4. 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 and have included service and, in certain cases, performance conditions. The Company’s share-based awards also include both cash-settled and share-settled performance unit awards. Cash-settled performance unit awards are accounted for as liability 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 the 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 in the three and six month periods ended June 30, 2011 and 2010 follow:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Volatility		45.82	%		45.92	%		45.97	%		45.98	%
Expected term (in years)		5.00			5.00			5.00			5.00
Dividend yield		0.64	%		1.35	%		0.67	%		1.35	%
Risk-free interest rate		2.38	%		2.46	%		2.34	%		2.47	%

Stock option activity from January 1, 2011 to June 30, 2011 follows:


	Underlying Shares			Weighted Average Exercise Price
Outstanding at January 1, 2011		7,710,102		$	19.58
Granted		419,500		$	30.28
Exercised		(748,002	)	$	17.39

Outstanding at June 30, 2011		7,381,600		$	20.41

Exercisable at June 30, 2011		6,027,308		$	20.68

Restricted Stock. For all restricted stock awards 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. For restricted stock awards made prior to 2008, the Company uses the “graded-vesting” attribution method to recognize periodic compensation cost over the vesting period. For restricted stock awards made in 2008 and thereafter, the Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock activity from January 1, 2011 to June 30, 2011 follows:


	Shares			Weighted Average Grant Date Fair Value
Non-vested restricted stock outstanding at January 1, 2011		1,114,051		$	16.05
Granted		767,300		$	30.71
Vested		(492,714	)	$	18.20
Forfeited		(19,282	)	$	19.62

Non-vested restricted stock outstanding at June 30, 2011		1,369,355		$	23.44

Restricted Stock Units. For all restricted stock unit awards made to date, shares of common stock will not be 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 non-vested restricted stock units.

Restricted stock unit activity from January 1, 2011 to June 30, 2011 follows:


	Shares			Weighted Average Grant Date Fair Value
Non-vested restricted stock units outstanding at January 1, 2011		17,834		$	19.73
Granted		10,000		$	30.63
Vested		(10,333	)	$	23.94
Forfeited		—		$	—

Non-vested restricted stock units outstanding at June 30, 2011		17,501		$	23.47

Performance Unit Awards. In 2009, the Company granted cash-settled performance unit awards to certain executive officers (the “2009 Performance Units”). The 2009 Performance Units provide for those executive officers to receive a cash payment upon the achievement of certain performance goals established by the Company during a specified period. The performance period for the 2009 Performance Units is the period from April 1, 2009 through March 31, 2012, but can extend through March 31, 2014 in certain circumstances. The performance goals for the 2009 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 of the Board of Directors. These goals are considered to be market conditions under the relevant accounting standards and the market conditions are factored into the determination of the fair value of the performance units. Generally, the recipients will receive a base payment if the Company’s total shareholder return is positive and, when compared to the peer group, is at or above the 25^th percentile but less than the 50^th percentile, two times the base if at or above the 50^th percentile but less than the 75^th percentile, and four times the base if at the 75^th percentile or higher. The total base amount with respect to the 2009 Performance Units is approximately $1.7 million. Because the 2009 Performance Units are to be settled in cash at the end of the performance period, they are accounted for as liability awards and the Company’s pro-rated obligation is measured at estimated fair value at the end of each reporting period using a Monte Carlo simulation model. As of June 30, 2011 this pro-rated obligation was approximately $4.6 million and is included in the caption “accrued expenses” in the liabilities section of the consolidated balance sheet. Compensation expense associated with the 2009 Performance Units was approximately $1.0 million and $2.2 million for the three and six month periods ended June 30, 2011, respectively. Compensation expense associated with the 2009 Performance Units was approximately $361,000 and $57,000 for the three and six month periods ended June 30, 2010, respectively.

In 2010 and 2011, the Company granted stock-settled performance unit awards to certain executive officers (the “2010 Performance Units” and the “2011 Performance Units”, respectively). The 2010 Performance Units and the 2011 Performance Units provide for those executive officers to receive a grant of shares of stock upon the achievement of certain performance goals established by the Company during a specified period. The performance period for the 2010 Performance Units is the period from April 1, 2010 through March 31, 2013, but can extend through March 31, 2015 in certain circumstances. The performance period for the 2011 Performance Units is the period from April 1, 2011 through March 31, 2014, but can extend through March 31, 2016 in certain circumstances. The performance goals for the 2010 Performance Units and the 2011 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 of the Board of Directors. These goals are considered to be market conditions under the relevant accounting standards and the market conditions are factored into the determination of the fair value of the respective performance units. Generally, the recipients will receive a base number of shares if the Company’s total shareholder return is positive and, when compared to the peer group, is at or above the 25^th percentile but less than the 50^th percentile, two times the base if at or above the 50^th percentile but less than the 75^th percentile, and four times the base if at the 75^th percentile or higher. The grant of shares when achievement is between the 25^th and 75^th percentile will be determined on a pro-rata basis. The total base number of shares with respect to the 2010 Performance Units is 89,375 shares and the total base number of shares with respect to the 2011 Performance Units is 72,188 shares. Because the 2010 and 2011 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 2010 Performance Units as of the date of grant was approximately $3.1 million and the fair value of the 2011 Performance Units as of the date of grant was approximately $5.6 million. This fair value is recognized on a straight-line basis over the performance period. Compensation expense associated with the 2010 Performance Units was approximately $260,000 and $520,000 for the three and six month periods ended June 30, 2011, respectively. Compensation expense associated with the 2011 Performance Units was approximately $464,000 for the three and six month periods ended June 30, 2011.