STOCK INCENTIVE PLANS

The Company maintains stock incentive plans under which the Company may grant a variety of incentive awards to employees and directors. Non-qualified stock options, performance shares, restricted stock units and deferred stock units have been granted and are outstanding under these plans. In 2015, the Company approved the 2015 Incentive Plan (Plan), which replaced all prior active plans. The Plan authorizes the granting of options to purchase shares at a price equal to the closing market price on the date of the grant. As of December 31, 2015, there were 3.1 million shares available for grant under the plans. When options are exercised, shares of the Company’s treasury stock are issued.

Pretax stock-based compensation expense was $43 million, $46 million and $54 million in 2015, 2014 and 2013, respectively, and is included in Warehousing, marketing and administrative expenses. Related income tax benefits recognized in earnings were $13 million in 2015, $15 million in 2014 and $17 million in 2013.

Options

In 2015, 2014 and 2013, the Company issued stock option grants to employees as part of their incentive compensation. Option awards are granted with an exercise price equal to the closing market price of the Company's stock on the last trading day preceding the date of grant. The options generally vest over three years, although accelerated vesting is provided in certain circumstances. Awards generally expire 10 years from the grant date. Transactions involving stock options are summarized as follows:



	Shares Subject to Option		Weighted Average Price Per Share		Options Exercisable
Outstanding at January 1, 2013	3,358,716		$	109.95	1,629,468
Granted	348,054		$	245.95
Exercised	(805,235	)	$	85.75
Canceled or expired	(51,080	)	$	150.15
Outstanding at December 31, 2013	2,850,455		$	132.67	1,652,417
Granted	257,693		$	248.21
Exercised	(479,452	)	$	100.33
Canceled or expired	(45,892	)	$	199.80
Outstanding at December 31, 2014	2,582,804		$	149.01	1,647,903
Granted	294,522		$	232.20
Exercised	(587,441	)	$	105.08
Canceled or expired	(63,599	)	$	216.76
Outstanding at December 31, 2015	2,226,286		$	169.96	1,411,460

At December 31, 2015, there was $9.6 million of total unrecognized compensation expense related to nonvested option awards, which the Company expects to recognize over a weighted average period of 1.8 years.

The following table summarizes information about stock options exercised (in thousands of dollars):



	For the years ended December 31,
	2015		2014		2013
Fair value of options exercised	$	14,423	$	11,167	$	16,407
Total intrinsic value of options exercised	73,671		71,924		124,752
Fair value of options vested	16,047		16,115		20,219
Settlements of options exercised	61,863		47,974		69,049

Information about stock options outstanding and exercisable as of December 31, 2015, is as follows:



	Options Outstanding							Options Exercisable
		Weighted Average							Weighted Average
Range of Exercise Prices	Number	Remaining Contractual Life	Exercise Price		Intrinsic Value (000's)			Number	Remaining Contractual Life	Exercise Price		Intrinsic Value (000's)
$52.29 - $78.86	172,843	1.11 years	$	75.99	$	21,883		172,843	1.11 years	$	75.99	$	21,883
$81.49 - $85.82	291,301	2.83 years	$	82.68	34,930			291,301	2.83 years	$	82.68	34,930
$102.26 - $124.93	353,384	4.29 years	$	107.19	33,713			353,384	4.29 years	$	107.19	33,713
$149.02 - $204.24	576,025	5.83 years	$	176.89	14,804			576,025	5.83 years	$	176.89	14,804
$224.85 - $262.14	832,733	8.28 years	$	241.85	(32,692		)	17,907	7.41 years	$	246.08	(779		)
	2,226,286	5.74 years	$	169.96	$	72,638		1,411,460	4.27 years	$	128.52	$	104,551

The Company uses a binomial lattice option pricing model for the valuation of stock options. The weighted average fair value of options granted in 2015, 2014 and 2013 was $46.67, $53.43 and $51.30, respectively. The fair value of each option granted in 2015, 2014 and 2013 used the following assumptions:



	For the years ended December 31,
	2015	2014	2013
Risk-free interest rate	1.5%	2.0%	0.9%
Expected life	6 years	6 years	6 years
Expected volatility	24.9%	25.0%	25.5%
Expected dividend yield	1.9%	1.7%	1.5%

The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term approximately equal to the expected term of the options being valued. The expected life selected for options granted during each year presented represents the period of time that the options are expected to be outstanding based on historical data of option holder exercise and termination behavior. Expected volatility is based upon implied and historical volatility of the Company's closing stock price over a period equal to the expected life of each option grant. Historical Company information is also the primary basis for selection of expected dividend yield assumptions.

Performance Shares

The Company awards performance-based shares to certain executives. Receipt of Company stock is contingent upon the Company meeting sales growth and/or return on invested capital (ROIC) goals. Each participant is granted a target number of shares; however the number of shares actually awarded at the end of the performance period can fluctuate from the target award based upon achievement of the sales or ROIC goals.

Performance share value is based upon closing market prices on the last trading day preceding the date of award and is charged to earnings on a ratable basis over the three-year period based on the number of shares expected to vest. Holders of performance share awards are not entitled to receive cash payments equivalent to cash dividends. If the performance shares vest, they will be settled by the Company's issuance of common stock in exchange for the performance shares on a one-for-one basis. The following table summarizes the transactions involving performance-based share awards:



	2015				2014				2013
	Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share
Beginning nonvested shares outstanding	57,236		$	220.00	57,533		$	185.02	117,979		$	141.86
Issued	47,264		$	227.26	32,194		$	242.65	31,553		$	191.36
Canceled	(13,108	)	$	215.01	(6,835	)	$	190.90	(7,659	)	$	148.25
Vested	(18,232	)	$	191.36	(25,656	)	$	177.75	(84,340	)	$	130.35
Ending nonvested shares outstanding	73,160		$	232.72	57,236		$	220.00	57,533		$	185.02

At December 31, 2015, there was $11 million of total unrecognized compensation expense related to performance-based share awards that the Company expects to recognize over a weighted average period of 3.2 years.

Restricted Stock Units (RSUs)

RSUs granted vest over periods from three to seven years from issuance, although accelerated vesting is provided in certain instances. Holders of RSUs are entitled to receive cash payments equivalent to cash dividends and other distributions paid with respect to common stock. RSUs are settled by the issuance of the Company's common stock on a one-for-one basis. Compensation expense related to RSUs is based upon the closing market price on the last trading day preceding the date of award and is charged to earnings on a straight-line basis over the vesting period. The following table summarizes RSU activity:



	2015				2014				2013
	Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share
Beginning nonvested units	560,351		$	182.40	739,717		$	154.09	978,888		$	118.60
Issued	104,220		$	234.21	103,427		$	248.12	139,529		$	248.28
Canceled	(38,124	)	$	219.74	(51,410	)	$	170.98	(54,533	)	$	141.48
Vested	(193,664	)	$	133.56	(231,383	)	$	123.82	(324,167	)	$	89.62
Ending nonvested units	432,783		$	213.45	560,351		$	182.40	739,717		$	154.09
Fair value of shares vested (in millions)	$26				$29				$29

At December 31, 2015, there was $41 million of total unrecognized compensation expense related to nonvested RSUs that the Company expects to recognize over a weighted average period of 3.0 years.

Director Stock Awards

The Company's Board of Directors receives both cash and deferred stock units (DSUs) for its services. A DSU is the economic equivalent of a share of common stock. The directors were each awarded $145,000 of DSUs in 2015 and $125,000 in 2014 and 2013. The number of units granted was based on the 200-day average stock price as of January 31 of the grant year. Compensation expense related to the DSUs is based upon the closing market price on the last trading day preceding the date of award. DSUs vest immediately at grant and are entitled to receive dividends and other distributions with respect to common stock, which are deferred as stock units, based on the market value of the stock at relevant times. Directors can also elect to defer their cash fees in the form of DSUs. Settlement of DSUs is required to be deferred until after termination of service as a director. The accumulated value of DSUs is recorded in Additional contributed capital as of December 31, 2015, 2014 and 2013. The following table summarizes DSU activity (dollars in thousands):



	2015					2014					2013
	Units		Dollars			Units		Dollars			Units		Dollars
Beginning balance	159,670		$	33,474		158,868		$	33,063		151,775		$	30,952
Dividends	2,952		661			2,602		653			2,259		559
Deferred fees	6,996		1,743			5,866		1,453			7,337		2,059
Retirement distribution	(22,170	)	(4,700		)	(7,666	)	(1,695		)	(2,503	)	(507		)
Ending balance	147,448		$	31,178		159,670		$	33,474		158,868		$	33,063