Share-Based Compensation and Capital Stock

Stock Options

The Company granted two thousand options to a certain employee of the Company at a fair value of $19 thousand during the three months ended September 30, 2017. No stock options were granted during the three months ended September 30, 2016. The Company granted 0.2 million and 0.7 million options to certain employees of the Company at a fair value of $2.0 million and $6.9 million for the nine months ended September 30, 2017 and 2016, 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:



	2017 Grants			2016 Grants
Risk-free interest rate	1.76		%	1.22		%
Expected volatility	21.65		%	23.76		%
Expected life of stock option	4.6 years			4.6 years
Dividend yield	1.42		%	1.59		%
Requisite service period	4 years			4 years
Contractual life	7 years			7 years
Weighted average fair value of options granted (per option)	$	10.80		$	9.30

The expected life of the options and volatility are based on historical data, which is believed to be indicative of future exercise patterns or actual volatility. Historical volatility is calculated based on a period that corresponds to the expected term 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, 2017 was $27.9 million and $21.2 million, respectively. The total intrinsic value of options exercised during the three months ended September 30, 2017 and 2016 was approximately $3.0 million and $2.4 million, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2017 and 2016 was approximately $6.3 million and $6.8 million, respectively.

The Company received approximately $3.2 million and $2.6 million in proceeds from the exercise of 99,971 and 104,442 employee stock options during the three months ended September 30, 2017 and 2016, respectively. The Company received approximately $9.8 million and $6.8 million in proceeds from the exercise of 257,167 and 297,398 employee stock options during the nine months ended September 30, 2017 and 2016, respectively.

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,
	2017		2016		2017		2016
Restricted share grants	21,562		21,357		167,142		188,509
Weighted average grant date fair value per share	$	62.34	$	48.03	$	61.19	$	51.21
Aggregate grant date fair value ($000)	$	1,344	$	1,026	$	10,227	$	9,654
Restricted shares forfeited	331		14,072		23,599		23,686
Vesting service period of shares granted	24 - 48 months		36 - 48 months		12 - 48 months		12 - 48 months
Fair value of shares vested ($000)	$	2,766	$	180	$	10,677	$	7,363

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 0% and 100% 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,
	2017		2016		2017		2016
Performance vested restricted stock units granted at target	3,545		10,387		162,523		89,944
Weighted average grant date fair value per share	$	62.00	$	48.14	$	60.63	$	47.85
Aggregate grant date fair value ($000)	$	220	$	500	$	9,853	$	4,304
Stock units forfeited	331		26,363		72,117		54,556
Requisite service period	30 months		9 - 24 months		30 - 36 months		9 - 43 months

No PVRSU grants vested during the three months ended September 30, 2017. During the nine months ended September 30, 2017, PVRSU grants totaling 38,329 vested at a grant date fair value of $1.8 million. Of these grants, PVRSU grants totaling 10,641 vested at a grant date fair value of $0.5 million. These grants were initially granted at a target of 21,282 units. However, since the Company achieved only 50% of the targeted performance conditions contained in the stock awards granted in prior periods, 10,641 shares were forfeited. Additionally, during the nine months ended September 30, 2017, PVRSU grants totaling 4,113 were forfeited since the Company did not achieve the targeted performance conditions contained in the stock awards granted in prior periods. Furthermore, during the nine months ended September 30, 2017, PVRSU grants totaling 24,572 vested at a grant date fair value of $1.1 million. These PVRSU grants were initially granted at a target of 15,081 units. However, since the Company achieved an average of 163% of the various targeted performance conditions contained in the stock awards granted in prior periods, an additional 9,491 shares were earned and issued. The remaining grants totaling 3,116 vested at a grant date fair value of $0.2 million, achieving 100% of the targeted performance conditions contained in the stock awards granted in prior periods.

No PVRSU grants vested during the three months ended September 30, 2016. During the nine months ended September 30, 2016, a total of 22,062 PVRSU grants vested at a grant date fair value of $0.8 million. These PVRSU grants were initially granted at a target of 44,118 units. However, since the Company achieved only 50% of the targeted performance conditions contained in the stock awards granted in prior periods, 22,056 shares were forfeited. In addition, during the nine months ended September 30, 2016, PVRSU grants totaling 6,126 vested at a grant date fair value of $0.2 million. These PVRSU grants were initially granted at a target of 4,083 units. However, since the Company achieved 150% of the targeted performance conditions contained in the stock awards granted in prior periods, an additional 2,043 shares were earned and issued.

A summary of stock-based award activity as of September 30, 2017 and changes during the nine 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, 2017	2,193,502		$	48.26		407,812		$	50.61	235,980		$	47.59
Granted	187,400		60.64			167,142		61.19		162,523		60.63
Performance based leveraging ⁽¹⁾										9,491		45.59
Exercised/Vested	(257,167	)	38.11			(177,050	)	49.99		(38,329	)	46.19
Expired	(10,133	)	56.95			—		—		—		—
Forfeited	(30,300	)	54.23			(23,599	)	54.68		(72,117	)	38.89
Outstanding at September 30, 2017	2,083,302		$	50.49	4.3 years	374,305		$	55.37	297,548		$	56.95
Options exercisable at September 30, 2017	1,376,077		$	48.47	3.9 years

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⁽¹⁾PVRSU units outstanding have been increased by 9,491 units due to the Company exceeding the targeted performance conditions contained in PVRSUs granted in prior periods during the nine months ended September 30, 2017.

The components of the Company’s pretax share-based compensation expense and associated income tax benefits are as follows for the three and nine months ended September 30, 2017 and 2016:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2017		2016		2017		2016
Stock options	$	6.4	$	1.0	$	8.6	$	3.6
Restricted stock	3.9		1.7		7.3		5.7
Performance vested restricted stock units	3.7		0.4		5.8		1.7
Total	$	14.0	$	3.1	$	21.7	$	11.0
Income tax benefits	$	5.2	$	1.1	$	8.0	$	4.1

In conjunction with the acceleration of the Company's chief executive officer succession plan, stock option, restricted stock and PVRSU expense for the three and nine months ended September 30, 2017, included an additional $5.5 million, $2.1 million and $2.5 million, respectively, of accelerated recognition of share based payment awards.

In conjunction with the termination of a Company officer, stock option, restricted stock and PVRSU expense for the three and nine months ended September 30, 2016, included an additional $0.4 million, $0.4 million and $0.1 million, respectively, of accelerated recognition of share based payment awards.

Dividends

The Company currently pays a quarterly dividend on its common stock of $0.215 per share, however the declaration of future dividends is subject to the discretion of the board of directors. During the three and nine months ended September 30, 2017, the Company's board of directors declared dividends totaling $0.215 and $0.645 per share or approximately $12.2 million and $36.5 million, in the aggregate.

In addition, during the nine months ended September 30, 2017, the Company recorded dividends totaling $0.1 million related to previously declared dividends that were contingent upon the vesting of performance vested restricted stock units.

Share Repurchases and Redemptions

The Company purchased 3,100 shares of common stock under the share repurchase program at a total cost of $0.2 million during the three and nine months ended September 30, 2017.

During the three and nine months ended September 30, 2017, the Company redeemed 20,934 and 142,068 shares of common stock at a total cost of approximately $1.3 million and $8.7 million, respectively, from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants. These redemptions were outside the share repurchase program.