Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation Plans

Stock-Based Compensation Plans

9.  Stock-Based Compensation Plans

Information with respect to stock options granted under the Company’s 1994 Stock Option and Incentive Plan (the “1994 Plan”) and its 2009 Stock Option and Incentive Plan (the “2009 Plan”) are as follows (dollars in thousands, other than per share amounts):

			Weighted				Weighted
			average				average
	2009 Plan		exercise price		1994 Plan		exercise price
	shares		per share		shares		per share
Options Outstanding, December 31, 2012	307,554		$	112.67	719,830		$	105.40
Exercised	(9,939	)	94.73		(23,961	)	79.84
Granted	215,230		129.03		—		—
Forfeited	(1,267	)	131.56		(4,012	)	127.56
Options Outstanding, September 30, 2013	511,578		$	119.85	691,857		$	106.16
Options Exercisable September 30, 2013	194,177		$	105.48	691,857		$	106.16

The weighted average fair value of the options granted under the 2009 Plan during the nine months ended September 30, 2013 is estimated at $26.78 per share on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: dividend yield of 3.7% over the expected life of the option, volatility of 34.0%, risk-free interest rate of 0.9% and an expected life of approximately 5 years.

During 2013, the Company adopted a revised compensation framework under which share-based compensation will be granted, composed of annual awards and multiyear long term incentive performance awards.  Annual awards will include restricted stock awards for which one third of the award will vest annually over a three year period following the measurement period.  Under the multiyear long term incentive component of the revised framework, the Company will grant a target number of restricted stock units, with the ultimate award determined by the total shareholder return of the Company’s common stock over a three-year measurement period.  The share-based compensation earned will be in the form of restricted stock, or upon election of the recipient up to 25% in the form of stock options, for which one third of the award will vest annually over a three year period following the measurement period.

During the nine months ended September 30, 2013, the Company issued 123,977 shares of restricted stock with a fair value of $16,019,000. In addition, the Company granted awards for restricted stock units, with an estimated aggregate compensation cost of $21,011,000.  The grant of restricted stock units includes an award which matures at the end of 2015 as well as two transitional awards that mature at the end of 2013 and 2014.  The restricted stock units were valued using a Monte Carlo model with the following weighted average assumptions:  baseline share value of $130.23, a dividend yield of 2.8%, estimated volatility figures over the life of the plan using 50% historical volatility and 50% implied volatility and risk free rates over the life of the plan ranging from 0.08% to 0.37%, resulting in an average estimated fair value per restricted stock unit of $110.00.

At September 30, 2013, the Company had 190,144 outstanding unvested shares granted under restricted stock awards. Restricted stock vesting during the nine months ended September 30, 2013 totaled 134,209 shares and had fair values at the grant date ranging from $48.60 to $149.05 per share.  The total grant date fair value of shares vested was $13,857,000 and $36,232,000 for the nine months ended September 30, 2013 and 2012, respectively.

Total employee stock-based compensation cost recognized in income was $16,768,000 and $8,394,000 for the nine months ended September 30, 2013 and 2012, respectively, and total capitalized stock-based compensation cost was $5,911,000 and $3,877,000 for the nine months ended September 30, 2013 and 2012, respectively.  At September 30, 2013, there was a total of $3,421,000 and $9,451,000 in unrecognized compensation cost for unvested stock options and unvested restricted stock, respectively, which does not include estimated forfeitures. The unrecognized compensation cost for unvested stock options and restricted stock is expected to be recognized over a weighted average period of 2.00 years and 2.62 years, respectively.