Share-Based Compensation and Capital Stock

Stock Options

The Company granted 0.2 million and 0.2 million options to certain employees of the Company at a fair value of $1.7 million and $1.6 million for the three months ended March 31, 2013 and 2012, 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:



	2013 Grants			2012 Grants
Risk-free interest rate	0.73		%	0.78		%
Expected volatility	38.14		%	40.15		%
Expected life of stock option	4.5 years			4.4 years
Dividend yield	2.01		%	2.08		%
Requisite service period	4 years			4 years
Contractual life	7 years			7 years
Weighted average fair value of options granted	$	9.89		$	9.98

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 March 31, 2013 was $29.2 million and $23.3 million, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2013 and 2012 was approximately $2.3 million and $0.4 million, respectively.

The Company received approximately $5.4 million and $0.4 million in proceeds from the exercise of 204,323 and 20,216 employee stock options during the three month periods ended March 31, 2013 and 2012, respectively.

Restricted Stock

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



	Three Months Ended
	March 31,
	2013		2012
Restricted share grants	194,541		238,019
Weighted average grant date fair value per share	$	36.76	$	35.70
Aggregate grant date fair value ($000)	$	7,151	$	8,497
Restricted shares forfeited	21,499		4,328
Vesting service period of shares granted	3 - 4 years		36 - 68 months
Grant date fair value of shares vested ($000)	$	6,999	$	5,013

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 non-employee 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
	March 31,
	2013		2012
Performance vested restricted stock units granted at target	58,902		38,476
Weighted average grant date fair value per share	$	36.76	$	35.60
Aggregate grant date fair value ($000)	$	2,165	$	1,370
Stock units forfeited	—		—
Requisite service period	22-36 months		3 years

During the three months ended March 31, 2013, 39,816 PVRSU grants vested at a fair value of $1.3 million. These PVRSU grants were initially granted at a target of 30,624 units. However, since the Company exceeded targeted performance conditions contained in the stock awards granted in prior periods by 130%, an additional 9,192 shares were earned and issued. No PVRSU grants vested during the three months ended March 31, 2012. In addition, no stock units were forfeited in the three months ended March 31, 2013 and 2012.

A summary of stock-based award activity as of March 31, 2013 and changes during the three months ended are presented below:



	Stock Options					Restricted Stock				Performance Vested Restricted Stock Units
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013	1,934,034		$	25.80		606,547		$	35.17	170,116		$	35.56
Granted	173,413		36.76			194,541		36.76		58,902		36.76
Performance based leveraging ⁽¹⁾	—		—			—		—		9,192		32.60
Exercised/Vested	(204,323	)	26.27			(207,622	)	33.71		(39,816	)	32.60
Expired	(75,473	)	36.99			—		—		—		—
Forfeited	—		—			(21,499	)	34.74		—		—
Outstanding at March 31, 2013	1,827,651		$	26.32	4.3 years	571,967		$	36.25	198,394		$	36.37
Options exercisable at March 31, 2013	1,317,396		$	24.61	3.0 years

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⁽¹⁾PVRSU shares have been increased by 9,192 units due to the Company exceeding the targeted performance conditions contained in PVRSUs granted in prior periods during the three months ended March 31, 2013.

The components of the Company’s pretax stock-based compensation expense and associated income tax benefits are as follows for the three months ended March 31, 2013 and 2012:



	Three Months Ended
	March 31,
(in millions)	2013		2012
Stock options	$	0.5	$	0.6
Restricted stock	1.8		2.0
Performance vested restricted stock units	0.6		0.2
Total	$	2.9	$	2.8
Income tax benefits	$	1.1	$	1.0

Dividends

The Company currently maintains the payment of a quarterly dividend on its common shares outstanding of $0.185 per share, however the declaration of future dividends are subject to the discretion of the board of directors. In the fourth quarter of 2012, the Company's board of directors elected to pay prior to December 31, 2012 the regular quarterly dividend initially scheduled to be paid in the first quarter of 2013.

During the three months ended March 31, 2013, the Company paid previously declared dividends totaling $0.5 million that were contingent upon the vesting of performance vested restricted units. No dividends on performance vested restricted units were paid during the three months ended March 31, 2012.

On February 8, 2013, the Company's board of directors declared a quarterly cash dividend of $0.185 per share (or approximately $10.8 million in the aggregate), which was paid on April 16, 2013 to shareholders of record as of April 2, 2013.

Share Repurchases and Redemptions

No shares of common stock were purchased by the Company under the share repurchase program during the three months ended March 31, 2013. During the three months ended March 31, 2012, the Company purchased 0.3 million shares of common stock under the share repurchase program at a total cost of $12.9 million.

During the three months ended March 31, 2013, the Company redeemed 96,977 shares of common stock at a total cost of approximately $3.6 million from employees to satisfy statutory minimum tax requirements from the vesting of restricted stock and performance vested restricted stock unit grants. During the three months ended March 31, 2012, the Company redeemed 55,162 shares of common stock at a total cost of approximately $2.0 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.