THG 2018 Annual Report

The intrinsic value of restricted stock and restricted stock units that vested during the years ended December 31, 2018, 2017 and 2016 was $2.9 million, $2.3 million and $5.4 million, respectively. The intrinsic value for performance and market-based restricted stock units that vested in 2018, 2017 and 2016 was $0.6 million, $0.6 million and $5.8 million, respectively. There were 10,330 shares, 53,840 shares and 63,740 shares of market-based awards that forfeited in 2018, 2017 and 2016, respectively. Also, during 2018 and 2017, there were 43,449 shares and 1,090 shares, respectively, of performance-based awards that forfeited. At December 31, 2018, the aggregate intrinsic value of restricted stock units was $39.1 million and the weighted average remaining contractual life was 1.3 years. The aggregate intrinsic value of market-based restricted stock units was $8.2 million and the weighted average remaining contractual life was 1.4 years. As of December 31, 2018, there was $19.7 million of total unrecognized compensation cost related to unvested restricted stock units and performance and market-based restricted stock units. The cost is expected to be recognized over a weighted average period of 1.8 years. Compensation cost associated with restricted stock, restricted stock units and performance and market-based restricted stock units is generally calculated based upon grant date fair value, which is determined using current market prices. ($51,1*6 3(5 6+$5( $1' 6+$5(+2/'(56¶ (48,7< 75$16$&7,216 7KH IROORZLQJ WDEOH SURYLGHV ZHLJKWHG DYHUDJH VKDUH LQIRUPDWLRQ XVHG LQ WKH FDOFXODWLRQ RI WKH &RPSDQ\¶V EDVLF DQG GLOXWHG HD rnings per share: DECEMBER 31 2018 2017 2016 (in millions, except per share data) Basic shares used in the calculation of earnings per share 42.4 42.5 42.8 Dilutive effect of securities: Employee stock options 0.3 0.3 0.2 Non-vested stock grants 0.3 0.2 0.2 Diluted shares used in the calculation of earnings per share 43.0 43.0 43.2 Per share effect of dilutive securities on income from continuing operations $ (0.07) $ (0.05) $ (0.04) Per share effect of dilutive securities on net income $ (0.12) $ (0.05) $ (0.04) Diluted earnings per share during 2018, 2017 and 2016 excludes 0.3 million, 0.4 million and 0.6 million, respectively, of common shares LVVXDEOH XQGHU WKH &RPSDQ\¶V VWRFN FRPSHQVDWLRQ SODQV EHFDXVH WKHLU HIIHFW ZRXOG EH DQWLGLOXWLYH Prior to December 30, 2018, the Board of Directors had authorized a stock repurchase program, which, including subsequent amendments to increase the number of shares subject to repurchase, provided for aggregate repurchases of up to $900 million. This program was terminated on December 30, 2018 in conjunction with the establishment of the new program discussed below. Prior to termination, the Company purchased 0.5 million shares of its common stock at a cost of $57.7 million during 2018. Total repurchases under this program were 14.9 million at a cost of $811.2 million. On December 30, 2018, the Board of Directors authorized a new stock repurchase program which provides for aggregate repurchases of up to $600 million. Under the repurchase authorization, the Company may repurchase, from time to time, common shares in amounts, at prices and at such times as the Company deems appropriate, subject to market conditions and other considerations. Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated repurchase programs or other transactions. The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program. As of December 31, 2018, the Company had $600.0 million available for repurchases under this repurchase authorization. On January 2, 2019, pursuant to the terms of an accelerated share repurchase ³$65´ DJUHHPHQW H[HFXWHG RQ 'HFHPEHU WKH &RPSDQ\ SDLG PLOOLRQ DQG UHFHLYHG DQ LQLWLDO GHO ivery of approximately 1.8 million shares of common stock, which is approximately 80% of the total number of shares expected to be repurchased under this agreement. On December 30, 2018, the Board of Directors of the Company declared a special dividend of $4.75 per share to be paid on January 25, 2019. The Company held liabilities of $193.4 million at December 31, 2018 for payment of this obligation. 13. DIVIDEND RESTRICTIONS U.S. INSURANCE SUBSIDIARIES The individual law of all states, including New Hampshire and Michigan, where Hanover Insurance and Citizens are domiciled, respectively, restrict the payment of dividends to stockholders by insurers. These laws affect the dividend paying ability of Hanover Insurance and Citizens. 117 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP