company has currently estimated that between 0% and 175% of the various award targets will be achieved. Compensation expense is recognized ratably over the requisite service period only on those PVRSUs that ultimately vest.

The following table is a summary of activity related to PVRSU grants for the years ended December 31, 2016, 2015 and 2014:



	2016		2015		2014
Performance vested restricted stock units granted at target	89,944		71,006		24,678
Weighted average grant date fair value per share	$	47.85	$	58.12	$	45.59
Aggregate grant date fair value ($000)	$	4,304	$	4,127	$	1,125
Stock units forfeited	54,556		6,079		22,099
Requisite service period	9-43 months		36-43 months		36 months

During the year ended December 31, 2016, a total of 28,188 PVRSU grants vested at a grant date fair value of $1.0 million. These PVRSU grants were initially granted at a target of 48,201 units. However, since the Company only partially achieved the targeted performance conditions contained in the stock awards granted in prior periods, 20,013 shares were forfeited. During the year ended December 31, 2015, a total of 42,326 PVRSU grants vested at a grant date fair value of $1.5 million. These PVRSU grants were initially granted at a target of 38,476 units. However, since the Company achieved 110% of the targeted performance conditions contained in the stock awards granted in prior periods, an additional 3,850 shares were earned and issued. During the year ended December 31, 2014 a total of 28,886 PVRSU grants vested at a grant date fair value of $1.4 million. These PVRSU grants were initially granted at a target of 18,635 units. However, since the Company achieved 155% of the targeted performance conditions contained in the stock awards granted in prior periods, an additional 10,251 shares were earned and issued.

A summary of stock-based award activity as of December 31, 2016, 2015 and 2014 and the changes during the years are presented below:



	2016
	Stock Options					Restricted Stock				Performance Vested Restricted Stock Units
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016	2,084,201		$	41.36		384,490		$	47.40	226,737		$	45.09
Granted	745,769		$	51.49		204,333		$	51.53	89,944		$	47.85
Performance-Based Leveraging*	—		$	—		—		$	—	2,043		$	36.76
Exercised/Vested	(529,210	)	$	24.47		(152,015	)	$	43.61	(28,188	)	$	36.76
Expired	(13,620	)	$	57.62		—		$	—	—		$	—
Forfeited	(93,638	)	$	53.63		(28,996	)	$	51.22	(54,556	)	$	42.82
Outstanding at December 31, 2016	2,193,502		$	48.26	4.6 years	407,812		$	50.61	235,980		$	47.59
Options exercisable at December 31, 2016	816,969		$	40.75	3.3 years

* PVRSU units outstanding have been increased by 2,043 units during the year ended December 31, 2016, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods.



	2015
	Stock Options					Restricted Stock				Performance Vested Restricted Stock Units
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2015	1,903,177		$	33.03		479,556		$	40.14	200,286		$	38.28
Granted	498,911		$	63.47		125,510		$	61.41	71,006		$	58.12
Performance-Based Leveraging*	—		$	—		—		$	—	3,850		$	35.60
Exercised/Vested	(295,037	)	$	23.91		(200,743	)	$	38.94	(42,326	)	$	35.60
Expired	—		$	—		—		$	—	—		$	—
Forfeited	(22,850	)	$	55.44		(19,833	)	$	46.17	(6,079	)	$	32.90
Outstanding at December 31, 2015	2,084,201		$	41.36	4.0 years	384,490		$	47.40	226,737		$	45.09
Options exercisable at December 31, 2015	991,202		$	29.57	2.3 years

* PVRSU units outstanding have been increased by 3,850 units during the year ended December 31, 2015, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods.



	2014
	Stock Options					Restricted Stock				Performance Vested Restricted Stock Units
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014	1,661,952		$	26.44		563,345		$	36.64	216,342		$	37.34
Granted	651,757		$	45.59		154,833		$	46.81	24,678		$	45.59
Performance-Based Leveraging*	—		$	—		—		$	—	10,251		$	41.25
Exercised/Vested	(390,290	)	$	25.87		(214,818	)	$	35.91	(28,886	)	$	41.25
Expired	—		$	—		—		$	—	—		$	—
Forfeited	(20,242	)	$	34.33		(23,804	)	$	38.97	(22,099	)	$	34.77
Outstanding at December 31, 2014	1,903,177		$	33.03	3.8 years	479,556		$	40.14	200,286		$	38.28
Options exercisable at December 31, 2014	995,173		$	25.06	2.0 years

* PVRSU units outstanding have been increased by 10,251 units during the year ended December 31, 2014, due to the Company exceeding the targeted performance conditions contained in PVRSU's granted in prior periods.

The components of the Company’s pretax stock-based compensation expense and associated income tax benefits are as follows for the years ended December 31:



(in millions)	2016		2015		2014
Stock options	$	4.6	$	3.4	$	2.4
Restricted stock	7.5		6.8		7.2
Performance vested restricted stock units	2.5		1.9		(0.2		)
Total	$	14.6	$	12.1	$	9.4
Income tax benefits	$	5.4	$	4.5	$	3.5

During all years presented, the Company revises its estimate of the projected achievement of various performance conditions that affect the number of PVRSUs that will ultimately vest. As a result, previously recognized stock-based compensation costs related to these PVRSUs has been increased by $0.1 million and $0.3 million for the years ended December 31, 2016 and 2015, respectively, and decreased by $1.3 million during the year ended December 31, 2014.

The total unrecognized compensation costs related to stock-based awards that have not yet vested and the related weighted average amortization period over which the costs are to be recognized as of December 31, 2016 are as follows:



	Unrecognized Compensation Expense on Unvested Awards		Weighted Average Remaining Amortization Period
	(in millions)
Stock options	$	9.8	2.6 years
Restricted stock	13.8		2.5 years
Performance vested restricted stock units	4.5		2.0 years
Total	$	28.1

Share Repurchases and Redemptions

The Company announced a stock repurchase program on June 25, 1998 to return excess capital to its shareholders. Treasury stock activity is recorded at cost in the accompanying consolidated financial statements. During the year ended December 31, 2016, the Company repurchased 0.6 million of its common stock under the repurchase program at a total cost of $30.1 million. During the year ended December 31, 2015, the Company repurchased 1.3 million of its common stock under the repurchase program at a total cost of $66.4 million. During the year ended December 31, 2014, the Company repurchased 1.4 million of its common stock under the repurchase program at a total cost of $72.6 million. These shares were purchased from family members of the Company's largest shareholder. Through December 31, 2016, the Company repurchased 48.7 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the share repurchase program at a total cost of $1.3 billion.

During 2016, the Company redeemed 127,036 shares of common stock at a total cost of $5.8 million from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of performance vested restricted stock units and restricted stock grants. During 2015 and 2014, the Company redeemed 106,405 and 110,579 shares of common stock at a total cost of $6.4 million and $5.3 million, respectively. These redemptions were outside the share repurchase program initiated in June 1998.

Other

Effective January 1, 2014, the Company reduced its reported number of common shares outstanding by 0.3 million shares to address a reconciling item with the Company's share transfer agent.