11. Stock-based Compensation

On December 31, 2016, the Company had stock options and stock awards outstanding under its 2006 Incentive Compensation Plan (2006 Plan) and stock options, stock awards and SARs under its 2011 Incentive Compensation Plan (2011 Plan). Stock options, stock awards and SARs are currently granted to Company executives and other key employees. No further options or awards may be granted under the 2006 Plan. The 2011 Plan authorized the award of 2,600,000 shares of the Company’s common stock for stock options, SARs and stock awards. At December 31, 2016, there were 1,217,210 shares available for grant under the 2011 Plan.

Compensation expense (income) recorded in the consolidated statements of income for all plans was $12,618,000, $4,374,000 and $(69,000) for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in stock-based compensation from year to year was primarily due to the increase in compensation related to SARs and performance awards. Due to an increase in the market value of Company common stock (from $49.69 at December 31, 2015 to $81.48 at December 31, 2016), the fair value of SARs increased, resulting in an increase of the Company’s SARs liability. Performance awards stock-based compensation expenses increased between years due to management’s assessment that the profitability metrics for certain grants would be achieved at greater levels than previously estimated.

The total income tax benefit (expense) recognized in the income statement for share-based compensation arrangements was $4,761,000, $1,654,000 and $(26,000) for the years ended December 31, 2016, 2015 and 2014, respectively.

Stock Options

Under all plans, stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. The market price is defined and calculated as the average of the opening and closing prices for Company common stock on the grant date as reported in the New York Stock Exchange – Composite Transactions. Stock option awards outstanding at December 31, 2016, generally vest based on two years of continuous service and have 8- to 10-year contractual terms. The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model incorporating the weighted-average assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock. The Company also uses historical data to estimate the expected term of options granted. The risk-free rate is the U.S. Treasury note rate that corresponds to the expected option term at the date of grant. The following are the weighted-average assumptions used to calculate the grant-date fair values of stock option awards granted in the years ended December 31, 2016, 2015 and 2014:

	For the Years Ended December 31
	2016	2015	2014
Expected dividend yield	1.45%	1.53%	1.77%
Expected volatility	35.62%	40.32%	42.04%
Expected term	7.3 years	7.3 years	7.3 years
Risk-free interest rate	1.52%	1.96%	2.18%

A summary of stock option activity for the year ended December 31, 2016 is presented below:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Options
Outstanding at January 1, 2016		507,084		$	36.57
Granted		103,709			44.03
Exercised		(167,675	)		23.95
Forfeited		(6,992	)		45.36
Outstanding at December 31, 2016		436,126			42.99		5.80	$	16,785
Vested or expected to vest at December 31, 2016		432,181			42.68		5.86		13,022
Exercisable at December 31, 2016		258,093			43.12		3.82		9,900

The weighted-average grant-date fair values of options awarded during the years ended December 31, 2016, 2015 and 2014, were $14.70, $15.59 and $23.77, respectively. The total intrinsic values of options exercised during the years ended December 31, 2016, 2015, and 2014 were $6,620,000, $1,426,000, and $2,071,000, respectively.

As of December 31, 2016, the total unrecognized compensation cost for unvested stock options was $895,000. That cost is expected to be recognized over a weighted-average period of 1.1 years.

Cash received from stock option exercises under the Company’s stock option plans for the years ended December 31, 2016, 2015, and 2014 was $4,017,000, $777,000 and $1,754,000, respectively. The actual tax benefit realized for the tax deductions from stock option exercises totaled $1,899,000, $351,000, and $568,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Stock Awards

In 2014, 2015, and 2016, the Company granted stock awards under the 2011 Plan. Most Company stock awards are granted in the form of performance awards. The performance stock awards vest only upon the Company’s achievement of certain Board of Director approved levels of financial performance by the end of specified measurement periods. The number of Company shares of common stock ultimately distributed, if any, is contingent upon the Company’s actual financial performance attained by the end of the measurement period relative to the Board of Director approved targets. The fair value of performance stock awards equals the grant-date market price of the Company’s common stock, discounted for the estimated amount of dividends that would not be received during the measurement period. Compensation expense is recorded each reporting period based on the probable number of awards that will ultimately vest given the projected level of financial performance. If at the end of the measurement period the performance objectives are not met, no compensation cost is recognized and any compensation expense recorded in prior periods is reversed. Periodically, the Company also grants stock awards that have no performance conditions associated with their vesting. These stock awards vest based on the service time established for the given grant.

A summary of stock award activity for the year ended December 31, 2016, is presented below:

	Shares			Weighted-Average Grant Date Fair Value
Stock Awards
Unvested at January 1, 2016		208,503		$	46.55
Granted		142,242			41.81
Vested		(32,319	)		59.41
Forfeited		(61,660	)		53.05
Unvested at December 31, 2016		256,766			40.74

The weighted-average grant-date fair values of stock awards granted during the years ended December 31, 2016, 2015 and 2014, were $41.81, $39.11 and $59.52, respectively. As of December 31, 2016, under the current Company assumption as to the number of stock award shares that will vest at the measurement periods ended December 31, 2017 and 2018, there was $5,514,000 of unrecognized compensation cost for unvested stock awards. That cost is expected to be recognized over a period of 1.7 years.

SARs

At December 31, 2016, the Company had both cash-settled and Company stock-settled SARs outstanding. SARs granted prior to 2015 are cash-settled, and SARs granted after 2014 are stock-settled. SARs outstanding at December 31, 2016, cliff vest after two years of continuous service and expire ten years from the grant date. Upon the exercise of a SARs award, a participant receives in cash (for cash-settled SARs) or Company common stock (for stock-settled SARs) an amount that equals or shares of Company stock that are valued at the excess of the fair market value of a share of Company common stock at the date of exercise over the fair market value of a share of Company common stock at the date of grant (the exercise price). Cash-settled SARs are accounted for as liabilities that must be re-measured at fair value at the end of every reporting period until settlement. Compensation expense for each reporting period is based on the period-to-period change (or portion of the change, depending on the proportion of the vesting period that has been completed at the reporting date) in the fair value of the SARs. Compensation expense for stock-settled SARs is based on the grant-date value of the awards allocated over the proportion of the vesting period that has been completed at the reporting date. Because stock-settled SARs are considered equity instruments, they are not re-measured at fair value at the end of each reporting period.

The following is a summary of SARs activity for the year ended December 31, 2016:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
SARs
Outstanding at January 1, 2016		389,955		$	50.30
Granted		215,288			43.95
Exercised		(27,596	)		54.17
Forfeited		(24,065	)		34.58
Outstanding at December 31, 2016		553,582			47.81		7.94	$	18,642

The weighted-average grant-date fair values of SARs granted during the years 2016, 2015 and 2014 were $14.69, $15.60 and $23.74, respectively. The fair value for each SARs award was estimated using the Black-Scholes valuation model incorporating the same assumptions as noted for stock options.

As of December 31, 2016 and 2015, the liability for cash-settled SARs recorded on the consolidated balance sheet (non-current liabilities) was $5,832,000 and $2,593,000, respectively. At December 31, 2016, there was $1,859,000 of total unrecognized compensation cost related to all unvested SARs. That cost is to be recognized over a weighted-average period of 1.1 years.

In general, it is the Company’s policy to issue new shares of its common stock upon the exercise of stock options and stock-settled SARs or the vesting of stock awards.