SHARE-BASED COMPENSATION PLANS

The following table provides information on share-based compensation expense and income tax benefits recognized in 2014, 2013 and 2012:



	Years ended December 31,
	2014			2013		2012
	(In thousands)
Stock option and stock purchase plans	$	9,023		8,303		9,469
Nonvested stock	11,882			11,007		9,395
Share-based compensation expense	20,905			19,310		18,864
Income tax benefit	(7,300		)	(6,224	)	(6,309	)
Share-based compensation expense, net of tax	$	13,605		13,086		12,555

Total unrecognized pre-tax compensation expense related to share-based compensation arrangements at December 31, 2014 was $23 million and is expected to be recognized over a weighted-average period of approximately 1.7 years. The total fair value of equity awards vested during the years ended December 31, 2014, 2013, and 2012 were $18 million, $12 million and $12 million, respectively.

Share-Based Incentive Awards

Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Awards under the Plans principally include at-the-money stock options, nonvested stock and cash awards. Nonvested stock awards include grants of market-based, performance-based, and time-vested restricted stock rights. Under the terms of our Plans, dividends may be paid on our nonvested stock awards. Dividends on nonvested stock granted after 2011 are not paid unless the award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the date of grant of the award until the date the shares underlying the award are delivered. There are 1.7 million shares authorized and available to be granted under the Plans as of December 31, 2014. There are 1.9 million unused shares available to be granted under the Plans as of December 31, 2014

Stock options are awards which allow employees to purchase shares of our stock at a fixed price. Stock option awards are granted at an exercise price equal to the market price of our stock at the time of grant. These awards, which generally vest one-third each year, are fully vested three years from the grant date. The stock options granted in 2014 and 2013 have contractual terms of ten years and stock options granted in 2012 have contractual terms of seven years.

Restricted stock awards are nonvested stock rights that are granted to employees and entitle the holder to shares of common stock as the award vests. Time-vested restricted stock rights typically vest in three years regardless of company performance. The fair value of the time-vested awards is determined and fixed on the grant date based on Ryder’s stock price on the date of grant.

Performance-based restricted stock awards (PBRSRs) include a performance-based vesting condition. The awards are segmented into three one-year performance periods. For these awards, up to 125% of the awards may be earned based on Ryder's one-year adjusted return on capital (ROC) measured against an annual ROC target. If earned, employees will receive the grant of stock three years after the grant date, provided they continue to be employed with Ryder, subject to Compensation Committee approval. For accounting purposes, the awards are not considered granted until the Compensation Committee approves the annual ROC target. During 2014 and 2013, 23,000 and 16,000 PBRSRs, respectively, were considered granted for accounting purposes. The fair value of the PBRSRs is determined and fixed on the grant date based on Ryder’s stock price on the date of grant. Share-based compensation expense is recognized on a straight-line basis over the vesting period, based upon the probability that the performance target will be met.

Market-based restricted stock awards include a market-based vesting provision. The awards are segmented into three performance periods of one, two and three years. At the end of each performance period, up to 125% of the award may be earned based on Ryder's total shareholder return (TSR) compared to the target TSR of a peer group over the applicable performance period. The 2014 and 2013 awards compared Ryder's TSR to the TSR of a custom peer group. The 2012 award compared Ryder's TSR to the TSR of the S&P 500. If earned, employees will receive the grant of stock at the end of the relevant three year performance period provided they continue to be employed with Ryder, subject to Compensation Committee approval. The fair value of the market-based awards was determined on the date of grant and considers the likelihood of Ryder achieving the market-based condition. Share-based compensation expense is recognized on a straight-line basis over the vesting period and is recognized regardless of whether the awards vest.

Certain employees also received cash awards as part of our long-term incentive compensation program. The cash awards have the same vesting provisions as either the market-based restricted stock awards granted in the respective years. The cash awards are accounted for as liability awards as the awards are based upon our own stock performance and are settled in cash. As a result, the liability is adjusted to reflect fair value at the end of each reporting period. The fair value of the market-based cash awards was estimated using a lattice-based option pricing valuation model that incorporates a Monte-Carlo simulation. The liability related to the cash awards was $4 million and $2 million at December 31, 2014 and December 31, 2013, respectively.

The following table is a summary of compensation expense recognized related to cash awards in addition to share-based compensation expense reported in the previous table.



	Years ended December 31
	2014		2013	2012
	(In thousands)
Cash awards	$	1,900	996	1,099

We grant restricted stock units (RSUs) to non-management members of the Board of Directors. Once granted, RSUs are eligible for non-forfeitable dividend equivalents but have no voting rights. The fair value of the awards is determined and fixed on the grant date based on Ryder’s stock price on the date of grant. The board member receives the RSUs upon their departure from the Board. The initial grant of RSUs will not vest unless the director has served a minimum of one year. When the board member receives the RSUs, they are redeemed for an equivalent number of shares of our common stock. Share-based compensation expense is recognized for RSUs in the year the RSUs are granted.

Option Awards

The following is a summary of option activity under our stock option plans as of and for the year ended December 31, 2014:



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)				(In years)	(In thousands)
Options outstanding at January 1	1,717		$	49.99
Granted	407		71.49
Exercised	(828	)	47.85
Forfeited or expired	(27	)	61.41
Options outstanding at December 31	1,269		$	58.03	6.3	$	44,195
Vested and expected to vest at December 31	1,193		$	57.64	5.8	$	42,003
Exercisable at December 31	486		$	48.21	3.7	$	21,684

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the market price of our stock on the last trading day of the year 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 at year-end. The amount changes based on the fair market value of our stock.

Information about options in various price ranges at December 31, 2014 follows:



	Options Outstanding				Options Exercisable
Price Ranges	Shares	Weighted- Average Remaining Contractual Term	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
	(In thousands)	(In years)			(In thousands)
Less than $50.00	255	2.5	$	41.45	255	$	41.45
50.00-55.00	273	4.1	53.63		133	53.63
55.00-60.00	334	7.6	58.23		94	58.28
60.00 and over	407	9.1	71.20		4	61.83
Total	1,269	6.3	$	58.03	486	$	48.21

Restricted Stock Awards

The following is a summary of the status of Ryder’s nonvested restricted stock awards as of and for the year ended December 31, 2014:



	Time-Vested			Market-Based			Performance-Based
	Shares	Weighted- Average Grant Date Fair Value		Shares	Weighted- Average Grant Date Fair Value		Shares	Weighted- Average Grant Date Fair Value
	(In thousands)			(In thousands)			(In thousands)
Nonvested stock outstanding at January 1	534	$	52.58	205	$	33.71	15	$	58.27
Granted	186	78.31		41	61.07		23	71.89
Vested	(186)	51.83		—	25.29		—	58.21
Forfeited ⁽¹⁾	(20)	58.45		(136)	27.44		(3)	62.74
Nonvested stock outstanding at December 31	514	$	61.83	110	$	52.52	35	$	66.85

(1) Includes awards canceled due to performance and market conditions not being achieved.

Stock Purchase Plan

We maintain an Employee Stock Purchase Plan (ESPP), which enables eligible participants in the U.S. and Canada to purchase full or fractional shares of Ryder common stock through payroll deductions of up to 15% of eligible compensation. The ESPP provides for quarterly offering periods during which shares may be purchased at 85% of the fair market value on either the first or the last trading day of the quarter, whichever is less. Stock purchased under the ESPP must generally be held for 90 days. The amount of shares authorized to be issued under the existing ESPP was 4.5 million at December 31, 2014. There were 0.3 million unused shares available to be purchased under the ESPP at December 31, 2014.

The following table summarizes the status of Ryder’s ESPP:



	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)			(In years)	(In thousands)
Outstanding at January 1	—	$	—
Granted	150	82.27
Exercised	(150)	82.27
Forfeited or expired	—	—
Outstanding at December 31	—	$	—	—	$	—
Exercisable at December 31	—	$	—	—	$	—

Share-Based Compensation Fair Value Assumptions

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option-pricing valuation model that uses the weighted-average assumptions noted in the table below. Expected volatility is based on historical volatility of our stock and implied volatility from traded options on our stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award. We use historical data to estimate stock option exercises and forfeitures within the valuation model. The expected term of stock option awards granted is derived from historical exercise experience under the share-based employee compensation arrangements and represents the period of time that stock option awards granted are expected to be outstanding. The fair value of market-based restricted stock awards is estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by Ryder.

The following table presents the weighted-average assumptions used for options granted:



	Years ended December 31,
	2014	2013	2012
Option plans:
Expected dividends	1.9%	2.1%	2.2%
Expected volatility	29.1%	35.1%	40.7%
Risk-free rate	1.3%	0.7%	0.6%
Expected term in years	4.3 years	4.3 years	3.7 years
Grant-date fair value	$14.99	$13.97	$14.07
Purchase plan:
Expected dividends	1.7%	2.2%	2.7%
Expected volatility	20.3%	28.0%	32.7%
Risk-free rate	—%	0.1%	0.1%
Expected term in years	0.25 years	0.25 years	0.25 years
Grant-date fair value	$15.53	$11.73	$9.53

Exercise of Employee Stock Options and Purchase Plans

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $28 million, $30 million, and $6 million, respectively. The total cash received from employees as a result of exercises under all share-based employee compensation arrangements for the years ended December 31, 2014, 2013 and 2012 was $46 million, $87 million, and $28 million, respectively. In connection with these exercises, the tax benefits generated from share-based employee compensation arrangements were $1 million, $5 million, and $1 million for the years ended December 31, 2014, 2013, and 2012, respectively.