CAPITAL STOCK AND STOCK AWARD PLANS | 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 $.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): 2015 2014 2013 Stock options $ 14,607 $ 9,243 $ 5 Stock awards 40,785 36,510 6,808 Company expense on ESPP discount 2,269 2,108 2,281 Total stock-based compensation expense $ 57,661 $ 47,861 $ 9,094 On May 9, 2013, our shareholders approved our 2013 Equity Incentive Plan, which allows us to grant certain stock awards, including stock options at fair market value and performance shares and restricted stock units, to our key employees and outside directors. A maximum of 3,400,000 shares, plus the shares remaining available for future grants under the 1997 Plan as of May 9, 2013, can be granted under this plan. Approximately 715,064 shares were available for stock awards as of December 31, 2015 . 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 made after 2003. 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, 2015 , unrecognized compensation expense related to stock options was $55.1 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, 2015 , relate to the performance-based grants from 2011 through 2015 . Options Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Average Remaining Life (years) Outstanding at December 31, 2014 4,704,620 $ 65.40 $ 44,644 8.1 Grants 1,493,388 63.80 Exercised (40,337 ) 62.30 Terminated (6,810 ) 66.99 Outstanding at December 31, 2015 6,150,861 $ 65.03 $ — 8.1 Vested at December 31, 2015 1,991,263 $ 64.49 $ — 7.3 Exercisable at December 31, 2015 1,991,263 $ 64.49 $ — 7.3 Additional potential dilutive stock options totaling 125,797 for 2015 and 218,932 for 2013 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): 2015 $ 400 2014 4 2013 7,640 The following table summarizes performance-based options by year of grant: Year of grant First vesting date Last vesting date Options Weighted Unvested options 2011 December 31, 2012 December 31, 2016 894,254 $ 15.72 352,850 2012 December 31, 2013 December 31, 2017 1,143,939 13.15 725,564 2013 December 31, 2014 December 31, 2018 1,405,906 11.83 702,953 2014 December 31, 2015 December 31, 2019 1,278,231 14.17 958,674 4,722,330 $ 13.52 2,740,041 We issued no performance-based options in 2015. 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 and is being expensed over the vesting period of the award. The following table summarizes these unvested stock option grants as of December 31, 2015 : Year of grant First vesting date Last vesting date Options Weighted Unvested options 2015 December 31, 2016 December 31, 2020 1,428,531 $ 12.66 1,428,531 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: Expected Volatility -Expected volatility was determined based on implied volatility of our traded options and historical volatility of our stock price. 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. 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: 2015 Grants 2014 Grants 2013 Grants Risk-free interest rate 1.95-1.96% 1.93-1.96% .18-1.94% Dividend per share (quarterly amounts) $0.38-0.43 $0.35-0.38 $0.35 Expected volatility factor 22.0-24.0% 22.0-25.0% 25.0-27.5% Expected option term 6.29 years 6.3 years .01-6.3 years Weighted average fair value per option $ 12.68 $ 14.23 $ 11.73 FULL VALUE AWARDS. We have awarded performance 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 17 percent to 22 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 shares and restricted stock unit grants as of December 31, 2015 : Number of Performance Shares and Restricted Stock Units Weighted Average Grant Date Fair Value Unvested at December 31, 2014 1,536,154 $ 54.67 Granted 407,019 52.08 Vested (492,129 ) 55.27 Forfeitures (179,004 ) 62.13 Unvested at December 31, 2015 1,272,040 $ 52.56 The following table summarizes performance shares and restricted stock units by year of grant: Year of grant 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 2011 December 31, 2012 December 31, 2016 569,854 $ 53.72 222,243 2012 December 31, 2013 December 31, 2017 331,780 48.65 209,022 2013 December 31, 2014 December 31, 2018 395,016 46.45 197,510 2014 December 31, 2015 December 31, 2019 337,154 60.56 252,866 2015 December 31, 2016 December 31, 2020 390,400 51.88 390,400 2,024,204 $ 52.56 1,272,041 ________________________ (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 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 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, 2015 : Number of Restricted Shares and Stock Units Weighted Average Grant Date Fair Value Unvested at December 31, 2014 954,124 $ 52.12 Granted 482,222 51.93 Vested (237,563 ) 48.87 Forfeitures (71,261 ) 52.62 Unvested at December 31, 2015 1,127,522 $ 52.69 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): 2015 $ 40,785 2014 36,510 2013 6,808 As of December 31, 2015 , there was unrecognized compensation expense of $127.4 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 certain other conditions. 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 2015 228,103 $ 13,045 $ 2,269 2014 231,564 11,943 2,108 2013 259,730 12,928 2,281 SHARE REPURCHASE PROGRAMS. During 2012, our Board of Directors authorized a stock repurchase program that allowed management to repurchase up to 10,000,000 shares. The activity under that program for each of the periods reported is as follows (dollar amounts in thousands): Shares repurchased Total value of shares repurchased 2012 Program 2013 Purchases 10,000,000 $ 579,853 As of December 31, 2013, there were no shares remaining for repurchase under the 2012 authorization. During 2013, our Board of Directors increased the number of shares authorized to be repurchased by 15,000,000 shares. The activity under this authorization is as follows (dollar amounts in thousands): Shares repurchased Total value of shares 2013 Program 2013 Purchases 930,075 $ 57,689 2014 Purchases 3,763,583 239,037 2015 Purchases 3,420,681 232,113 As of December 31, 2015 , there were 6,885,661 shares remaining for repurchase under the 2013 authorization. |