Stock-Based Compensation and Directors Stock Purchase Plan*

The Company’s stock-based compensation is provided under a stockholder-approved plan which allows for issuance of various types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards and stock-based awards. During the past three years, stock-based compensation has been issued in the form of nonvested stock awards and stock appreciation rights. At December 31, 2017, 2,776,076 shares remained available for issuance under the plan. The stock-based compensation expense that was charged against income was $12.1 million, $11.5 million and $10.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $4.5 million, $4.3 million and $3.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," on January 1, 2017. The Company elected to change its method of accounting for forfeitures, as allowed by this guidance. In 2016 and prior years, accruals of compensation cost were reduced by an estimate of awards not expected to vest and further adjusted when actual forfeitures occurred. In 2017 and subsequent years, forfeitures will be accounted for when they occur and recognized in compensation cost at that time. The effect of this change, which was recognized as a cumulative-effect adjustment on January 1, 2017, increased equity and increased deferred tax assets by approximately $1.3 million.

Nonvested Restricted Stock Awards

Nonvested stock is awarded to key employees by action of the Company's Compensation and Human Resources Committee and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary according to the specifics of the individual grant agreement. There are restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant of restricted stock awards. A summary of the status of the Company’s nonvested share awards as of December 31, 2017 and changes during the year then ended is presented below.



	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2017	1,461,713		$	33.02
Granted	263,123		54.56
Vested	(442,435	)	29.41
Forfeited	(27,883	)	39.12
Canceled	—		—
Nonvested at December 31, 2017	1,254,518		$	38.67

The total fair value (at vest date) of shares vested during 2017, 2016 and 2015 was $23.8 million, $10.9 million and $6.0 million, respectively.

Stock Appreciation Rights

Stock appreciation rights (SARs) are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over four years of continuous service and have 10-year contractual terms. All SARs must be settled in stock under provisions of the plan. A summary of SAR activity during 2017 is presented below.



(Dollars in thousands, except per share data)	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2017	1,390,782		$	32.89
Granted	173,740		54.79
Forfeited	(13,325	)	42.19
Expired	(878	)	34.75
Exercised	(371,033	)	29.30
Outstanding at December 31, 2017	1,179,286		$	37.13	6.2	years	$	22,073
Exercisable at December 31, 2017	630,135		$	32.60	4.6	years	$	14,645

In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table. Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and other factors to estimate the expected term of the SARs, which represents the period of time that the SARs granted are expected to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the time of grant. The per share average fair value and the model assumptions for SARs granted during the past three years are shown in the table below.



	2017			2016			2015
Weighted per share average fair value at grant date		$11.94			$6.79			$6.55
Assumptions:
Dividend yield	1.6		%	2.2		%	2.2		%
Volatility	21.1		%	21.2		%	21.3		%
Risk-free interest rate	2.4		%	1.8		%	1.8		%
Expected term	7.0 years			7.2 years			7.2 years

Additional information about stock options and SARs exercised is presented below.



(In thousands)	2017		2016		2015
Intrinsic value of options and SARs exercised	$	9,310	$	8,854	$	7,541
Cash received from options and SARs exercised	$	—	$	—	$	1,914
Tax benefit realized from options and SARs exercised	$	2,698	$	1,781	$	1,041

As of December 31, 2017, there was $24.0 million of unrecognized compensation cost related to unvested SARs and stock awards. This cost is expected to be recognized over a weighted average period of approximately 3.0 years.

Directors Stock Purchase Plan

The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect to use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance under this plan were 80,377 at December 31, 2017. In 2017, 15,873 shares were purchased at an average price of $54.55, and in 2016, 21,568 shares were purchased at an average price of $42.50.

* All share and per share amounts in this note have been restated for the 5% common stock dividend distributed in 2017.