11. 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 include 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 include 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. No options were granted in the three or nine months ended September 30, 2018 or 2017.

Stock option activity from January 1, 2018 to September 30, 2018 follows:

				Weighted
				Average
	Underlying			Exercise Price
	Shares			Per Share
Outstanding at January 1, 2018		6,037,150		$	20.35
Exercised		(40,000	)	$	12.12
Expired		(496,000	)	$	29.01
Outstanding at September 30, 2018		5,501,150		$	19.63
Exercisable at September 30, 2018		5,291,863		$	19.67

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, 2018 to September 30, 2018 follows:

				Weighted
				Average Grant
				Date Fair Value
	Shares			Per Share
Non-vested restricted stock outstanding at January 1, 2018		1,530,338		$	21.41
Vested		(1,021,465	)	$	21.46
Forfeited		(6,053	)	$	21.56
Non-vested restricted stock outstanding at September 30, 2018		502,820		$	21.31

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 and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units and will be paid upon vesting. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity from January 1, 2018 to September 30, 2018 follows:

				Weighted
				Average Grant
				Date Fair Value
	Shares			Per Share
Non-vested restricted stock units outstanding at January 1, 2018		1,337,273		$	19.80
Granted		2,081,065		$	18.95
Vested		(415,333	)	$	19.58
Forfeited		(95,567	)	$	19.52
Non-vested restricted stock units outstanding at September 30, 2018		2,907,438		$	19.23

Performance Unit Awards. The Company has granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of common 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 2017 the three-year performance period commenced on May 1.

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, when compared to the peer group, is at the 50^th percentile. If the Company’s total shareholder return during the performance period, 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, 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, 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 using linear interpolation for levels of achievement between these points.

In April 2018, 381,200 shares were issued to settle the 2015 Performance Units. For the Performance Units granted in April 2016, if the Company’s total shareholder return for the performance period 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. For the Performance Units granted in May 2017 and April 2018, the payout is based on relative performance and does not have an absolute performance requirement.

The total target number of shares with respect to the Performance Units for the awards granted in 2014-2018 is set forth below:

	2018		2017		2016		2015		2014
	Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Target number of shares		310,700		186,198		185,000		190,600		154,000

Because the performance units are share-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):

	2018		2017		2016		2015		2014
	Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Fair value at date of grant	$	8,004	$	5,780	$	3,854	$	4,052	$	5,388

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):

	2018		2017		2016		2015		2014
	Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Three months ended September 30, 2018	$	667	$	482	$	321	NA		NA
Three months ended September 30, 2017	NA		$	482	$	321	$	338	NA
Nine months ended September 30, 2018	$	1,334	$	1,445	$	963	$	338	NA
Nine months ended September 30, 2017	NA		$	803	$	963	$	1,013	$	449