Share-Based Compensation and Capital Stock

Dividends

The Company currently maintains a quarterly dividend on its common shares outstanding, however, the declaration of future dividends are subject to discretion our board of directors. During the nine months ended September 30, 2012 and 2011, the Company paid dividends at a quarterly rate of $0.185 per share totaling approximately $32.1 million and $32.9 million, respectively.

On July 26, 2012, the Company's board of directors declared a special cash dividend to common shareholders in the amount of $10.41 per share or approximately $600.7 million ("Special Cash Dividend") which was paid on August 23, 2012.

On September 14, 2012, the Company's board of director declared a quarterly cash dividend of $0.185 per share (or approximately $10.7 million in the aggregate), which was paid on October 12, 2012 to shareholders of record as of October 2, 2012.

Stock Options

No stock options were granted during the three month periods ended September 30, 2012 and 2011. The Company granted 0.2 million and 0.2 million options to certain employees of the Company at a fair value of $1.6 million and $2.1 million for the nine months ended September 30, 2012 and 2011, respectively. The stock options granted by the Company had an exercise price equal to the market price of the Company's common stock on the date of grant. The fair value of the options granted was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:



	2012 Grants			2011 Grants
Risk-free interest rate	0.78		%	2.10		%
Expected volatility	40.15		%	39.51		%
Expected life of stock option	4.4 years			4.4 years
Dividend yield	2.08		%	1.79		%
Requisite service period	4 years			4 years
Contractual life	7 years			7 years
Weighted average fair value of options granted	$	9.98		$	12.42

The expected life of the options and volatility are based on historical data and are not necessarily indicative of exercise patterns or actual volatility that may occur. Historical volatility is calculated based on a period that corresponds to the expected life of the stock option. The dividend yield and the risk-free rate of return are calculated on the grant date based on the then current dividend rate and the risk-free rate of return for the period corresponding to the expected life of the stock option. Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those awards that ultimately vest.

The aggregate intrinsic value of the stock options outstanding and exercisable at September 30, 2012 was $14.3 million and $10.6 million, respectively. The total intrinsic value of options exercised during the three months ended September 30, 2012 and 2011 was approximately $0.5 million and $0.2 million, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2012 and 2011 was $1.0 million and $2.5 million, respectively.

The Company received approximately $4.3 million and $0.6 million in proceeds from the exercise of 109,996 and 26,614 employee stock options during the three month periods ended September 30, 2012 and 2011, respectively. The Company received $4.7 million and $3.7 million in proceeds from the exercise of 135,200 and 164,150 of employee stock options during the nine month periods ended September 30, 2012 and 2011, respectively.

Special Dividend Adjustment

The Company's long-term incentive plans ("the Plans") contain provisions which require the automatic adjustment of outstanding share-based awards in the event that the Company makes any changes to its capital structure, such as special dividends, stock splits or spin-offs, if such changes result in the dilution or enlargement of the benefits or potential benefits intended upon the grant of the award. The Company's board of directors concluded that the Special Cash Dividend paid on August 23, 2012 would result in the dilution of the value of the Company's outstanding stock options. Therefore, in accordance with the anti-dilution provision of the Plans, the Company's outstanding stock options were adjusted to maintain their pre-dividend value. The Company elected to maintain the pre-dividend value of the outstanding options by adjusting both the exercise price and the number of stock options outstanding as of the ex-dividend date of the Special Dividend so that the aggregate difference between the market price and exercise price multiplied by the number of shares issuable upon exercise was substantially the same immediately before and after the payment of the Special Cash Dividend. As a result of this adjustment, an additional 0.5 million stock options were awarded during the nine months ended September 30, 2012 and the exercise price of the outstanding options were reduced by approximately 24%. This adjustment did not result in additional stock-based compensation expense as the fair value of the options immediately before and after the payment of the Special Cash Dividend were substantially equal.

Restricted Stock

The following table is a summary of activity related to restricted stock grants:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Restricted share grants	7,672		45,674		266,159		247,298
Weighted average grant date fair value per share	$	32.59	$	30.27	$	35.76	$	38.84
Aggregate grant date fair value ($000)	$	250	$	1,383	$	9,517	$	9,604
Restricted shares forfeited	13,619		5,884		23,921		33,252
Vesting service period of shares granted	36 months		36 months		12 - 68 months		12 - 48 months
Grant date fair value of shares vested ($000)	$	75	$	298	$	6,693	$	6,655

Compensation expense related to the fair value of these awards is recognized straight-line over the requisite service period based on those restricted stock grants that ultimately vest. The fair value of grants is measured by the market price of the Company’s stock on the date of grant. Restricted stock awards generally vest ratably over the service period beginning with the first anniversary of the grant date. Awards granted to retirement eligible board of directors are recognized over the shorter of the requisite service period or the length of time until retirement since the terms of the grant provide that the awards will vest upon retirement.

Performance Vested Restricted Stock Units

The Company has granted performance vested restricted stock units (“PVRSU”) to certain employees. The fair value is measured by the market price of the Company's common stock on the date of the grant. The vesting of these stock awards is contingent upon the Company achieving performance targets at the end of specified performance periods and the employees' continued employment. The performance conditions affect the number of shares that will ultimately vest. The range of possible stock-based award vesting is generally between 0% and 200% of the initial target. If minimum performance targets are not attained then no awards will vest under the terms of the various PVRSU agreements. Compensation expense related to these awards is recognized over the requisite service period based on the Company's estimate of the achievement of the various performance targets. The Company has currently estimated that between 100% and 160% of the various award targets will be achieved. Compensation expense is recognized ratably over the requisite service period only on those PVRSUs that ultimately vest.

The following table is a summary of activity related to PVRSU grants:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Performance vested restricted stock units granted at target	6,137		—		100,046		25,036
Weighted average grant date fair value per share	$	32.59	$	—	$	35.68	$	41.25
Aggregate grant date fair value ($000)	$	200	$	—	$	3,570	$	1,033
Stock units forfeited	—		—		57,176		41,512
Requisite service period	41 months		—		36-60 months		36 months

During the three and nine months ended September 30, 2012 and 2011, no PVRSU grants vested. During the nine months ended September 30, 2012, PVRSU grants totaling 57,176 units were terminated in accordance with an amended and restated employment agreement. During the nine months ended September 30, 2011, PVRSU grants totaling 39,070 units were forfeited since the Company did not achieve the minimum performance conditions contained in the stock awards. The remaining 2,442 units were forfeited upon employee termination.

A summary of stock-based award activity as of September 30, 2012 and changes during the nine months ended are presented below:



	Stock Options					Restricted Stock				Performance Vested Restricted Stock Units
	Options		Weighted Average Exercise Price⁽¹⁾		Weighted Average Remaining Contractual Term	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2012	1,573,726		$	33.30		565,627		$	34.43	109,769		$	35.57
Granted	160,408		35.60			266,159		35.76		100,046		35.68
Special Dividend Adjustment	497,497		25.31			—		—		—		—
Exercised/Vested	(135,200	)	34.73			(198,290	)	33.75		—		—
Forfeited/Expired	(30,843	)	36.97			(23,921	)	36.10		(57,176	)	34.98
Outstanding at September 30, 2012	2,065,588		$	25.31	4.1 years	609,575		$	35.17	152,639		$	35.86
Options exercisable at September 30, 2012	1,434,178		$	24.94	3.3 years

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⁽¹⁾The weighted average exercise price for options outstanding and exercisable reflect the reduction of the option price for outstanding options as described under "Special Dividend Adjustment". The weighted average exercise price for options granted, exercised or forfeited reflects the option price in effect at the time of the transaction.

The components of the Company’s pretax stock-based compensation expense and associated income tax benefits are as follows for the three and nine months ended September 30, 2012 and 2011:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2012		2011		2012		2011
Stock options	$	0.5	$	0.7	$	1.6	$	2.0
Restricted stock	1.8		1.9		5.7		5.6
Performance vested restricted stock units	0.8		0.1		1.3		0.4
Total	$	3.1	$	2.7	$	8.6	$	8.0
Income tax benefits	$	1.1	$	1.0	$	3.2	$	3.0

Share Repurchases and Redemptions

No shares of common stock were purchased by the Company under the share repurchase program during the three months ended September 30, 2012. During the nine months ended September 30, 2012, the Company purchased 0.5 million shares of common stock under the share repurchase program at a total cost of $19.9 million, respectively. During the three and nine months ended September 30, 2011, the Company purchased 0.7 million shares of common stock under the share repurchase program at a total cost of $22.2 million.

During the three and nine months ended September 30, 2012, the Company redeemed 1,525 and 64,037 shares of common stock at a total cost of approximately $0.1 million and $2.3 million from employees to satisfy statutory minimum tax requirements from the vesting of restricted stock grants. During the three and nine months ended September 30, 2011, the Company redeemed 3,309 and 67,336 shares of common stock at a total cost of approximately $0.1 million and $2.6 million from employees to satisfy statutory minimum tax requirements from the vesting of restricted stock grants.

These redemptions were outside the share repurchase program initiated in June 1998.