3. 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 have also included both cash-settled and share-settled performance unit awards. Cash-settled performance unit awards were 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 nine month periods ended September 30, 2012 and 2011 follow:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Volatility		47.57	%		NA		48.83	%		45.97	%
Expected term (in years)		5.00			NA		5.00			5.00
Dividend yield		1.16	%		NA		1.21	%		0.67	%
Risk-free interest rate		0.72	%		NA		0.88	%		2.34	%

Stock option activity from January 1, 2012 to September 30, 2012 follows:


	Underlying Shares			Weighted Average Exercise Price
Outstanding at January 1, 2012		7,081,295		$	20.73
Granted		790,000		$	16.54
Exercised		(17,800	)	$	14.64

Outstanding at September 30, 2012		7,853,495		$	20.33

Exercisable at September 30, 2012		6,669,491		$	20.61

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. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock activity from January 1, 2012 to September 30, 2012 follows:


	Shares			Weighted Average Grant Date Fair Value
Non-vested restricted stock outstanding at January 1, 2012		1,213,799		$	24.13
Granted		791,650		$	15.61
Vested		(568,679	)	$	22.21
Forfeited		(90,052	)	$	21.19

Non-vested restricted stock outstanding at September 30, 2012		1,346,718		$	20.12

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 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, 2012 to September 30, 2012 follows:


	Shares			Weighted Average Grant Date Fair Value
Non-vested restricted stock units outstanding at January 1, 2012		17,501		$	23.47
Granted		9,000		$	14.91
Vested		(7,830	)	$	21.08
Forfeited		(1,001	)	$	25.02

Non-vested restricted stock units outstanding at September 30, 2012		17,670		$	20.08

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 provided for those executive officers to receive a cash payment upon the achievement of certain performance goals established by the Compensation Committee during a specified period. The performance period for the 2009 Performance Units was the period from April 1, 2009 through March 31, 2012. The performance goals for the 2009 Performance Units were 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 were 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 performance units. Generally, the recipients would receive a target payment if the Company’s total shareholder return was positive and, when compared to the peer group, was at or above the 50^th percentile but less than the 75^th percentile and two times the target if at the 75^th percentile or higher. If the Company’s total shareholder return was positive, and, when compared to the peer group, was at or above the 25^th percentile but less than the 50^th percentile, the recipients would only receive one-half of the target payment. The total target amount with respect to the 2009 Performance Units was approximately $3.4 million. Because the 2009 Performance Units were settled in cash at the end of the performance period, they were accounted for as liability awards and the Company’s pro-rated obligation was measured at estimated fair value at the end of each reporting period using a Monte Carlo simulation model. The performance period ended on March 31, 2012 and the Company’s total shareholder return was at the 46^th percentile. The resulting cash payments totaling $1.7 million were paid in April 2012. For the 2009 Performance Units, no compensation expense was recognized for the three month period ended September 30, 2012, and a compensation benefit of approximately $1.9 million was recognized for the nine months ended September 30, 2012. No compensation expense was recognized for the three month period ended September 30, 2011 and approximately $2.2 million in compensation expense was recognized for the nine month period ended September 30, 2011.

In 2010, 2011 and 2012, the Company granted stock-settled performance unit awards to certain executive officers (the “Stock-Settled Performance Units”). The Stock-Settled Performance Units provide for the recipients to receive a grant of shares of stock upon the achievement of certain performance goals established by the Compensation Committee during the performance period. The performance period for the Stock-Settled Performance Units is the three year period commencing on April 1 of the year of grant, but can extend for an additional two years in certain circumstances. The performance goals for the Stock-Settled 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 performance units. Generally, the recipients will receive a target number of shares if the Company’s total shareholder return is positive and, when compared to the peer group, is at the 50^th percentile and two times the target if at the 75^th percentile or higher. If the Company’s total shareholder return is positive, and, when compared to the peer group, is at the 25^th percentile, the recipients will only receive one-half of the target number of shares. 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 target number of shares with respect to the Stock-Settled Performance Units is set forth below:


	2012 Performance Unit Awards		2011 Performance Unit Awards		2010 Performance Unit Awards
Target number of shares		192,000		144,375		178,750

Because the Stock-Settled 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 Stock-Settled Performance Units is set forth below (in thousands):


	2012 Performance Unit Awards		2011 Performance Unit Awards		2010 Performance Unit Awards
Fair value at date of grant	$	3,065	$	5,569	$	3,117

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock-based compensation expense associated with Stock-Settled Performance Units	$	979	$	724	$	2,682	$	1,707