CAPITAL STOCK AND STOCK AWARD PLANS

PREFERRED STOCK. Our Certificate of Incorporation authorizes the issuance of 20,000,000 shares of preferred stock, par value $0.10 per share. There are no shares of preferred stock outstanding. The preferred stock may be issued by resolution of our Board of Directors at any time without any action of the stockholders. The Board of Directors may issue the preferred stock in one or more series and fix the designation and relative powers. These include voting powers, preferences, rights, qualifications, limitations, and restrictions of each series. The issuance of any such series may have an adverse effect on the rights of holders of common stock and may impede the completion of a merger, tender offer, or other takeover attempt.

COMMON STOCK. Our Certificate of Incorporation authorizes 480,000,000 shares of common stock, par value $0.10 per share. Subject to the rights of preferred stock which may from time to time be outstanding, holders of common stock are entitled to receive dividends out of funds legally available, when and if declared by the Board of Directors, and to receive their share of the net assets of the company legally available for distribution upon liquidation or dissolution.

For each share of common stock held, stockholders are entitled to one vote on each matter to be voted on by the stockholders, including the election of directors. Holders of common stock are not entitled to cumulative voting. The stockholders do not have preemptive rights. All outstanding shares of common stock are fully paid and nonassessable.

STOCK AWARD PLANS. Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense as it vests. A summary of our total compensation expense recognized in our consolidated statements of operations and comprehensive income for stock-based compensation is as follows (in thousands):



	2018		2017		2016
Stock options	$	23,374	$	10,109	$	9,178
Stock awards	61,826		29,217		25,912
Company expense on ESPP discount	2,591		2,479		2,475
Total stock-based compensation expense	$	87,791	$	41,805	$	37,565

On May 12, 2016, our shareholders approved an amendment to and restatement of our 2013 Equity Incentive Plan, which allows us to grant certain stock awards, including stock options at fair market value and restricted shares and restricted stock units, to our key employees and outside directors. A maximum of 13,041,803 shares can be granted under this plan. Approximately 1,571,347 shares were available for stock awards under this plan as of December 31, 2018. Shares subject to awards that expire or are canceled without delivery of shares or that are settled in cash, generally become available again for issuance under the plan.

We have awarded performance-based stock options to certain key employees. These options are subject to certain vesting requirements over a five-year period, based on the company’s earnings growth. Any options remaining unvested at the end of the five-year vesting period are forfeited to the company. Although participants can exercise options via a stock swap exercise, we do not issue reloads (restoration options) on the grants.

The fair value of these options is established based on the market price on the date of grant, discounted for post-vesting holding restrictions, calculated using the Black-Scholes option pricing model. Changes in measured stock price volatility and interest rates are the primary reasons for changes in the discount. These grants are being expensed based on the terms of the awards. As of December 31, 2018, unrecognized compensation expense related to stock options was $56.1 million. The amount of future expense to be recognized will be based on the company’s earnings growth and certain other conditions.

The following schedule summarizes stock option activity in the plans. All outstanding unvested options as of December 31, 2018, relate to performance-based grants from 2014 and time-based grants from 2015 through 2018.



	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Average Remaining Life (years)
Outstanding at December 31, 2017	7,382,072		$	71.58	$	129,295	7.6
Grants	1,074,665		88.92
Exercised	(578,467	)	65.13
Terminated	(55,756	)	73.92
Outstanding at December 31, 2018	7,822,514		$	74.42	$	85,222	7.2

Vested at December 31, 2018	4,191,118		$	68.35			5.9
Exercisable at December 31, 2018	4,191,118		$	68.35			5.9

Additional potential dilutive stock options totaling 5,296 for 2018 have been excluded from our diluted net income per share calculations because these securities’ exercise prices were anti-dilutive (e.g., greater than the average market price of our common stock).

Information on the intrinsic value of options exercised is as follows (in thousands):



2018	$	16,209
2017	6,026
2016	981

The following table summarizes performance based options by vesting period:

First Vesting Date

Last Vesting Date

Options
Granted, Net of
Forfeitures

Weighted
Average Grant
Date Fair Value

Unvested Options

December 31, 2015

December 31, 2019

1,253,443

14.17

136,781

We have issued no performance-based options since 2014. We have awarded stock options to certain key employees that vest primarily based on their continued employment. The value of these awards is established by the market price on the date of the grant, discounted for post-vesting holding restrictions, calculated using the Black-Scholes option pricing model and is being expensed over the vesting period of the award. The following table summarizes these unvested stock option grants as of December 31, 2018:



First Vesting Date	Last Vesting Date	Options Granted, Net of Forfeitures	Weighted Average Grant Date Fair Value		Unvested Options
December 31, 2016	December 31, 2020	1,421,933	$	12.66	561,579
December 31, 2017	December 31, 2021	1,246,480	12.60		735,744
December 31, 2018	December 31, 2022	1,470,606	14.25		1,162,504
December 31, 2019	December 31, 2023	1,034,788	20.52		1,034,788
		5,173,807	$	14.67	3,494,615

Determining Fair Value

We estimated the fair value of stock options granted using the Black-Scholes option pricing model. We estimate the fair value of restricted shares and units using the Black-Scholes option pricing model-protective put method. A description of significant assumptions used to estimate the expected volatility, risk-free interest rate, and expected terms is as follows:

Risk-Free Interest Rate-The risk-free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues at the date of grant with a term equal to the expected term.

Dividend Yield-The dividend yield assumption is based on our history of dividend payouts.

Expected Volatility-Expected volatility was determined based on implied volatility of our traded options and historical volatility of our stock price.

Expected Term-Expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience and anticipated future exercise patterns, giving consideration to the contractual terms of unexercised stock-based awards.

The fair value per option was estimated using the Black-Scholes option pricing model with the following assumptions:



	2018 Grants			2017 Grants			2016 Grants
Weighted-average risk-free interest rate	3.1		%	2.3		%	2.1		%
Expected dividend yield	2.0		%	2.5%			2.4%
Weighted-average volatility	25%			20%			20%
Expected term (in years)	6.08			6.20			6.26
Weighted average fair value per option	$	20.52		$	14.23		$	12.60

FULL VALUE AWARDS. We have awarded performance based restricted shares and restricted stock units to certain key employees and non-employee directors. These awards are subject to certain vesting requirements over a five-year period, based on the company’s earnings growth. The awards also contain restrictions on the awardees’ ability to sell or transfer vested awards for a specified period of time. The fair value of these awards is established based on the market price on the date of grant, discounted for post-vesting holding restrictions. The discounts on outstanding grants vary from 15 percent to 21 percent and are calculated using the Black-Scholes option pricing model-protective put method. Changes in measured stock price volatility and interest rates are the primary reasons for changes in the discount. These grants are being expensed based on the terms of the awards.

The following table summarizes our unvested performance based restricted shares and restricted stock unit grants as of December 31, 2018:



	Number of Shares and Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested at December 31, 2017	1,215,459		$	61.71
Granted	340,287		74.54
Vested	(687,463	)	60.14
Forfeitures	(22,113	)	60.50
Unvested at December 31, 2018	846,170		$	68.35

The following table summarizes performance based restricted shares and restricted stock units by vesting period:



First Vesting Date	Last Vesting Date	Performance Shares and Stock Units Granted, Net of Forfeitures	Weighted Average Grant Date Fair Value⁽¹⁾		Unvested Performance Shares and Restricted Stock Units
December 31, 2015	December 31, 2019	323,442	$	61.75	34,572
December 31, 2016	December 31, 2020	389,644	51.88		139,431
December 31, 2017	December 31, 2021	339,808	64.91		162,955
December 31, 2018	December 31, 2022	312,797	74.26		178,294
December 31, 2019	December 31, 2023	330,918	74.48		330,918
		1,696,609	$	64.91	846,170

________________________


⁽¹⁾	Amount shown is the weighted average grant date fair value of performance shares and restricted stock units granted, net of forfeitures.

We have also awarded time-based restricted shares and restricted stock units to certain key employees that vest primarily based on their continued employment. The value of these awards is established by the market price on the date of the grant and discount for post-vesting holding restrictions and is being expensed over the vesting period of the award. The following table summarizes these unvested restricted share and restricted stock unit grants as of December 31, 2018:



	Number of Restricted Shares and Stock Units		Weighted Average Grant Date Fair Value
Unvested at December 31, 2017	1,057,450		$	62.20
Granted	279,679		74.54
Vested	(324,965	)	58.46
Forfeitures	(85,472	)	62.57
Unvested at December 31, 2018	926,692		$	67.08

We have also issued to certain key employees and non-employee directors restricted stock units which are fully vested upon issuance. These units contain restrictions on the awardees’ ability to sell or transfer vested units for a specified period of time. The fair value of these units is established using the same method discussed above. These grants have been expensed during the year they were earned.

A summary of the fair value of full value awards vested (in thousands):



2018	$	61,826
2017	29,217
2016	25,912

As of December 31, 2018, there was unrecognized compensation expense of $120.0 million related to previously granted full value awards. The amount of future expense to be recognized will be based on the company’s earnings growth and the continued employment of certain key employees.

EMPLOYEE STOCK PURCHASE PLAN. Our 1997 Employee Stock Purchase Plan allows our employees to contribute up to $10,000 of their annual cash compensation to purchase company stock. Purchase price is determined using the closing price on the last day of the quarter discounted by 15 percent. Shares are vested immediately. The following is a summary of the employee stock purchase plan activity (dollar amounts in thousands):



	Shares Purchased By Employees	Aggregate Cost to Employees		Expense Recognized By the Company
2018	191,823	$	14,682	$	2,591
2017	215,613	14,048		2,479
2016	225,241	14,032		2,475

SHARE REPURCHASE PROGRAMS. During 2013, our Board of Directors authorized a share repurchase program that allows the Company to repurchase 15,000,000 shares. That program was completed in September 2018. In May 2018, the Board of Directors authorized a share repurchase program that allows the Company to repurchase 15,000,000 shares of our common stock. The activity under these authorizations is as follows (dollar amounts in thousands):



	Shares Repurchased	Total Value of Shares Repurchased
2016 Repurchases	2,467,097	$	176,676
2017 Repurchases	2,426,407	179,985
2018 Repurchases	3,319,077	303,492

As of December 31, 2018, there were 13,673,080 shares remaining for repurchase under the current authorization.