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, 2016, there were 2.9 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 $35 million, $43 million and $46 million in 2016, 2015 and 2014, respectively, and is included in Warehousing, marketing and administrative expenses. Related income tax benefits recognized in earnings were $11 million, $13 million and $15 million in 2016, 2015 and 2014, respectively.

Options

The Company issues stock option grants to certain 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, 2014	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
Granted	294,874		$	234.25
Exercised	(317,110	)	$	108.28
Canceled or expired	(80,014	)	$	210.01
Outstanding at December 31, 2016	2,124,036		$	186.59	1,346,707

At December 31, 2016, there was $8.6 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 (in thousands of dollars):



	For the years ended December 31,
	2016		2015		2014
Fair value of options exercised	$	8,086	$	14,423	$	11,167
Total intrinsic value of options exercised	35,800		73,671		71,924
Fair value of options vested	14,535		16,047		16,115
Settlements of options exercised	34,573		61,863		47,974

Information about stock options outstanding and exercisable as of December 31, 2016, 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)
$72.14 - $85.82	261,307	1.85 years	$	80.95	$	39,536		261,307	1.85 years	$	80.95	$	39,536
$102.26 - $196.31	549,608	3.75 years	$	125.86	58,471			549,608	3.75 years	$	125.86	58,471
$204.01 - $262.14	1,313,121	7.34 years	$	233.03	(1,020		)	535,792	5.86 years	$	226.51	(22		)
	2,124,036	5.73 years	$	186.59	$	96,987		1,346,707	4.22 years	$	157.19	$	97,985

The Company uses a binomial lattice option pricing model for the valuation of stock options. The weighted average fair value of options granted in 2016, 2015 and 2014 was $44.94, $46.67 and $53.43, respectively. The fair value of each option granted in 2016, 2015 and 2014 used the following assumptions:



	For the years ended December 31,
	2016	2015	2014
Risk-free interest rate	1.4%	1.5%	2.0%
Expected life	6 years	6 years	6 years
Expected volatility	24.5%	24.9%	25.0%
Expected dividend yield	2.0%	1.9%	1.7%

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 vesting period, primarily three, and up to seven years for certain awards, 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:



	2016				2015				2014
	Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share
Beginning nonvested shares outstanding	73,160		$	232.72	57,236		$	220.00	57,533		$	185.02
Issued	60,414		$	191.38	47,264		$	227.26	32,194		$	242.65
Canceled	(11,724	)	$	241.41	(13,108	)	$	215.01	(6,835	)	$	190.90
Vested	(23,510	)	$	242.65	(18,232	)	$	191.36	(25,656	)	$	177.75
Ending nonvested shares outstanding	98,340		$	203.91	73,160		$	232.72	57,236		$	220.00

At December 31, 2016, there was $11.5 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)

The Company awards restricted stock units (RSUs) to certain employees and executives. 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 non-forfeitable 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:



	2016				2015				2014
	Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share		Shares		Weighted Average Price Per Share
Beginning nonvested units	432,783		$	213.45	560,351		$	182.40	739,717		$	154.09
Issued	113,909		$	230.36	104,220		$	234.21	103,427		$	248.12
Canceled	(62,869	)	$	229.70	(38,124	)	$	219.74	(51,410	)	$	170.98
Vested	(110,420	)	$	193.51	(193,664	)	$	133.56	(231,383	)	$	123.82
Ending nonvested units	373,403		$	221.77	432,783		$	213.45	560,351		$	182.40
Fair value of shares vested	$21,367				$25,865				$28,650

At December 31, 2016, there was $43 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.