Stock-Based Compensation Plans

3 Months Ended

Mar. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Plans

Stock-Based Compensation Plans

Share-based compensation expense was $6 million and $5 million for the three months ended March 31, 2013 and 2012, respectively. The unamortized compensation expense related to our stock options, restricted shares and performance based shares was $16 million, $29 million and $3 million, respectively, at March 31, 2013 and is expected to be recognized over a weighted average period of 2.1, 2.1 and 2.9 years, respectively. The amount of cash received from the exercise of stock options was less than $1 million for the three months ended March 31, 2013. We classify as a financing activity the cash flows attributable to excess tax benefits arising from stock option exercises and restricted stock lapses.

Restricted Stock Grants

The following is a summary of restricted stock activity for the three months ended March 31, 2013:

(in thousands, except for per share amounts)	Shares		Weighted Average Grant Date Fair Value /Share
Outstanding at December 31, 2012	1,588		$	26.92
Granted	447		$	27.45
Vested	(209	)	$	30.00
Forfeited	(19	)	$	28.85
Outstanding at March 31, 2013	1,807		$	26.68

Performance-Based Share Grants

As part of the annual March 2013 grant under the long-term incentive plan, performance-based shares were granted to all executive officers of the Company. The performance-based shares vest based upon performance by the Company over a three-year period against targets approved by the compensation committee of the Company's Board of Directors prior to the grant date. For the 2013-2015 performance period, the performance-based shares were granted at a target of 100% with actual payout contingent upon the achievement of a pre-set, three-year adjusted Return on Invested Capital and cumulative adjusted net income performance target. Compensation costs resulting from share-based payment transactions are recognized primarily within selling, general and administrative expenses, at fair value over the requisite service period (typically three years) on a straight-line basis. The calculated compensation cost is adjusted based on an estimate of awards ultimately expected to vest and our assessment of the probable outcome of the performance condition. The fair value of performance-based share awards at 100% target is determined using the closing price of our common stock on date of grant.

The following is a summary of performance-based share grants for the three months ended March 31, 2013:

(in thousands, except for per share amounts)	Shares	Weighted Average Grant Date Fair Value /Share
Outstanding at December 31, 2012	—	$	—
Granted	119	$	27.49
Vested	—	$	—
Forfeited	—	$	—
Outstanding at March 31, 2013	119	$	27.49

Stock Option Grants

The following is a summary of the changes in outstanding stock options for the three months ended March 31,2013:

(in thousands, except for per share amounts)	Shares		Weighted Average Exercise Price /Share		Weighted  Average Remaining Contractual Term (Years)
Outstanding at December 31, 2012	4,083		$	26.46	6.4
Granted	813		$	27.43	10.0
Exercised	(23	)	$	20.03	3.4
Forfeited	(176	)	$	29.52	0.1
Outstanding at March 31, 2013	4,697		$	26.54	7.3
Options exercisable at March 31, 2013	2,293		$	26.22	5.2

The aggregate intrinsic value of all outstanding and exercisable stock options as of March 31, 2013 was $9.4 million and $6.5 million, respectively. The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during the three months ended March 31, 2013 was less than $1 million.

Stock Option Fair Value

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions for our annual March grants in 2013.

Dividend yield	1.69%
Volatility	31.10%
Risk-free interest rate	1.27%
Expected term (in years)	6.6
Weighted-average fair value / share	$7.58

Expected volatility is calculated based on an analysis of historic and implied volatility measures for a set of peer companies. We use historical data to estimate option exercise and employee termination behavior within the valuation model. Employee groups and option characteristics are considered separately for valuation purposes. The expected term represents an estimate of the period of time options are expected to remain outstanding. The expected term provided above represents the weighted average of expected behavior for certain groups of employees who have historically exhibited different behavior. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.