2. Stock-based Compensation

The Company uses share-based payments to compensate employees and non-employee directors. The Company recognizes the cost of share-based payments under the fair-value-based method. Share-based awards consist of equity instruments in the form of stock options, restricted stock or restricted stock units that have included service conditions and, in certain cases, performance conditions. The Company’s share-based awards also included share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. The Company issues shares of common stock when vested stock options are exercised, when restricted stock is granted and when restricted stock units and share-settled performance unit awards vest.

Stock Options — The Company estimates the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of the Company’s common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on the Company’s experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. Weighted-average assumptions used to estimate the grant date fair values for stock options granted for the three and nine month periods ended September 30, 2016 and 2015 follow:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016			2015	2016			2015
Volatility		34.87	%	NA		35.11	%		37.95	%
Expected term (in years)		5.00		NA		5.00			5.00
Dividend yield		0.42	%	NA		2.05	%		2.00	%
Risk-free interest rate		1.20	%	NA		1.40	%		1.37	%

Stock option activity from January 1, 2016 to September 30, 2016 follows:

				Weighted
				Average
	Underlying			Exercise Price
	Shares			Per Share
Outstanding at January 1, 2016		6,307,250		$	21.68
Granted		969,900		$	18.40
Exercised		—		$	—
Cancelled		—		$	—
Expired		(550,000	)	$	28.26
Outstanding at September 30, 2016		6,727,150		$	20.67
Exercisable at September 30, 2016		5,266,379		$	20.91

Restricted Stock — For all restricted stock awards made to date, shares of common stock were issued when the awards were made. Non-vested shares are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Non-forfeitable dividends are paid on non-vested shares of restricted stock. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock activity from January 1, 2016 to September 30, 2016 follows:

				Weighted
				Average Grant
				Date Fair Value
	Shares			Per Share
Non-vested restricted stock outstanding at January 1, 2016		1,432,250		$	24.56
Granted		785,486		$	20.58
Vested		(709,008	)	$	24.66
Forfeited		(34,383	)	$	24.89
Non-vested restricted stock outstanding September 30, 2016		1,474,345		$	22.38

Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions. Non-forfeitable cash dividend equivalents are paid on certain non-vested restricted stock units. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity from January 1, 2016 to September 30, 2016 follows:

				Weighted
				Average Grant
				Date Fair Value
	Shares			Per Share
Non-vested restricted stock units outstanding at January 1, 2016		41,686		$	26.22
Granted		178,254		$	19.31
Vested		(15,033	)	$	27.30
Forfeited		(7,668	)	$	24.83
Non-vested restricted stock units outstanding September 30, 2016		197,239		$	19.94

Performance Unit Awards. The Company has granted stock-settled performance unit awards to certain executive officers (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance period for the Performance Units is the three year period commencing on April 1 of the year of grant, except that for the Performance Units granted in 2013 the performance period was extended pursuant to its terms, as described below.

The performance goals for the Performance Units are tied to the Company’s total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. These goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective performance units. Generally, the recipients will receive a target number of shares if the Company’s total shareholder return during the performance period is positive and, when compared to the peer group, is at the 50^th percentile. If the Company’s total shareholder return during the performance period is positive and, when compared to the peer group, is at the 75^th percentile or higher, then the recipients will receive two times the target number of shares. If the Company’s total shareholder return during the performance period is positive, and, when compared to the peer group, is at the 25^th percentile, then the recipients will only receive one-half of the target number of shares. If the Company’s total shareholder return during the performance period is positive and, when compared to the peer group, is between the 25^th and 75^th percentile, then the shares to be received by the recipients will be determined on a pro-rata basis. For the Performance Units awarded prior to 2016, there is no payout unless the Company’s total shareholder return is positive and, when compared to the peer group, is at or above the 25^thpercentile.

For the Performance Units granted in April 2016, if the Company’s total shareholder return is negative, and, when compared to the peer group is at or above the 25th percentile, then the recipients will receive one-half of the number of shares they would have received had the Company’s total shareholder return been positive.

In respect of the 2013 Performance Units, for which the performance period ended March 31, 2016, the Company’s total shareholder return for the performance period was negative, the Company’s total shareholder return for the performance period when compared to the peer group was above the 75^th percentile, and there was no payout; provided, however, that pursuant to the terms of those 2013 awards, if, during the two-year period ending March 31, 2018, the Company’s total shareholder return for any 30 consecutive day period equals or exceeds 18 percent on an annualized basis from April 1, 2013 through the last day of such 30 consecutive day period, and the recipient is actively employed by the Company through the last day of the extended performance period, then the Company will issue to the recipient the number of shares equal to the amount the recipient would have been entitled to receive had the Company’s total shareholder return been positive during the initial three year performance period.

The total target number of shares with respect to the Performance Units for the awards in 2012-2016 is set forth below:

	2016		2015		2014		2013		2012
	Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Target number of shares		185,000		190,600		154,000		236,500		192,000

Because the performance units are stock-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Performance Units is set forth below (in thousands):

	2016		2015		2014		2013		2012
	Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Fair value at date of grant	$	3,854	$	4,052	$	5,388	$	5,564	$	3,065

These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Performance Units is shown below (in thousands):

	2016		2015		2014		2013		2012
	Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Three months ended September 30, 2015	NA		$	338	$	449	$	464	NA
Three months ended September 30, 2016	$	321	$	338	$	449	NA		NA
Nine months ended September 30, 2015	NA		$	675	$	1,347	$	1,391	$	255
Nine months ended September 30, 2016	$	642	$	1,013	$	1,347	$	464	NA