Stock-Based Compensation and Directors Stock Purchase Plan*

The Company’s stock-based compensation is provided under a stockholder-approved plan which allows for issuance of various types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards and stock-based awards. At December 31, 2014, 3,578,149 shares remained available for issuance under the plan. The stock-based compensation expense that was charged against income was $8.8 million, $6.4 million and $5.0 million for the years ended December 31, 2014, 2013 and 2012, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $3.3 million, $2.4 million and $1.9 million for the years ended December 31, 2014, 2013 and 2012, respectively.

During 2014 and 2013, stock-based compensation was issued in the form of nonvested stock awards and stock appreciation rights. Nonvested stock is awarded to key employees, by action of the Company's Compensation and Human Resources Committee and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary according to the specifics of the individual grant agreement. There are restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of December 31, 2014 and changes during the year then ended is presented below.



	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2014	1,200,750		32.64
Granted	195,177		42.48
Vested	(107,299	)	28.51
Forfeited	(28,689	)	36.85
Nonvested at December 31, 2014	1,259,939		34.41

The total fair value (at vest date) of shares vested during 2014, 2013 and 2012 was $4.5 million, $2.1 million and $2.1 million, respectively.

Stock appreciation rights (SARs) and stock options are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs, which the Company granted in 2006 through 2009, and again in 2013 and 2014, vest ratably over four years of continuous service and have 10-year contractual terms. All SARs must be settled in stock under provisions of the plan. Non-qualified stock options, which were granted in 2005 and previous years, vested ratably over three years of continuous service, and also have 10-year contractual terms.

In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of options and SARs on date of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table. Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and other factors to estimate the expected term of the options and SARs, which represents the period of time that the options and SARs granted are expected to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the time of grant. The per share average fair value and the model assumptions for SARs granted in 2014 are 2013 shown in the table below.



	2014			2013
Weighted per share average fair value at grant date		$8.82			$6.49
Assumptions:
Dividend yield	2.0		%	2.3		%
Volatility	22.1		%	23.2		%
Risk-free interest rate	2.3		%	1.2		%
Expected term	7.1 years			7.3 years

A summary of stock option activity during 2014 is presented below.



(Dollars in thousands, except per share data)	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014	474,894		29.10
Granted	—		—
Forfeited	—		—
Expired	(1,462	)	29.22
Exercised	(404,757	)	29.07
Outstanding, exercisable and vested at December 31, 2014	68,675		$	29.27	0.2	years	$	977

A summary of SAR activity during 2014 is presented below.



(Dollars in thousands, except per share data)	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014	1,845,863		$	33.03
Granted	181,556		42.40
Forfeited	(2,478	)	39.37
Expired	(7,084	)	32.44
Exercised	(237,279	)	33.12
Outstanding at December 31, 2014	1,780,578		$	33.96	3.7	years	$	16,966
Exercisable at December 31, 2014	1,425,874		$	32.72	2.5	years	$	15,356
Vested and expected to vest at December 31, 2014	1,763,892		$	33.92	3.7	years	$	16,885

Additional information about stock options and SARs exercised is presented below.



(In thousands)	2014		2013		2012
Intrinsic value of options and SARs exercised	$	8,068	$	6,580	$	7,769
Cash received from options and SARs exercised	$	8,652	$	9,426	$	14,820
Tax benefit realized from options and SARs exercised	$	1,153	$	335	$	1,269

As of December 31, 2014, there was $20.1 million of unrecognized compensation cost (net of estimated forfeitures) related to unvested SARs and stock awards. That cost is expected to be recognized over a weighted average period of 2.9 years.

The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect to use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance under this plan were 124,086 at December 31, 2014. In 2014, 20,117 shares were purchased at an average price of $42.34 and in 2013, 21,233 shares were purchased at an average price of $38.46.

* All share and per share amounts in this note have been restated for the 5% stock dividend distributed in 2014.