STOCK-BASED COMPENSATION

The Company’s stock compensation plans, approved by the Company’s stockholders and administered by the Compensation and Benefits Committee of the Board of Directors of the Company, provide for the grant of incentive and non-incentive stock options, restricted stock and other stock-based awards or units to key employees and directors. The plans, as amended, authorize the grant of up to 7.8 million shares or units through April 2020. At December 31, 2014, approximately 1.9 million shares were available for future issuance under the plans. These share or unit amounts exclude amounts that were issued under predecessor plans.

Stock Options

Stock options vest equally over the three years from the date of the grant. The cost of stock options, based on their fair value at the date of grant, is charged to expense over the respective vesting periods. Stock options normally become exercisable at a rate of one-third annually and in full on the third anniversary date. Under the plans, all options and rights must be exercised within ten years from date of grant. At the Company’s discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement method permits the employee to receive, without payment to the Company, cash, shares of common stock or a combination thereof equal to the excess of market value of common stock over the option purchase price. The Company has historically settled all such options in common stock and intends to continue to do so. Stock options do not have voting or dividend rights until such time that the options are exercised and shares have been issued.

The weighted average fair value of options granted during 2014, 2013 and 2012 was $7.16, $4.56 and $2.73, respectively.

The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:



	2014		2013		2012
Dividend yield	0.8	%	—	%	0.7	%
Expected volatility	57	%	59	%	59	%
Risk free interest rate	1.9	%	1.0	%	0.9	%
Weighted average expected option life in years	5.8		5.8		5.6

The expected life of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the options. Expected volatility is based on historical volatility of the Company’s common stock. Dividend yields are based on historical dividend payments.

The following summarizes stock option activity:



	Option Shares						Weighted Average Exercise Price
(in millions)	2014		2013		2012		2014		2013		2012
Outstanding, at beginning of year	2.1		2.3		2.0		$	8.63	$	8.93	$	10.16
Granted	0.3		0.5		0.6		14.36		8.50		5.52
Exercised	(0.3	)	(0.3	)	—		7.49		7.47		—
Canceled or expired	(0.1	)	(0.4	)	(0.3	)	14.33		10.94		9.88
Outstanding, at end of year	2.0		2.1		2.3		$	9.28	$	8.63	$	8.93
Exercisable, at end of year	1.2		1.2		1.3		$	8.64	$	9.85	$	11.22

The following table summarizes information for stock options outstanding as of December 31, 2014 under all plans:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Remaining Life	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
	(in millions)	(in years)			(in millions)
$0.00 — $5.00	—	6.7	$	4.47	—	$	4.47
5.01 — 10.00	1.3	7.1	6.75		0.8	6.44
10.01 — 15.00	0.5	7.0	13.08		0.2	10.99
15.01 — 20.00	0.2	1.3	16.46		0.2	16.46
	2.0	6.6	$	9.28	1.2	$	8.64

The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2014 was $8.5 million.

The total compensation expense related to all stock option compensation plans was $1.7 million, $1.5 million and $1.2 million for the years ended December 31, 2014, 2013 and 2012, respectively. Also, as of December 31, 2014, there was $2.3 million of total unrecognized compensation cost related to stock options that is expected to be recognized over the weighted-average period of approximately 1.9 years.

Restricted Stock

Restricted stock awards and restricted stock units (collectively, “restricted stock”) are granted to employees at no cost. Restricted stock primarily cliff vests at the third anniversary from the date of grant, provided the recipient is still employed by the Company on the vesting date. The cost of restricted stock, based on the fair market value of the underlying shares at the date of grant, is charged to expense over the respective vesting periods. Shares associated with non-vested restricted stock awards have the same voting rights as the Company’s common stock and have non-forfeitable rights to dividends. Shares associated with non-vested restricted stock units do not have voting or dividend rights.

The following table summarizes restricted stock activity for the year ended December 31, 2014:



	Number of Restricted Shares	Weighted Average Price per Share
	(in millions)
Outstanding and non-vested, at December 31, 2013	0.2	$	6.85
Granted	0.1	14.61
Vested	—	15.03
Forfeited	—	8.53
Outstanding and non-vested, at December 31, 2014	0.3	$	8.63

The total compensation expense related to all restricted stock compensation plans was $1.0 million, $1.1 million and $0.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Also, as of December 31, 2014, there was $0.8 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over the weighted-average period of approximately 1.9 years.

Performance Awards

In each of the three years in the period ended December 31, 2014, the Company granted performance-based restricted stock unit awards (“PSUs”) to certain executives and other non-executive officers. Performance targets associated with PSUs are set annually and approved by the Compensation and Benefits Committee of the Board of Directors. At the Company’s discretion, actual payment of the awards earned shall be in cash or in common stock of the Company, or in a combination of both. The Company intends to settle all such awards by issuing shares of its common stock. The number of shares of common stock that the Company may issue in connection with these PSUs can range from 0% to 200% of target, depending upon achievement against the performance targets. Shares associated with non-vested PSUs do not have voting or dividend rights until issuance. The Company assesses the probability of vesting, based on expected achievement against these performance targets, on a quarterly basis.

The cost of PSUs, based on their fair market value at the date of grant, is charged to expense over the respective vesting periods, which is the three-year period ended December 31, 2014 for the 2012 grants, the three-year period ended December 31, 2015 for the 2013 grants and the three-year period ended December 31, 2016 for the 2014 grants.

The PSUs granted in 2014 have a two-year performance period ending December 31, 2015, in which the Company must achieve certain cumulative EPS from continuing operations and a certain average return on invested capital, which are performance conditions per ASC 718, followed by a one-year service requirement (i.e., if earned, these shares would vest in full on December 31, 2016).

The PSUs granted in 2013 and 2012 have a one-year performance period ending December 31 of each year, in which the Company must achieve certain EPS from continuing operations, followed by a two-year service requirement. The EPS threshold associated with both the 2012 and 2013 grants was achieved at the maximum level, and 200% of the target shares were earned. The PSUs granted in 2012 became fully vested on December 31, 2014, and the PSUs granted in 2013 will vest on December 31, 2015, provided that the requisite service requirement is satisfied.

Compensation expense included in the Consolidated Statements of Operations for the PSUs in the years ended December 31, 2014, 2013 and 2012 was $3.4 million, $1.4 million and $0.6 million, respectively.

As of December 31, 2014 and 2013, there was $3.6 million and $3.2 million of total unrecognized compensation cost related to PSUs, respectively, that is expected to be recognized over the weighted-average period of 1.7 years and 1.8 years, respectively.

The following table summarizes PSU activity for the year ended December 31, 2014:



	Number of PSUs		Weighted Average Price per Share
	(in millions)
Outstanding and non-vested, at December 31, 2013	0.5		$	7.05
Granted ^(a)	0.4		8.97
Vested	(0.5	)	5.50
Forfeited	—		8.47
Outstanding and non-vested, at December 31, 2014	0.4		$	10.89


(a)	Includes 0.2 million PSUs, representing the effect of the PSUs granted in 2012 being earned at 200% of target. The PSUs granted in 2012 vested on December 31, 2014.

Excess Tax Benefits

For income tax purposes, stock-based compensation expense is deductible in the year of exercise or vesting based on the intrinsic value of the award on the date of exercise or vesting. For financial reporting purposes, stock-based compensation expense is based upon grant-date fair value and amortized over the vesting period. Excess tax benefits represent the excess tax deduction received by the Company resulting from the difference between the stock-based compensation expense deductible for income tax purposes and the stock-based compensation expense recognized for financial reporting purposes. Excess tax benefits are recorded to Capital in excess of par value on the Consolidated Statements of Stockholders’ Equity. Excess tax benefits for the year ended December 31, 2014 were $2.2 million, and are presented as a cash outflow from operating activities and as a cash inflow from financing activities on the Consolidated Statements of Cash Flows.