Note 17. Stock and Incentive Programs for Employees

The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors, including stock options, restricted stock units and performance share units. The Company estimates the fair value of share-based awards based on assumptions as of the grant date. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to four years for restricted stock awards and stock options and the performance period for performance share units. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving each type of award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

Share-Based Compensation Expense

The total compensation expense related to all share-based compensation plans was $19.9 million, $25.4 million and $28.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. The income tax benefit related to share-based compensation expense was $7.7 million, $9.9 million and $11.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, $19.7 million of total unrecognized compensation expense related to share-based compensation plans is expected to be recognized over a weighted-average period of 2.1 years. The total unrecognized share-based compensation expense to be recognized in future periods as of December 31, 2013 does not consider the effect of share-based awards that may be issued in subsequent periods.

Share-Based Compensation Plans

The Company has one share-based compensation plan under which it may grant future awards, as described below, and one terminated or expired share-based compensation plans under which awards remain outstanding.

The 2012 Performance Incentive Plan (the “2012 PIP”) was approved by shareholders to provide incentives to key employees of the Company and its subsidiaries. Awards under the 2012 PIP are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock units, restricted stock awards, cash or stock bonuses and stock appreciation rights. There were 10 million shares of common stock reserved and authorized for issuance under the 2012 PIP. At December 31, 2013, there were 8.0 million shares of common stock authorized and available for grant under the 2012 PIP.

General Terms of Awards

Under various incentive plans, the Company has granted certain employees non-qualified stock options and restricted stock units. The Human Resources Committee of the Board of Directors has discretion to establish the terms and conditions for grants, including the number of shares, vesting and required service or other performance criteria. The maximum term of any award under the 2012 PIP and previous plans is ten years.

For all of the Company’s stock options outstanding at December 31, 2013, the exercise price of the stock option equals the fair market value of the Company’s common stock on the option grant date. Options generally vest over four years or less from the date of grant, upon retirement or upon a change in control of the Company. Options granted prior to November 2004 and after December 2006 expire ten years from the date of grant or five years after the date of retirement, whichever is earlier.

The rights granted to the recipient of restricted stock unit awards generally accrue ratably over the restriction or vesting period, which is generally four years. Restricted stock unit awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee, termination of the grantee’s employment under certain circumstances or a change in control of the Company. The Company records compensation expense of restricted stock unit awards based on the fair market value of the awards at the date of grant ratably over the period during which the restrictions lapse. Dividends are not paid to restricted stock unit holders.

The Company also issues restricted stock units as share-based compensation for members of the Board of Directors. Director restricted stock units granted after January 2009 vest ratably over three years from the date of grant with the opportunity to defer any tranche of vesting restricted stock units until termination of service on the Board of Directors. Awards granted between January 2008 and January 2009 vested ratably over three years from the date of grant and were amended in May 2009 to provide the opportunity to defer any tranche of vesting restricted stock units until termination of service on the Board of Directors. For awards granted prior to January 2008, one-third of the restricted stock units vested on the third anniversary of the grant date, and the remaining two-thirds of the restricted stock units vested upon termination of the holder’s service on the Board of Directors; the holder could also elect to defer delivery of the initial one-third of the restricted stock units until termination of service on the Board of Directors. In the event of termination of a holder’s service on the Board of Directors prior to a vesting date, all restricted stock units of such holder will vest. All awards granted prior to December 31, 2007 are payable in shares of common stock or cash. In 2009, the option to have awards paid in cash was removed for awards granted in 2008 and future years. Awards that may be paid in cash are classified as liability awards due to their expected settlement in cash, and are included in accrued liabilities in the Consolidated Balance Sheets. Compensation expense for these awards is measured based upon the fair market value of the awards at the end of each reporting period. Awards payable only in shares are classified as equity awards due to their expected settlement in common stock. Compensation expense for these awards is measured based upon the fair market value of the awards at the date of grant. Dividend equivalents are accrued for shares awarded to the Board of Directors and paid in the form of cash.

The Company has granted performance share unit awards to certain executive officers during the years ended December 31, 2013, 2012 and 2011. Distributions under these awards are payable at the end of their respective performance periods (December 31, 2015, 2014 and 2013) in common stock or cash, at the Company’s discretion. The number of share units awarded can range from zero to 100%, depending on achievement of a targeted performance metric. These awards are subject to forfeiture upon termination by the Company under certain circumstances prior to vesting. The Company expenses the cost of the performance share unit awards based on the fair market value of the awards at the date of grant and the estimated achievement of the performance metric, ratably over the performance period of three years.

Stock Options

There were no options granted during the year ended December 31, 2013. The Company granted 1,221,000 and 200,000 stock options with grant date fair market values of $2.96 and $4.39 during the years ended December 31, 2012 and 2011, respectively. The fair market value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model.

The assumptions used to determine the fair market value of the stock options granted during the years ended December 31, 2012 and 2011 were as follows:

	2012			2011
Expected volatility		39.71	%		36.69	%
Risk-free interest rate		1.18	%		2.54	%
Expected life (years)		6.25			6.25
Expected dividend yield		5.06	%		4.57	%

Stock option awards as of December 31, 2012 and 2013, and changes during the year ended December 31, 2013, were as follows:

	Shares Under Option (thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2012		4,726		$	18.90		6.2	$	2.1
Exercised		(203	)		10.57
Cancelled/forfeited/expired		(384	)		17.94
Outstanding at December 31, 2013		4,139			19.39		5.6		21.2
Vested and expected to vest at December 31, 2013		4,098			19.46		5.6		20.9
Exercisable at December 31, 2013		1,774		$	11.70		5.9	$	15.2

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on December 31, 2013 and 2012, respectively, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on December 31, 2013 and 2012. This amount will change in future periods based on the fair market value of the Company’s stock and the number of options outstanding. Total intrinsic value of options exercised for the years ended December 31, 2013, 2012 and 2011 was $0.7 million, $1.2 million and $1.0 million, respectively.

Compensation expense related to stock options for the years ended December 31, 2013, 2012 and 2011 was $1.5 million, $3.2 million and $2.7 million, respectively. As of December 31, 2013, $1.7 million of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted average period of 1.9 years.

Cash received from the option exercises for the year ended December 31, 2013, 2012 and 2011 was $2.2 million, $1.4 million and $1.0 million, respectively. The actual tax benefit realized for the tax deduction from option exercises totaled $0.3 million, $0.5 million and $0.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Excess tax benefits on stock option exercises, shown as financing cash inflows as a component of issuance of common stock in the Consolidated Statements of Cash Flows, were $0.2 million, $0.4 million and $0.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Restricted Stock Units

Nonvested restricted stock unit awards as of December 31, 2013 and 2012, and changes during the year ended December 31, 2013 were as follows:

	Shares (thousands)			Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2012		3,246		$	11.85
Granted		1,402			9.70
Vested		(2,023	)		10.25
Forfeited		(130	)		11.04
Nonvested at December 31, 2013		2,495		$	11.97

Compensation expense related to restricted stock units was $15.9 million, $21.0 million and $24.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, there was $14.3 million of unrecognized share-based compensation expense related to approximately 2.4 million restricted stock unit awards, with a weighted-average grant date fair value of $12.03, that are expected to vest over a weighted-average period of 2.2 years. The fair value of these awards was determined based on the Company’s stock price on the grant date reduced by the present value of expected dividends through the vesting period.

Excess tax benefits on restricted stock units that vested, shown as financing cash inflows as a component of issuance of common stock in the Consolidated Statements of Cash Flows, were $2.1 million, $3.2 million and $5.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Performance Share Units

Nonvested performance share unit awards as of December 31, 2013 and 2012, and changes during the year ended December 31, 2013, were as follows:

	Shares (thousands)		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2012		468	$	12.84
Granted		485		8.85
Nonvested at December 31, 2013		953	$	10.81

During the years ended December 31, 2013, 2012 and 2011, 485,000, 233,000 and 235,000 performance share unit awards were granted to certain executive officers, payable upon the achievement of certain established performance targets. The performance periods for the shares awarded during the years ended December 31, 2013, 2012 and 2011 are January 1, 2013 through December 31, 2015, January 1, 2012 through December 31, 2014 and January 1, 2011 through December 31, 2013, respectively. Distributions under these awards are payable at the end of the performance period in common stock or cash, at the Company’s discretion. The total potential payouts for awards granted during the years ended December 31, 2013, 2012 and 2011 range from 242,500 to 485,000 shares, 116,500 to 233,000 shares and 117,500 to 235,000 shares, respectively, should certain performance targets be achieved. The fair value of these awards was determined on the date of grant based on the Company’s stock price reduced by the present value of expected dividends through the vesting period. These awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death, permanent disability or retirement of the grantee or a change in control of the Company.

Compensation expense for the awards granted in 2013 and 2012 is currently being recognized based on the maximum estimated payout of 485,000 and 233,000 shares, for each respective period. Compensation expense for awards granted during 2011 was recognized based on the achieved payout of 55%, or 129,463 shares, which are expected to be distributed during the first quarter of 2014. Compensation expense related to performance share unit awards for the years ended December 31, 2013, 2012 and 2011 was $2.5 million, $1.2 million and $1.2 million, respectively. As of December 31, 2013, there was $3.7 million of unrecognized compensation expense related to performance share unit awards, which is expected to be recognized over a weighted average period of 1.8 years.

Board of Directors Liability Awards

At December 31, 2013, 2012 and 2011, approximately 124,599, 147,263 and 147,263 restricted stock units issued to directors were outstanding for liability awards, respectively. For the years ended December 31, 2013, 2012 and 2011, the compensation expense recorded for these awards was expense of $2.2 million, income of $0.2 million and expense of $0.1 million, respectively. The Board of Directors equity awards are included above in the section “Restricted Stock Units.”

Other Information

Authorized unissued shares or treasury shares may be used for issuance under the Company’s share-based compensation plans. The Company intends to use treasury shares of its common stock to meet the stock requirements of its awards in the future. On May 3, 2011, the Company’s Board of Directors approved a share repurchase program, which authorized the repurchase of up to $1.0 billion of the Company’s common stock through December 31, 2012 and terminated its existing authorization of October 29, 2008 for the repurchase of up to 10 million shares. During the year ended December 31, 2011, the Company purchased 29.2 million shares of its common stock at a total cost of $500.0 million under the ASR (see Note 15) entered into on May 5, 2011. No shares were repurchased for the years ended December 31, 2013 and 2012, however, shares were withheld for tax liabilities upon the vesting of equity awards.