7. Stock-based Compensation

The amended and restated 2005 Long-Term Incentive Plan (the “LTIP”) provides for the grant to eligible persons of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance awards, dividend equivalents and other stock-based awards, which are collectively referred to as the awards.

Under the LTIP, the board of directors granted restricted stock units and performance stock units (collectively, the “stock units”) to certain employee participants each year starting in 2007. The restricted stock units vest on the third anniversary of the grant date, assuming continued employment by the participant. Performance stock units granted in 2011 have a two-year performance objective. Performance stock units granted after 2011 have three-year performance objectives. Regardless of whether the measurement period for the applicable performance objective is two or three years, all performance stock units have a three-year period for vesting (if the applicable performance objective is obtained). The applicable performance objective is based upon a multi-year cumulative value creation calculation commencing on the first day of each grant year. The number of performance stock units granted represents the target award and participants have the ability to earn between zero and 150 percent of the target award based upon actual performance. If minimum performance criteria are not achieved, no performance stock units will vest.

Dividends declared on the Company’s common stock during the restriction period of the stock units are credited at equivalent value as additional stock units and become payable as additional common shares upon vesting. In the event of termination of employment, other than retirement, death or disability, any non-vested stock units are forfeited, including additional stock units credited from dividends. In the event of termination of employment due to retirement, death or disability, pro-rata vesting of the stock units over the service period will result for most participants. There are special vesting provisions for the stock units related to a change in control.

Restricted stock units that vest immediately or have one-year vesting periods are also issued under the LTIP to members of the board of directors in connection with annual director compensation and, from time to time, are issued to members of management in connection with employee compensation.

Compensation expense for non-vested stock units is recorded over the vesting period based on the fair value at the date of grant. The fair value of stock units is the market price of the underlying common stock on the date of grant.

The following table shows a summary of the performance stock units as of June 30, 2013:


Performance Period	Minimum Shares		Target Shares		Maximum Shares
2012 – 2014		0		98,453		147,680
2013 – 2015		0		95,858		143,787

The following table shows a summary of the status and activity of non-vested stock awards for the six months ended June 30, 2013:


	Restricted Stock Units			Performance Stock Units			Total Stock Units			Weighted Average Grant Date Fair Value per Unit
Non-vested at December 31, 2012		136,098			268,677			404,775		$	36.11
Granted		62,276			97,318			159,594		$	42.64
Credited from dividends		3,526			7,064			10,590		$	35.17
Performance stock unit adjustment		0			43,921			43,921		$	40.09
Vested		(46,314	)		(85,798	)		(132,112	)	$	29.81
Forfeited		(2,059	)		(3,084	)		(5,143	)	$	40.34

Non-vested at June 30, 2013		153,527			328,098			481,625		$	40.29

Stock options to most executive officers vest and become exercisable upon the completion of a three-year service period commencing on the grant date. The stock options have a term of 10 years. In the event of termination of employment, other than retirement, death or disability, any non-vested options are forfeited for most participants. In the event of termination of employment due to retirement, death or disability, pro-rata vesting of the options over the service period will result for most participants. There are special vesting provisions for the stock options related to a change in control.

In accordance with accounting standards, compensation expense for non-vested stock options is recorded over the vesting period based on the fair value at the date of grant. The fair value of stock options on the date of grant is calculated using the Black-Scholes-Merton model and the assumptions listed below:


	February 2013 Grant			February 2012 Grant			February 2011 Grant			August 2010 Grant
Grant date price per share of option award	$	42.76		$	38.21		$	40.26		$	20.00
Expected dividend yield per share		2.75	%		2.75	%		2.50	%		2.50	%
Expected life in years		6.5			6.5			6.5			6.5
Expected volatility		53.77	%		55.06	%		60.00	%		62.00	%
Risk-free interest rate		1.29	%		1.34	%		3.02	%		3.05	%
Grant date fair value per share of option awards	$	17.28		$	15.82		$	19.28		$	9.82

The dividend yield is based on the Company’s current and prospective dividend rate which calculates a continuous dividend yield based upon the market price of the underlying common stock. The expected life in years is based on the simplified method permitted under Securities and Exchange Commission Staff Accounting Bulletin No. 14d.2 which calculates the average of the weighted vesting term and the contractual term of the option. This method was selected due to the lack of historical exercise data with respect to the Company. Expected volatility is based on the historical volatility of the Company’s common stock and the historical volatility of certain other similar public companies. The risk-free interest rate is based on U.S. Treasury bill rates for the expected life of the option.

The following table shows a summary of the status and activity of stock options for the six months ended June 30, 2013:


	Options			Weighted Average Exercise Price per Option		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2012		331,799		$	34.07
Granted		94,532		$	42.76
Exercised		(5,251	)	$	39.04
Outstanding at June 30, 2013		421,080		$	35.96		7.36	$	1.6
Exercisable at June 30, 2013		111,598		$	29.86		4.55	$	1.0

Total stock-based compensation expense recognized for the three and six months ended June 30, 2013 and 2012 is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
(Dollars in millions)
Stock-based compensation expense recognized:
Selling, general and administrative expenses	$	1.4	$	1.7	$	2.8	$	3.2
Less related income tax benefit		0.5		0.7		1.1		1.3

	$	0.9	$	1.0	$	1.7	$	1.9

As of June 30, 2013, total future compensation expense related to non-vested stock-based compensation arrangements totaled $9.9 million and the weighted-average period over which this cost is expected to be recognized is approximately 22 months.