11. Stock-based Compensation

On December 31, 2014, the Company had stock options outstanding under its 2000 Stock Option Plan (2000 Plan), stock options and stock awards outstanding under its 2006 Incentive Compensation Plan (2006 Plan) and stock options, stock awards and SARs under its 2011 Incentive Compensation Plan (2011 Plan). Stock options, stock awards and SARs are currently granted to Company executives and other key employees. No further options or awards may be granted under the 2000 and 2006 Plans. The 2011 Plan authorized the award of 2,600,000 shares of the Company’s common stock for stock options, SARs and stock awards. At December 31, 2014, there were 1,971,353 shares available for grant under the 2011 Plan.

Compensation expense (income) recorded in the consolidated statements of income for all plans was ($69,000), $2,783,000 and $3,122,000 for the years ended December 31, 2014, 2013 and 2012, respectively. The decline in stock-based compensation expense for the year ended December 31, 2014, compared to the year ended December 31, 2013, reflected adjustments to both performance stock awards and SARs. During the year, management adjusted the profitability estimates on which the compensation expenses for stock awards vesting on December 31, 2015 and 2016 were based, thereby reducing the number of shares expected to vest, which resulted in life-to-date adjustments to compensation expenses for those awards. In addition, due to a decrease in the market value of Company common stock, the fair value of SARs at December 31, 2014, declined, resulting in a reduction of the Company’s SARs liability that led to reversing compensation expense recorded in prior periods.

The total income tax benefit (expense) recognized in the income statement for share-based compensation arrangements was ($26,000), $1,059,000 and $1,186,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

Stock Options

Under all plans, stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. The market price is defined and calculated as the average of the opening and closing prices for Company common stock on the grant date as reported in the New York Stock Exchange – Composite Transactions. The stock option awards generally vest based on two years of continuous service and have 8- to 10-year contractual terms. The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model incorporating the weighted-average assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock. The Company also uses historical data to estimate the expected term of options granted. The risk-free rate is the U.S. Treasury note rate that corresponds to the expected option term at the date of grant.

	For the Years Ended December 31
	2014	2013	2012
Expected dividend yield	1.77%	2.01%	2.10%
Expected volatility	42.04%	42.48%	43.19%
Expected term	7.3 years	7.4 years	7.4 years
Risk-free interest rate	2.18%	1.53%	1.41%

A summary of stock option activity for the year ended December 31, 2014 is presented below:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Options
Outstanding at January 1, 2014		505,112	$	30.80
Granted		53,175		61.69
Exercised		(67,029)		26.17
Forfeited		(10,522)		54.41
Outstanding at December 31, 2014		480,736		34.35		4.43	$	2,757
Vested or expected to vest at December 31, 2014		480,736		34.35		4.43		2,757
Exercisable at December 31, 2014		384,457		27.37		3.37		4,885

The weighted-average grant-date fair values of options awarded during the years ended December 31, 2014, 2013 and 2012, were $23.77, $23.08 and $15.73, respectively. The total intrinsic values of options exercised during the years ended December 31, 2014, 2013, and 2012 were $2,071,000, $9,138,000, and $17,163,000, respectively.

As of December 31, 2014, the total unrecognized compensation cost for unvested stock options was $774,000. That cost is expected to be recognized over a weighted-average period of 1.0 years.

Cash received from stock option exercises under the Company’s stock option plans for the years ended December 31, 2014, 2013, and 2012 was $1,754,000, $3,977,000 and $4,473,000, respectively. The actual tax benefit realized for the tax deductions from stock option exercises totaled $568,000, $2,786,000, and $6,411,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

Stock Awards

In 2012, 2013, and 2014, the Company granted stock awards under the 2006 and 2011 Plans. The stock awards vest only upon the Company’s achievement of certain levels of consolidated net income and return on invested capital by the end of the specified measurement periods, which are December 31, 2014, 2015 and 2016 for the 2012, 2013 and 2014 awards, respectively. The number of Company shares of common stock ultimately distributed, if any, is contingent upon the level of consolidated net income and return on invested capital attained. The fair value of stock awards equals the grant-date market price of the Company’s common stock, discounted for the estimated amount of dividends that would not be received during the measurement period. Compensation expense is recorded each reporting period based on the probable number of awards that will ultimately vest given the projected level of consolidated net income and return on invested capital. If at the end of the measurement period the performance objectives are not met, no compensation cost is recognized and any compensation expense recorded in prior periods is reversed. No performance stock awards vested for the measurement period ended December 31, 2014, because the financial performance conditions for those awards were not met.

A summary of stock award activity for the year ended December 31, 2014, is presented below:

	Shares		Weighted-Average Grant Date Fair Value
Unvested Stock Awards
Unvested at January 1, 2014		221,090	$	48.75
Granted		89,234		59.52
Vested		—		—
Forfeited		127,314		43.12
Unvested at December 31, 2014		183,010		57.92

The weighted-average grant-date fair values of stock awards granted during the years ended December 31, 2014, 2013 and 2012, were $59.52, $60.75 and $41.00, respectively. As of December 31, 2014, under the current Company assumption as to the number of stock award shares that will probably vest at the measurement periods ended December 31, 2015 and 2016, there was $1,365,000 of unrecognized compensation cost for unvested stock awards. That cost is expected to be recognized over a period of 2.0 years.

In general, it is the Company’s policy to issue new shares of its common stock upon the exercise of stock options or the vesting of stock awards.

SARs

SARs cliff vest after two years of continuous service, settle in cash and expire ten years from the grant date. Upon the exercise of a SARs award, a participant receives in cash an amount that equals the excess of the fair market value of a share of Company common stock at the date of exercise over the fair market value of a share of Company common stock at the date of grant (the exercise price). Because SARs are cash-settled, they are accounted for as liabilities that must be re-measured at fair value at the end of every reporting period until settlement. Compensation expense for each reporting period is based on the period-to-period change (or portion of the change, depending on the proportion of the vesting period that has been completed at the reporting date) in the fair value of the SARs.

A summary of SARs activity for the year ended December 31, 2014 is presented below:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
SARs
Outstanding at January 1, 2014		148,311		$	54.60
Granted		116,843			61.62
Forfeited		(33,972	)		55.99
Outstanding at December 31, 2014		231,182			57.94		8.40	$	(4,130	)

The weighted-average grant-date fair values of SARs granted during the years 2014, 2013 and 2012 were $23.74, $23.12 and $15.73, respectively. The fair value for each SARs award was estimated using the Black-Scholes valuation model incorporating the same assumptions as noted for stock options.

As of December 31, 2014 and 2013, the SARs liability recorded on the consolidated balance sheet (non-current liabilities) was $1,457,000 and $2,172,000, respectively. In addition, at December 31, 2014, there was $693,000 of total unrecognized compensation cost related to unvested SARs. That cost is to be recognized over a weighted-average period of 1.1 years.