Note 6—Stock-Based Compensation

Stock-based compensation cost is recognized over the requisite service period, which generally equals the stated vesting period, unless the stated vesting period exceeds the date upon which an employee reaches retirement eligibility. Pre-tax stock-based compensation expense of $17.0 million, $18.5 million and $15.7 million was recognized for the years ended December 31, 2013, 2012 and 2011, respectively. Pre-tax stock-based compensation expense included $0.9 million, $1.6 million and $3.4 million related to discontinued operations for the years ended December 31, 2013, 2012, and 2011, respectively.

2008 Executive Incentive Program

The Company maintains an Executive Incentive Program (the "Program") for executives and certain other employees of the Company and its operating divisions and subsidiaries. The Program was approved by shareholders on April 20, 2004. The Program allows for awards to eligible employees of stock options, restricted stock, stock appreciation rights, performance shares and units or other awards based on Company common stock. At December 31, 2013, 3,094,447 shares were available for grant under this plan, of which 693,705 were available for the issuance of restricted and performance share awards.

2005 Nonemployee Director Equity Plan

The Company also maintains the Nonemployee Director Equity Plan (the "Plan") for members of its Board of Directors, with the same terms and conditions as the Program. At December 31, 2013, 267,210 stock options and 37,210 restricted shares were available for grant under this plan. Members of the Board of Directors that receive stock-based compensation are treated as employees for accounting purposes.

Stock Option Awards

Options issued under these plans vest one-third on the first anniversary of grant, one-third on the second anniversary of grant and the remaining one-third on the third anniversary of grant. All options have a maximum term life of 10 years. Shares issued to cover options under the Program and the Plan may be issued from shares held in treasury, from new issuances of shares or a combination of the two.

For 2013, 2012, and 2011, share-based compensation expense related to stock options was as follows:

	Years Ended December 31

(in millions, except per share amounts)	2013		2012		2011
Pre-tax compensation expense	$	4.9	$	7.5	$	6.6
After-tax compensation expense	$	3.0	$	4.7	$	4.1
Impact on diluted EPS	$	0.05	$	0.07	$	0.07

Unrecognized compensation cost related to stock options of $3.2 million at December 31, 2013 is to be recognized over a weighted average period of 1.75 years.

Excess income tax benefits related to share-based compensation expense that must be recognized directly in equity are considered financing cash flows. The amount of financing cash flows for these benefits was $5.3 million, $11.7 million and $3.2 million for the years ended December 31, 2013, 2010 and 2011, respectively.

The Company utilizes the Black-Scholes_Merton ("BSM") option pricing model to determine the fair value of its stock option awards. The BSM relies on certain assumptions to estimate an option's fair value. The weighted average assumptions used in the determination of fair value for stock option awards in 2013, 2012, and 2011 were as follows:

	Years Ended December 31

	2013			2012			2011
Expected dividend yield		1.2	%		1.5	%		1.7	%
Expected life in years		5.71			5.78			5.76
Expected volatility		32.2	%		36.0	%		32.0	%
Risk-free interest rate		1.0	%		0.9	%		2.2	%
Weighted average fair value	$	17.58		$	14.57		$	10.61

The expected life of options is based on the assumption that all outstanding options will be exercised at the midpoint of the grant date and the option expiration date. The expected volatility is based on historical volatility as well as implied volatility of the Company's publicly traded options. The risk-free interest rate is based on rates of U.S. Treasury issues with a remaining life equal to the expected life of the option. The expected dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant

Stock option activity under the Company's stock option awards for 2013, 2012 and 2011 was as follows:

			Weighted Average Exercise Price

Outstanding at December 31, 2010	4,235,303		$	30.38
Options granted	637,255			38.23
Options exercised	(552,639	)		27.61
Options forfeited	(227,404	)		29.13


Outstanding at December 31, 2011	4,092,515		$	32.05
Options granted	488,805			49.58
Options exercised	(1,265,768	)		28.45
Options forfeited	(90,421	)		39.67


Outstanding at December 31, 2012	3,225,131		$	35.88


Options granted	283,975			64.80
Options exercised	(472,040	)		33.81
Options forfeited	(44,059	)		48.47


Outstanding at December 31, 2013	2,993,007		$	38.76

The weighted-average grant-date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $5.0 million, $7.1 million and $6.7 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was approximately $15.5 million, $31.1 million and $11.0 million, respectively. The weighted average contractual term of options outstanding at December 31, 2013, 2012 and 2011 was 5.72, 6.21 and 6.56 years, respectively.

At December 31, 2013, 2012 and 2011, 2,378,543, 2,203,107 and 2,642,842 options were exercisable, with a weighted average exercise price of $34.87, $32.47 and $32.95, respectively. The weighted average contractual term of options exercisable at December 31, 2013 and 2012 was 4.98 and 5.05 years, respectively.

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2013 and 2012 was $75.8 million and $37.8 million, respectively. The total grant date fair value of options vested during the year ended December 31, 2013, 2012 and 2011 was $8.0 million, $6.0 million and $6.0 million, respectively.

Restricted Stock Awards

Restricted stock awarded under the Program is generally released to the recipient after a period of three years; however, 56,700 shares awarded to executive management in February 2008 vested ratably over five years. The number and weighted average grant-date fair value of restricted shares issued in each of the last three years was as follows: in 2013 71,255 awards were granted at a weighted average fair value of $64.80; in 2012, 85,990 awards were granted at a weighted average fair value of $49.60; and in 2011, 111,685 awards were granted at a weighted average fair value of $38.31. Compensation expense related to restricted stock awards of $4.6 million, $5.0 million and $5.2 million were recognized for the years ended December 31, 2013, 2012 and 2011, respectively. Unrecognized compensation cost related to restricted stock awards of $2.9 million at December 31, 2013 is to be recognized over a weighted average period of 1.68 years.

The following represents activity related to restricted stock for the years ended December 31, 2013, 2012 and 2011.

			Weighted Average Grant Date Fair Value

Outstanding at December 31, 2010	624,640		$	28.10


Shares granted	111,685			38.31
Shares vested	(188,195	)		34.80
Shares forfeited	(19,555	)		20.33


Outstanding at December 31, 2011	528,575		$	27.83


Shares granted	85,990			49.60
Shares vested	(305,850	)		21.82
Shares forfeited	(24,480	)		12.18


Outstanding at December 31, 2012	284,235		$	25.99


Shares granted	71,255			64.80
Shares vested	(109,445	)		34.08
Shares forfeited	(5,055	)		47.85


Outstanding at December 31, 2013	240,990		$	49.66

Performance Share Awards

The Company granted 71,255, 85,990 and 109,075 performance share awards in the years ended December 31, 2013, 2012 and 2011, respectively. The performance shares vest based on the employee rendering three years of service to the Company, and the attainment of a market condition over the performance period, which is based on the Company's relative total shareholder return versus the S&P Midcap 400 Index® over a pre-determined time period as determined by the Compensation Committee of the Board of Directors. The grant date fair value of the 2013, 2012 and 2011 performance shares of $91.33, $69.76 and $53.95, respectively, was estimated using a Monte-Carlo simulation approach based on a three year measurement period. Such approach entails the use of assumptions regarding the future performance of the Company's stock and those of the peer group of companies. Those assumptions include expected volatility, risk-free interest rates, correlation coefficients and dividend reinvestment. Dividends accrue on the performance shares during the performance period and are to be paid in cash based upon the number of awards ultimately earned.

The Company expenses the compensation cost associated with the performance awards on a straight-line basis over the vesting period of three years. In the years ended December 31, 2013, 2012 and 2011, the Company recognized approximately $6.5 million, $6.2 million and $3.8 million, respectively, of compensation cost related to the performance share awards. Unrecognized compensation cost related to the performance share awards was approximately $4.1 million, $5.0 million and $5.6 million at December 31, 2013, 2012 and 2011 and will be recognized in current income in equal installments over the remaining years. For purposes of determining diluted earnings per share, the performance share awards are considered contingently issuable shares and are included in diluted earnings per share based upon the number of shares that would have been awarded had the conditions at the end of the reporting period continued until the end of the performance period. See Note 8 for further information regarding earnings per share computations.

The following represents activity related to performance shares for the years ended December 31, 2013, 2012 and 2011:



Outstanding at December 31, 2010	98,835		—		—		—		98,835
Units granted	109,075		—		—		109,075		—
Units forfeited	(10,255	)	—		—		(6,135	)	(4,120	)


Outstanding at December 31, 2011	197,655		—		—		102,940		94,715




Units granted	85,990		—		85,990		—		—
Units converted to shares	86,385		—		—		—		86,385
Units vested and issued	(90,832	)	—		—		—		(90,832	)
Units vested and deferred	(24,388	)	—		—		—		(24,388	)
Units forfeited	(24,080	)	—		(6,650	)	(9,100	)	(8,330	)


Outstanding at December 31, 2012	230,730		—		79,340		93,840		57,550




Units granted	71,255		71,255		—		—		—
Units converted to shares	89,610		—		—		89,610		—
Units vested and issued	(45,544	)	—		—		—		(45,544	)
Units vested and deferred	(12,006	)	—		—		—		(12,006	)
Units forfeited	(5,055	)	(1,080	)	(1,745	)	(2,230	)	—


Outstanding at December 31, 2013	328,990		70,175		77,595		181,220		—

The Company's relative total shareholder return versus companies in the S&P Midcap 400 Index® over the period covered by the 2011 awards and 2010 awards resulted in participants being awarded an additional 89,610 shares and 86,385 shares, respectively, under the plan. The awarding of these additional shares had no impact on stock-based compensation expense as the likelihood of their issuance was included in the determination of grant date fair value using a Monte Carlo simulation approach.

Restricted Stock Units

The restricted stock units awarded to eligible directors are fully vested and will be issued in shares of Company common stock after the director ceases to serve as a member of the Board, or if earlier, upon a change in control of the Company. The $64.80 grant date fair value of the 2013 restricted stock units is based on the closing market price of the stock on February 6, 2013, the date of the grant.

Deferred Compensation

Certain employees are eligible to participate in the Company's Non-qualified Deferred Compensation Plan (the "Deferred Compensation Plan"). In addition to the ability to defer a portion of their cash compensation, participants may elect to defer all or part of their stock-based compensation. The cost of shares to be issued upon vesting is measured at grant date fair value and is classified as Deferred compensation equity in the consolidated balance sheets.