Stock-Based Compensation

The Company accounts for the cost of all share-based payments, including stock options, by measuring the payments at fair value on the grant date and recognizing the cost in the results of operations. The fair values of stock options are estimated using the Black-Scholes option-pricing model based on certain assumptions. The fair values of service and performance based stock awards are estimated based on the fair market value of the Company’s stock price on the grant date. The fair value of market based performance share awards are estimated using the Monte Carlo valuation method. Estimated forfeiture rates are applied to outstanding awards. The Company records the cash flows resulting from tax deductions in excess of compensation for those options and other stock awards, if any, as financing cash flows. The Company has elected the shortcut method as described in the related accounting literature for determining the available pool of windfall tax benefits upon adoption. The Company accounts for the utilization of windfall tax benefits using the tax law ordering approach.

Refer to Note 17 for a description of the Company’s stock-based compensation plans and their general terms. As of December 31, 2014, incentives have been awarded in the form of performance share unit awards and restricted stock unit awards (collectively, “Rights”) and stock options. The Company has elected to use the straight-line method to recognize compensation costs. Stock options and awards vest over a period ranging from six months to five years. The maximum term of stock option awards is 10 years. Upon exercise of a stock option or upon vesting of Rights, shares may be issued from treasury shares held by the Company or from authorized shares.

In February of 2013, the Board of Directors of the Company approved a Transition and Resignation Agreement (the "Agreement") for its former Chief Executive Officer (“Former CEO”) in connection with his resignation from the CEO role and his assumption of a Vice Chairman role. The Agreement provided that, in exchange for the Former CEO's delivery of an effective release of claims, his adherence to certain restrictive covenants, and the successful provision of transition services, including with regard to certain equity grants, the successful sale of the BDNA business, the Former CEO's outstanding equity awards were modified to increase the post-termination exercise period for stock options until the earlier of ten years from the date of grant or five years from the retirement date and made non-forfeitable all outstanding stock options, restricted stock unit awards and performance share unit awards that remained unvested on the day of his agreed to resignation date from the Company. The original vesting dates of the equity awards serve as the delivery dates and the performance metrics continue to apply to the performance share unit awards. The Company recorded $10,492 of stock compensation expense in the first quarter of 2013 as a result of the modifications.

During 2014, 2013 and 2012, the Company recognized $7,603, $18,128, and $8,819 respectively, of stock-based compensation cost and $2,834, $6,757, and $3,345 respectively, of related tax benefits in the accompanying consolidated statements of income. Stock compensation cost in 2013 includes the $10,492 related to the modification of awards for the Former CEO. In addition, the Company has recorded $4,888, $3,899 and $1,438 of excess tax benefits in additional paid-in capital in 2014, 2013 and 2012, respectively. The Company has realized all available tax benefits related to deductions from excess stock awards exercised or issued in earlier periods. At December 31, 2014, the Company had $10,560 of unrecognized compensation costs related to unvested awards which are expected to be recognized over a weighted average period of 2.05 years.

The following table summarizes information about the Company’s stock option awards during 2014:



	Number of Shares		Weighted-Average Exercise Price
Outstanding, January 1, 2014	1,516,341		$	20.65
Granted	92,050		37.24
Exercised	(569,561	)	19.36
Forfeited	(25,606	)	27.10
Outstanding, December 31, 2014	1,013,224		22.72

The following table summarizes information about stock options outstanding at December 31, 2014:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Average Remaining Life (Years)	Average Exercise Price		Number of Shares	Average Exercise Price
$11.45 to $20.69	356,110	4.70	$	16.44	348,385	$	16.35
$22.34 to $24.24	317,783	3.38	23.08		234,921	22.68
$24.40 to $32.76	253,781	4.29	26.23		203,251	26.16
$33.45 to $38.96	85,550	8.97	37.17		2,000	33.45

The Company received cash proceeds from the exercise of stock options of $11,024, $13,034 and $6,415 in 2014, 2013 and 2012, respectively. The total intrinsic value (the amount by which the stock price exceeds the exercise price of the option on the date of exercise) of the stock options exercised during 2014, 2013 and 2012 was $11,178, $14,022 and $4,225, respectively.

The weighted-average grant date fair value of stock options granted in 2014, 2013 and 2012 was $12.14, $8.77 and $9.49, respectively. The fair value of each stock option grant on the date of grant was estimated using the Black-Scholes option-pricing model based on the following weighted average assumptions:



	2014		2013		2012
Risk-free interest rate	1.68	%	0.96	%	0.98	%
Expected life (years)	5.3		5.3		5.3
Expected volatility	42.6	%	48.9	%	50.2	%
Expected dividend yield	2.24	%	2.38	%	2.56	%

The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time that options are expected to remain outstanding. Assumptions of expected volatility of the Company’s common stock and expected dividend yield are estimates of future volatility and dividend yields based on historical trends.

The following table summarizes information about stock options outstanding that are expected to vest and stock options outstanding that are exercisable at December 31, 2014:



Options Outstanding, Expected to Vest						Options Outstanding, Exercisable
Shares	Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Term (Years)	Shares	Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Term (Years)
995,945	$	22.72	$	14,248	4.54	788,557	$	20.81	$	12,778	3.88

The following table summarizes information about the Company’s Rights during 2014:



	Service Based Rights				Service and Performance Based Rights				Service and Market Based Rights
	Number of Units		Weighted-Average Grant Date Fair Value		Number of Units		Weighted-Average Grant Date Fair Value		Number of Units		Weighted-Average Grant Date Fair Value
Outstanding, January 1, 2014	558,576		$	20.60	224,544		$	24.42	112,272		$	35.87
Granted	132,794		36.93		65,437		37.34		32,718		58.16
Forfeited	(45,531	)	28.82		(17,429	)	35.13		(8,715	)	44.70
Additional Earned	—		—		37,173		23.13		19,483		34.87
Issued	(216,633	)	34.09		(82,661	)	23.13		(42,227	)	34.87
Outstanding, December 31, 2014	429,206		26.76		227,064		28.11		113,531		41.82

The Company granted 132,794 restricted stock unit awards and 98,155 performance share unit awards in 2014. All of the restricted stock unit awards vest upon meeting certain service conditions. "Additional Earned" reflects performance share unit awards earned above target that have been issued. The performance share unit awards are part of the long-term Relative Measure Program, which is designed to assess the long-term Company performance relative to the performance of companies included in the Russell 2000 Index. The performance goals are independent of each other and based on three metrics, the Company's total shareholder return ("TSR"), basic or diluted earnings per share growth and operating income before depreciation and amortization growth (weighted equally). The participants can earn from zero to 250% of the target award and the award includes a forfeitable right to dividend equivalents, which are not included in the aggregate target award numbers. Compensation expense for the awards is recognized over the three year service period based upon the value determined under the intrinsic value method for the basic or diluted earnings per share growth and operating income before depreciation and amortization growth portions of the award and the Monte Carlo simulation valuation model for the TSR portion of the award since it contains a market condition. The weighted-average assumptions used to determine the weighted-average fair values of the market based portion of the 2014 awards include a 0.69% risk-free interest rate and a 32.9% expected volatility rate.

Compensation expense for the TSR portion of the awards is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the TSR performance goal. Compensation expense for the basic earnings per share growth and operating income before depreciation and amortization growth portions of the awards is recorded each period based upon a probability assessment of achieving the goals with a final adjustment at the end of the service period based upon the actual achievement of those performance goals.