Stock-Based Compensation

The company’s 2013 Omnibus Incentive Plan (the “2013 Omnibus Plan”) was approved by shareholders on May 7, 2013 and replaced the 2003 Incentive Stock and Awards Plan (the “2003 Stock Plan”) and 2004 Non-Employee Director Stock and Awards Plan (the “2004 Stock Plan”). The 2013 Omnibus Plan also replaced the company’s Short-Term Incentive Plan (the “STIP”) as of December 31, 2013. The 2003 Stock Plan, the 2004 Stock Plan and the STIP are referred to as the “Prior Plans.” No new awards may be granted under the Prior Plans after the respective termination dates, but the Prior Plans continue to govern awards outstanding; outstanding awards will continue in force and effect until vested, exercised or forfeited pursuant to their terms. The 2013 Omnibus Plan provides for both short-term and long-term incentive awards for employees and non-employee directors. Stock-based awards may take the form of stock options, stock appreciation rights, restricted stock, restricted stock units, and performance share or performance unit awards. The total number of shares of the company’s common stock originally available for awards under the 2013 Omnibus Plan is 8.0 million shares and is subject to adjustments for stock splits, stock dividends and certain other transactions or events in the future.

The 2003 Stock Plan provided for both short-term and long-term incentive awards for employees. Options granted under the plan prior to 2011 became exercisable in 25% increments beginning on the second anniversary of the grant date over a four-year period and expire ten years subsequent to the grant date. Option grants to employees beginning in 2011 became exercisable in 25% increments beginning on the first anniversary of the grant date over a four-year period and expire ten years subsequent to the grant date. Restrictions on restricted stock awarded under this plan lapse 100% on the third anniversary of the grant date. Performance shares granted under the 2013 Omnibus Plan and the 2003 Stock Plan are earned based on the extent to which performance goals are met over the applicable performance period. The performance goals and the applicable performance period vary for each grant year. An explanation of the performance goals and the applicable performance period for the 2014, 2013 and 2012 awards is set forth below. There have been no awards of stock appreciation rights or performance units under the 2003 Stock Plan.

The 2004 Stock Plan provided for the granting of stock options to non-employee members of the Board of Directors. No new awards may be made under the 2004 Stock Plan. Stock options awarded under the plan were granted at an exercise price equal to the market price of the common stock at the date of grant and vest immediately and expire ten years subsequent to the grant date. Restrictions on restricted stock awarded to date under the plan lapse on the third anniversary of the award date.

The company recognizes expense for all stock-based compensation on a straight-line basis over the vesting period of the entire award.

Total stock-based compensation expense before tax was $12.6 million, $14.9 million and $16.4 million during 2014, 2013, and 2012, respectively.

Stock Options

Any option grants to directors are exercisable immediately upon granting and expire ten years subsequent to the grant date. For all outstanding grants made to officers and employees prior to 2011, options become exercisable in 25% increments annually over a four-year period beginning on the second anniversary of the grant date and expire ten years subsequent to the grant date. Starting with 2011 grants to officers and directors, options become exercisable in 25% increments annually over a four-year period beginning on the first anniversary of the grant date and expire ten years subsequent to the grant date.

The company granted options to acquire 0.3 million, 0.4 million and 0.7 million shares of common stock during 2014, 2013, and 2012, respectively. Stock-based compensation expense is calculated by estimating the fair value of incentive and non-qualified stock options at the time of grant and is amortized over the stock options’ vesting period. The company recognized $5.7 million ($3.6 million after taxes), $6.3 million ($4.0 million after taxes) and $6.7 million ($4.2 million after taxes) of compensation expense associated with stock options during 2014, 2013, and 2012, respectively.

A summary of the company’s stock option activity is as follows (in millions, except weighted average exercise price per share):



	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding as of January 1, 2013	7.4		$	15.27
Granted	0.4		18.14
Exercised	(0.6	)	8.35
Cancelled	(0.2	)	16.66
Options outstanding as of December 31, 2013	7.0		$	16.00
Granted	0.3		29.08
Exercised	(1.7	)	10.92
Cancelled	—		27.07
Options outstanding as of December 31, 2014	5.6		$	18.23	$	36.3
Options exercisable as of:
December 31, 2014	4.2		$	17.86	$	29.8

The outstanding stock options at December 31, 2014 have a range of exercise prices from $4.41 to $47.84 per share. The following table shows the options outstanding and exercisable by range of exercise prices at December 31, 2014 (in millions, except range of exercise price per share, weighted average remaining contractual life and weighted average exercise price):



	Outstanding	Weighted Average Remaining Contractual	Weighted Average		Exercisable	Weighted Average
Range of Exercise Price per Share	Options	Life (Years)	Exercise Price		Options	Exercise Price
$4.41 - $9.59	0.7	4.0	$	4.41	0.7	$	4.41
$9.60 - $10.21	0.2	0.3	10.13		0.2	10.13
$10.22 - $18.13	1.7	5.4	12.90		1.2	12.44
$18.14 - $26.09	1.2	6.0	19.17		0.8	19.38
$26.10- $29.06	0.5	1.3	26.11		0.5	26.11
$29.07 - $30.46	0.8	5.2	29.32		0.4	29.52
$30.47 - $36.03	0.1	9.2	30.47		—	—
$36.04 - $47.84	0.4	2.9	38.88		0.4	38.88
	5.6	4.6	$	18.23	4.2	$	17.86

The company uses the Black-Scholes valuation model to value stock options. The company used its historical stock prices as the basis for its volatility assumption. The assumed risk-free rates were based on ten-year U.S. Treasury rates in effect at the time of grant. The expected option life represents the period of time that the options granted are expected to be outstanding and is based on historical experience.

As of December 31, 2014, the company has $5.7 million of unrecognized compensation expense before tax related to stock options, which will be recognized over a weighted average period of 2.4 years.

The weighted average fair value of options granted per share during the years ended December 31, 2014, 2013, and 2012 was $14.84, $9.00, and $7.97, respectively. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing method with the following assumptions:



	2014		2013		2012
Expected Life (years)	6.0		6.0		6.0
Risk-free Interest rate	1.9	%	1.1	%	1.1	%
Expected volatility	55.0	%	56.0	%	55.0	%
Expected dividend yield	0.4	%	0.6	%	0.6	%

For the years ended December 31, 2014, 2013, and 2012 the total intrinsic value of stock options exercised was $28.5 million, $6.9 million, and $4.9 million, respectively.

Restricted Stock Awards

The company granted restricted stock of 0.0 million, 0.1 million and 0.2 million of common stock during 2014, 2013, and 2012, respectively. Restricted stock award expense is based on the fair value of the company’s shares as of the grant date. The company recognized $1.0 million ($0.6 million after taxes), $2.8 million ($1.8 million after taxes), and $4.5 million ($2.8 million after taxes) of compensation expense associated with restricted stock for the years ended December 31, 2014, 2013, and 2012, respectively. The restrictions on all shares of restricted stock expire on the third anniversary of the applicable grant date.

A summary of activity for restricted stock awards for the year ended December 31, 2014 is as follows (in millions except weighted average grant date fair value):



	Shares		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2014	0.5		$	18.25
Granted	—		—
Vested	(0.3	)	19.58
Cancelled	—		17.21
Unvested as of December 31, 2014	0.2		$	16.58

As of December 31, 2014, the company has $0.3 million of unrecognized compensation expense before tax related to restricted stock, which will be recognized over a weighted average period of 0.8 years.

Restricted Stock Units

The company granted restricted stock units of 0.4 million, 0.5 million and 0.3 million in 2014, 2013, and 2012, respectively. The restricted stock units are earned either based on service over the vesting period, or based on service over the vesting period and on the extent to which performance goals are met over the applicable performance period (“performance shares”). The performance goals and the applicable performance period vary for each grant year. The company recognized $5.9 million ($3.8 million after taxes), $5.8 million ($3.6 million after taxes) and $5.2 million ($3.3 million after taxes) of compensation expense associated with restricted stock units during 2014, 2013 and 2012, respectively.

The restricted stock units granted to employees in 2014 vest on the third anniversary of the grant date. The restricted stock units granted to directors in 2014 vest on the second anniversary of the grant date. The performance shares granted in 2014 are earned based on the extent to which performance goals are met by the company over a three-year period from January 1, 2014 to December 31, 2016. The performance goals for the performance shares granted in 2014 are based fifty percent (50%) on total shareholder return relative to a peer group of companies over the three-year period and fifty percent (50%) on EVA^® improvement over the three-year period. Depending on the foregoing factors, the number of shares awarded could range from zero to 0.5 million for the 2014 performance share grants. For these awards, the expense is based on the fair value of the company's shares as of the grant date for the EVA^® improvement criteria and a Monte Carlo model for the total shareholder return criteria.

The performance shares granted in 2013 are earned based on the extent to which performance goals are met by the company over a three-year period from January 1, 2013 to December 31, 2015. The performance goals for the performance shares granted in 2013 are based fifty percent (50%) on total shareholder return relative to a peer group of companies over the three-year period and fifty percent (50%) on debt reduction over the three-year period. Depending on the foregoing factors, the number of shares awarded could range from zero to 0.8 million for the 2013 performance share grants. For these awards, the expense is based on the fair value of the company's shares as of the grant date for the debt reduction criteria and a Monte Carlo model for the total shareholder return criteria.

The performance shares granted in 2012 were earned based on the extent to which performance goals were met by the company over a three-year period from January 1, 2012 to December 31, 2014. The performance goals for the performance shares granted in 2012 were based fifty percent (50%) on total shareholder return relative to a peer group of companies over the three-year period and fifty percent (50%) on improvement in the company’s total leverage ratio over the three-year period. Depending on the foregoing factors, the number of shares awarded could have ranged from zero to 0.7 million for the 2012 performance share grants. Based on the performance criteria a total of 0.2 million shares will be awarded. For these awards, the expense is based on the fair value of the company's shares as of the grant date for the total leverage ratio criteria and a Monte Carlo model for the total shareholder return criteria.

A summary of activity for restricted stock units for the year ended December 31, 2014 is as follows (in millions except weighted average grant date fair value):



	Shares		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2014	0.7		$	18.41
Granted	0.4		34.57
Vested*	(0.3	)	17.79
Cancelled	—		21.92
Unvested as of December 31, 2014	0.8		$	27.09

* Under the terms of the 2012 performance share award, the actual number of shares awarded could have ranged from zero to 0.7 million, depending on the company’s three-year performance as described above. Based on the performance criteria a total of 0.2 million shares will be awarded.

As of December 31, 2014, the company has $8.5 million of unrecognized compensation expense before tax related to restricted stock units which will be recognized over a weighted average period of 1.7 years.