Stock-Based Compensation

As of December 31, 2015, the Company had various stock-based awards outstanding which were issued to executives and other key employees. The Company recognizes the grant-date fair value of all stock-based awards to employees over their respective requisite service periods (generally equal to an award’s vesting period), net of estimated forfeitures. A stock-based award is considered vested for expense attribution purposes when the employee’s retention of the award is no longer contingent on providing subsequent service. Accordingly, the Company recognizes compensation cost immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period.

The Company’s long-term incentive program for awarding stock-based compensation uses a combination of restricted stock, stock appreciation rights (“SARs”), and performance shares of the Company’s Common Stock pursuant to the Award Plan. The Award Plan was amended and restated during 2015 to add an additional 2.8 million shares. Under the Award Plan, the Company may authorize up to 9.7 million shares of Common Stock in settlement of restricted stock, performance shares, SARs or any-post 2004 grants of stock options. The Company issues new shares for settlement of any stock-based awards. In 2015, the Company granted stock-based awards using a combination of restricted stock, SARs and performance shares.

On December 23, 2015, the Company completed the reclassification of its dual-class common stock into a single class of Common Stock (the “Reclassification”), as more fully described in Note 16 - Capital Stock. At the effective time of the Reclassification, each outstanding stock-based award granted under the Award Plan was adjusted by substituting, on a one for one basis, shares of Common Stock for shares of Class B Common Stock.

In 2015, 2014, and 2013, the Company recorded $17.0 million, $16.4 million and $14.3 million of stock-based compensation costs, respectively. The total income tax benefit/(expense) recognized in 2015 was $(0.3) million, $7.8 million during 2014, and $8.3 million during 2013. The net tax windfall recorded as a result of exercise or vesting (depending on the type of award) was $0.9 million, $9.2 million, and $8.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $29.3 million, pretax, of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized through 2018.

Stock-based compensation expense is recorded in S&A expense as well as Cost of goods sold. Of the total 2015 expense, $16.2 million was recorded to S&A expense and $0.8 million was recorded to Cost of goods sold. In 2014 and 2013, $15.7 million and $13.4 million, respectively, was recorded to S&A expense and $0.7 million in 2014 and $0.9 million in 2013, was recorded to Cost of goods sold. Stock-based compensation costs capitalized to inventory was $0.2 million in 2015, 2014 and 2013.

Each of the compensation arrangements is discussed below.

Restricted Stock

The Company issues several types of restricted stock awards all of which are considered outstanding at the time of grant, as the award holders are entitled to dividends and voting rights. Unvested restricted stock awards are considered participating securities in computing earnings per share. Restricted stock granted is not transferable and is subject to forfeiture in the event of the recipient’s termination of employment prior to vesting.

Restricted stock Issued to Employees - Service Condition

Service-based restricted stock awards are expensed on a straight-line basis over the requisite service period. The restricted stock vests in one-third increments annually for three years on each anniversary of the date of grant. The restricted stock fair values are measured using the average between the high and low trading prices of the Company’s common stock on the most recent trading day immediately preceding the grant date (“measurement date”).

Restricted stock Issued to Employees - Market Condition

Certain restricted stock awards issued in 2014 and 2015 will vest subject to the achievement of a market-based condition. The awards are expensed on a straight-line basis over the requisite service period which starts on the date of the grant and ends upon the completion of the performance period. Expense is recognized irrespective of the market condition being achieved.

The market-based condition is the Company’s total shareholder return (“TSR”) compared to the TSR generated by the companies that comprise the S&P Capital Goods 900 Index and is measured over a three year performance period beginning on January 1st of the first year and ending on December 31st of the third year. The awards will vest contingent upon achievement of the market condition, service through the requisite service period or the retirement-eligibility date, and upon approval by the Company's Compensation Committee. If the market-based condition is achieved, the awards will vest at 100% of the restricted stock awards granted. If the market-based condition is not achieved the awards will not vest. The fair value of these awards was determined based upon a lattice model.

The following table summarizes the assumptions used in estimating the fair value of these awards:



	Stock Price on Measurement Date		Dividend Yield		Expected Volatility		Risk Free Interest Rate		Expected Term	Weighted Avg. Grant Date Fair Value
2015	$	97.48	2.6	%	23.3	%	1.3	%	3 years	$	87.61
2014	$	106.44	2.1	%	22.7	%	1.0	%	3 Years	$	95.96

Restricted stock Issued to Employees - Performance Condition

Certain restricted stock issued in 2013 will vest subject to the achievement of an annual performance-based condition. The awards vest in one-third increments for each of the years ending December 31, 2014, 2015 and 2016, contingent upon meeting the annual performance condition, and upon approval by the Company’s Compensation Committee. These awards are expensed on a graded basis over the requisite service period. The probability of vesting is reassessed each reporting period and compensation cost is adjusted accordingly. The fair value of the award is measured based upon the average between the high and low trading prices of the Company’s common stock on the measurement date.

The performance condition for the year ending December 31, 2015 was met and 8,451 shares vested and were approved by the Compensation Committee in February 2016. The fair value of the shares at vesting was $0.7 million.

Restricted Stock Issued to Non-employee Directors

In 2015, 2014, and 2013, each non-employee director received a restricted stock grant. These grants were made on the date of the annual meeting of shareholders and vested or will vest at the following year’s annual meeting of shareholders, upon a change of control or termination of service by reason of death. These shares will be subject to forfeiture if the director’s service terminates prior to the date of the next regularly scheduled annual meeting of shareholders to be held in the following calendar year. During the years 2015, 2014, and 2013, the Company issued to non-employee directors 8,008 shares, 10,329 shares, and 12,474 shares, respectively.

Activity related to both employee and non-employee restricted stock for the year ended December 31, 2015 is as follows (in thousands, except per share amounts):



	Shares		Weighted Average Grant Date Fair Value/Share
RESTRICTED STOCK AT DECEMBER 31, 2014	167		$	102.22
Shares granted	96		96.26
Shares vested	(77	)	99.91
Shares forfeited	(7	)	103.46
RESTRICTED STOCK AT DECEMBER 31, 2015	179		$	99.97

The weighted average fair value per share of restricted stock granted during the years 2015, 2014, and 2013 was $96.26, $105.35 and $105.83, respectively. The total fair value of restricted stock vested during the years 2015, 2014, and 2013 was $7.7 million, $7.0 million and $8.4 million, respectively.

Stock Appreciation Rights

SARs granted entitle the recipient to the difference between the fair market value of the Company’s Common Stock on the date of exercise and the grant price as determined using the average between the high and the low trading prices of the Company’s common stock on the measurement date. This amount is payable in shares of the Company’s Common Stock. SARs vest and become exercisable in three equal installments during the first three years following their grant date and expire ten years from the grant date.

Activity related to SARs for the year ended December 31, 2015 is as follows (in thousands, except per share amounts):



	Number of Rights		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
OUTSTANDING AT DECEMBER 31, 2014	1,465		$	78.64
Granted	364		97.87
Exercised	(102	)	59.37
Forfeited	(14	)	104.07
Canceled	(9	)	59.50
OUTSTANDING AT DECEMBER 31, 2015	1,704		$	83.77	7.2	$	32,492
EXERCISABLE AT DECEMBER 31, 2015	1,101		$	74.04	6.1	$	31,237

The aggregated intrinsic value of SARs exercised during 2015, 2014, and 2013 was $4.8 million, $19.4 million and $16.4 million, respectively.

The fair value of each SAR award was measured using the Black-Scholes option pricing model.

The following table summarizes the weighted-average assumptions used in estimating the fair value of the SARs granted during the years 2015, 2014, and 2013:



	Expected Dividend Yield		Expected Volatility		Risk Free Interest Rate		Expected Term	Weighted Avg. Grant Date Fair Value of 1 SAR
2015	2.7	%	22.7	%	1.7	%	5.5 Years	$	16.05
2014	2.0	%	21.8	%	1.6	%	5.3 Years	$	18.42
2013	1.9	%	28.3	%	1.6	%	5.4 Years	$	24.58

The expected dividend yield was calculated by dividing the Company’s expected annual dividend by the average stock price for the past three months. Expected volatilities are based on historical volatilities of the Company’s stock for a period consistent with the expected term. The expected term of SARs granted was based upon historical exercise behavior of stock options and SARs. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the award.

Performance Shares

Performance shares represent the right to receive a share of the Company’s Common Stock after a three year period subject to the achievement of certain market or performance conditions established by the Company’s Compensation Committee. Partial vesting in these awards may occur after separation from the Company for retirement eligible employees. Shares are not vested until approved by the Company’s Compensation Committee.

Performance Shares - Market Condition

In December 2015, 2014, and 2013, the Company granted 32,687, 28,871 and 30,730, respectively, of performance shares that will vest subject to a market condition and service through the performance period. The market condition associated with the awards is the Company's TSR compared to the TSR generated by the companies of a reference index over a three year performance period. Performance at target will result in vesting and issuance of the number of performance shares granted, equal to 100% payout. Performance below or above target can result in issuance in the range of 0%-200% of the number of shares granted. Expense is recognized irrespective of the market condition being achieved.

In February 2015, the Company paid out 38,589 shares related to the December 2011 performance award grant. The performance period associated with this award was from January 1, 2012 through December 31, 2014 and was based upon the Company’s total TSR compared to the TSR generated by the other companies that comprise the S&P Mid-Cap 400 Index. The February 2015 payout was based upon achieving 128% of the market-based criteria. The fair value of the December 2011 performance awards at vesting was $4.4 million.

In February 2016, the Company paid out 18,425 shares related to the December 2012 performance award grant. The performance period associated with this award was from January 1, 2013 through December 31, 2015 and was based upon the Company’s TSR compared to the TSR generated by the other companies that comprise the S&P Mid-Cap 400 Index. The number of shares vested in February 2016 was based upon achieving 70% of the market-based criteria and the fair value of the awards at vesting was $1.6 million.

The fair value of the performance share awards with a market condition for the fiscal years 2015, 2014, and 2013 was determined based upon a lattice model.

The following table summarizes the related assumptions used to determine the fair values of the market performance share awards granted during the years 2015, 2014, and 2013:



	Stock Price on Measurement Date		Dividend Yield		Expected Volatility		Risk Free Interest Rate		Expected Term	Weighted Avg. Grant Date Fair Value
2015	$	97.48	2.6	%	23.3	%	1.3	%	3 Years	$	105.77
2014	$	106.44	2.1	%	22.7	%	1.0	%	3 Years	$	117.55
2013	$	107.87	1.9	%	33.8	%	0.6	%	3 Years	$	130.33

Expected volatilities are based on historical volatilities of the Company’s stock over a three year period. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of the award.

Performance Shares - Performance Condition

In December 2015 and 2014 the Company granted 32,687 and 27,508, respectively, of performance share awards that are subject to a performance condition and service requirement during the three year performance period. The performance condition associated with the awards is based on the Company's net sales growth compared to the net sales growth of the companies of a reference index, further adjusted by the Company achieving a target net income margin, each measured over the same three year performance period. Performance at target will result in vesting and issuance of the number of performance shares granted, equal to 100% payout. Performance below or above target can result in issuance in the range of 0%-250% of the number of shares granted.

The fair value of the award's is measured based upon the average between the high and low trading prices of the Company's common stock on the measurement date and the Company expenses these awards on a straight-line basis. The weighted average fair value per share was $97.48 for the awards granted in 2015. The probability of vesting is reassessed each reporting period and compensation cost is adjusted accordingly.

The following table summarizes the attributes of the performance shares granted during 2015 and 2014:



Year of Grant	Shares Outstanding at 12/31/2015	Fair Value	Performance Period	Payout Range
2015	32,687	97.48	Jan 2016-Dec 2018	0-250%
2014	24,993	106.44	Jan 2015-Dec 2017	0-250%