Stock-Based Compensation

In February 2009, the Company's shareholders approved the 2009 Incentive Stock and Awards Plan. In January 2012, the Company's shareholders approved amendments to the 2009 Incentive Stock and Awards Plan (as amended, the "2009 Stock Plan") to add 6.0 million shares to the number of shares available for issuance under the plan. The 2009 Stock Plan replaced the 2004 Incentive Stock and Awards Plan, as amended (the “2004 Stock Plan”). While no new awards will be granted under the 2004 Stock Plan, awards previously made under the 2004 Stock Plan that were outstanding as of the initial approval date of the 2009 Stock Plan will remain outstanding and continue to be governed by the provisions of the 2004 Stock Plan.

Under the 2009 Stock Plan, officers, directors, including non-employee directors, and employees of the Company may be granted stock options, stock appreciation rights (“SAR”), performance shares, performance units, shares of Common Stock, restricted stock, restricted stock units (“RSU”) or other stock-based awards. The 2009 Stock Plan provides for the granting of options to purchase shares of the Company’s Common Stock at not less than the fair market value of such shares on the date of grant. Stock options granted under the 2009 Stock Plan generally become exercisable in equal installments over a 3-year period, beginning with the first anniversary of the date of grant of the option, unless a shorter or longer duration is established by the Human Resources Committee of the Board of Directors at the time of the option grant. Stock options terminate not more than seven years from the date of grant. The exercise price of stock options and the market value of restricted stock awards are determined based on the closing market price of the Company's Common Stock on the date of grant. Except to the extent vesting is accelerated upon early retirement and except for performance shares and performance units, vesting is based solely on continued service as an employee of the Company. At September 30, 2014, the Company had reserved 7,328,619 shares of Common Stock available for issuance under the 2009 Stock Plan to provide for the exercise of outstanding stock options and the issuance of Common Stock under incentive compensation awards, including awards issued prior to the effective date of the 2009 Stock Plan.

Information related to the Company’s equity-based compensation plans in effect as of September 30, 2014 was as follows:



Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options or Vesting of Share Awards	Weighted-Average Exercise Price of Outstanding Options		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders	3,988,323	$	36.20	3,340,296
Equity compensation plans not approved by security holders	—	—		—
	3,988,323	$	36.20	3,340,296

The Company recognizes compensation expense over the requisite service period for vesting of an award, or to an employee's eligible retirement date, if earlier and applicable. Total stock-based compensation expense (income) included in the Company’s Consolidated Statements of Income for fiscal 2014, 2013 and 2012 was as follows (in millions):



	Fiscal Year Ended September 30,
	2014			2013			2012
Stock options	$	8.1		$	9.1		$	6.3
Stock awards (shares and units)	12.5			11.5			4.1
Performance share awards	4.4			3.8			8.1
Cash-settled stock appreciation rights	(0.9		)	8.1			4.4
Cash-settled restricted stock awards	3.1			6.6			4.2
Total stock-based compensation cost	27.2			39.1			27.1
Income tax benefit recognized for stock-based compensation	(10.0		)	(14.4		)	(9.9		)
	$	17.2		$	24.7		$	17.2

Performance shares awards are valued by a global third-party actuarial firm utilizing a complex Monte Carlo simulation model. In October 2012, the Company, in conjunction with the third party, determined that the performance share valuation calculations performed for fiscal 2007 through 2011 were incorrect. To correct cumulative compensation expense, the Company recorded compensation expense of $4.9 million in fiscal 2012 as an out-of-period adjustment.

Total share-based compensation in fiscal 2013 increased as a result of the impact of a higher share price on cash-settled awards, which are adjusted to fair value at the end of each reporting period. In addition, the reported amounts for fiscal 2014 and 2013 include expenses related to stock-based awards to the Company's Chief Executive Officer, which, for awards of options and restricted stock units, were recorded as a charge to operating income immediately upon grant pursuant to the terms of his awards because he was retirement eligible on the grant date. The Chief Executive Officer declined awards of share-based compensation in the three years prior to the fiscal 2013 grant.

Stock Options — A summary of the Company’s stock option activity for the three years ended September 30, 2014 is as follows:



	Fiscal Year Ended September 30,
	2014				2013				2012
	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Outstanding, beginning of year	3,747,094		$	33.41	4,678,834		$	31.26	4,774,714		$	30.72
Granted	505,800		46.98		313,300		47.33		576,400		28.55
Forfeited	(17,206	)	37.25		(35,002	)	28.91		(151,092	)	26.76
Expired	—		—		(73,498	)	45.78		(235,081	)	39.26
Exercised	(1,545,181	)	32.96		(1,136,540	)	25.75		(286,107	)	12.56
Outstanding, end of year	2,690,507		$	36.20	3,747,094		$	33.41	4,678,834		$	31.26
Exercisable, end of year	1,819,535		$	32.71	2,949,103		$	33.05	3,620,565		$	32.53

Stock options outstanding and exercisable as of September 30, 2014 were as follows (in millions, except share and per share amounts):



					Outstanding						Exercisable
Exercise Prices					Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Aggregate Intrinsic Value
$	7.95	-	$	19.24	476,899	4.0	$	15.57	$	13.6	470,232	4.0	$	15.54	$	13.4
$	28.73	-	$	38.46	949,626	3.6	30.20		13.3		787,774	3.3	30.45		10.8
$	39.91	-	$	54.63	1,263,982	5.1	48.49		0.3		561,529	3.1	50.26		0.3
					2,690,507	4.4	$	36.20	$	27.2	1,819,535	3.4	$	32.71	$	24.5

The aggregate intrinsic values in the tables above represent the total pre-tax intrinsic value (difference between the Company’s closing stock price on the last trading day of fiscal 2014 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 options on September 30, 2014. This amount changes based on the fair market value of the Company’s Common Stock.

The total intrinsic value of options exercised for fiscal 2014, 2013 and 2012 was $32.4 million, $15.4 million and $3.3 million, respectively. Net cash proceeds from the exercise of stock options were $50.9 million, $31.4 million and $3.6 million for fiscal 2014, 2013 and 2012, respectively. The actual income tax benefit realized totaled $11.9 million, $5.7 million and $1.2 million for those same periods.

As of September 30, 2014, the Company had $9.2 million of unrecognized compensation expense related to outstanding stock options, which will be recognized over a weighted-average period of 2.5 years.

The Company uses the Black-Scholes valuation model to value stock options utilizing the following weighted-average assumptions:



	Fiscal Year Ended September 30,
Options Granted During	2014		2013		2012
Assumptions:
Expected term (in years)	5.1		5.2		5.2
Expected volatility	43.23	%	66.90	%	66.03	%
Risk-free interest rate	1.80	%	1.65	%	0.74	%
Expected dividend yield	1.23	%	0.00	%	0.00	%

The expected option term represents the period of time that the options granted are expected to be outstanding and was based on historical experience. The Company used its historical stock prices over the expected term as the basis for the Company’s volatility assumption. The decrease in expected volatility in fiscal 2014 was the result of significant historical volatility associated with the global recession in fiscal 2009 being eliminated from the calculation of expected volatility as it was no longer within the expected term. The assumed risk-free interest rates were based on five-year U.S. Treasury rates in effect at the time of grant. The expected dividend yield was based on average actual yield on the ex-dividend date during fiscal 2014. The weighted-average per share grant date fair values for stock option grants during fiscal 2014, 2013 and 2012 were $16.91, $27.13 and $15.95, respectively.

Stock Awards — A summary of the Company’s stock award activity for the three years ended September 30, 2014 is as follows:



	Fiscal Year Ended September 30,
	2014				2013				2012
	Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value
Beginning of year	609,871		$	35.55	569,282		$	26.84	228,615		$	23.75
Granted	305,900		47.72		310,300		45.87		514,800		27.37
Forfeited	(42,406	)	37.22		(24,700	)	27.61		(37,502	)	23.04
Vested	(263,496	)	35.17		(245,011	)	26.68		(136,631	)	24.70
End of year	609,869		$	41.70	609,871		$	35.55	569,282		$	26.84

The total fair value of shares vested during fiscal 2014, 2013 and 2012 was $12.5 million, $11.1 million and $3.5 million, respectively. The actual income tax benefit realized totaled $7.9 million, $1.2 million and $0.5 million for those same periods.

As of September 30, 2014, the Company had $15.8 million of unrecognized compensation expense related to stock awards, which will be recognized over a weighted-average period of 2.5 years.

Performance Share Awards — A summary of the Company’s performance share awards activity for the three years ended September 30, 2014 is as follows:



	Fiscal Year Ended September 30,
	2014				2013				2012
	Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value
Beginning of year	358,800		$	36.90	343,000		$	33.43	329,500		$	37.38
Granted	52,475		55.17		79,800		54.78		151,500		35.34
Forfeited	(7,492	)	40.00		(6,000	)	35.84		(42,687	)	40.71
Performance adjustments	146,134		28.23		5,800		41.10		(95,313	)	46.85
Vested	(292,442	)	28.24		(63,800	)	41.10		—		—
End of year	257,475		$	45.44	358,800		$	36.90	343,000		$	33.43

Performance share awards generally vest at the end of the third fiscal year following the grant date. Performance shares vest only if the Company’s total shareholder return over the three-year term of the awards compares favorably to that of a comparator group of companies. Potential payouts range from zero to 200% of the target awards and changes from target amounts are reflected as performance adjustments. Actual payouts for performance share awards vesting in the fiscal years ending September 30, 2014 and 2013 were 200% and 110% of target levels, respectively. No performance shares vested in fiscal 2012 because actual total shareholder return performance did not meet the minimum threshold. Of the 292,442 performance share awards that vested during fiscal 2014, 265,000 shares of Common Stock were issued from treasury to the award recipients in October 2014. An income tax benefit is recognized in the year of Common Stock issuance. The Company realized an income tax benefit of $4.7 million and $1.5 million in fiscal 2014 and 2012, respectively, related to the issuance of performance shares. No income tax benefit was realized in fiscal 2013.

As of September 30, 2014, the Company had $7.1 million of unrecognized compensation expense related to performance share awards, which will be recognized over a weighted-average period of 2.1 years.

The grant date fair values of performance share awards were estimated using a Monte Carlo simulation model utilizing the following weighted-average assumptions:



	Fiscal Year Ended September 30,
Performance Shares Granted During	2014		2013		2012
Assumptions:
Expected term (in years)	3.03		3.04		3.00
Expected volatility	39.75	%	43.36	%	44.90	%
Risk-free interest rate	1.07	%	0.82	%	0.37	%

The Company used its historical stock prices as the basis for the Company’s volatility assumption. The assumed risk-free interest rates were based on U.S. Treasury rates in effect at the time of grant. The expected term was based on the vesting period. The weighted-average fair value used to record compensation expense for performance share awards granted during fiscal 2014, 2013 and 2012 was $55.17, $54.78 and $35.84 per award, respectively.

Cash-Settled Stock Appreciation Rights — In fiscal 2014, 2013 and 2012, the Company granted employees 32,625, 19,900 and 36,400 cash-settled SARs, respectively. Each SAR award represents the right to receive cash equal to the excess of the per share price of the Company’s Common Stock on the date that a participant exercises such right over the grant date price of the Company’s Common Stock. Compensation cost for SARs is remeasured at each reporting period based on the estimated fair value on the date of grant using the Black Scholes option-pricing model, utilizing assumptions similar to stock option awards and is recognized as an expense over the requisite service period. SARs are subsequently remeasured at each interim reporting period based on a revised Black Scholes value. The total value of SARs exercised during fiscal 2014 and 2013 was $3.6 million and $1.4 million, respectively. No SARs were exercised during fiscal 2012.

As of September 30, 2014, the Company had $0.6 million of unrecognized compensation expense related to SAR awards, which will be recognized over a weighted-average period of 1.4 years.

Cash-Settled Restricted Stock Units — In fiscal 2014, 2013 and 2012, the Company granted employees 17,750, 17,700 and 105,600 cash-settled RSUs, respectively. Each RSU award provides recipients the right to receive cash equal to the value of a share of the Company’s Common Stock at predetermined vesting dates. Compensation cost for RSUs is remeasured at each reporting period and is recognized as an expense over the requisite service period. The total value of RSUs vested during fiscal 2014, 2013 and 2012 was $5.8 million, $4.2 million and $2.4 million, respectively.

As of September 30, 2014, the Company had $1.6 million of unrecognized compensation expense related to RSUs, which will be recognized over a weighted-average period of 1.3 years.