Share-Based Compensation

During the nine months ended September 30, 2014, the Company granted approximately 0.5 million stock options, 0.1 million unvested shares and 0.1 million performance share units. During the nine months ended September 30, 2013, the Company granted approximately 0.6 million stock options, 0.2 million unvested shares and 0.1 million performance share units.

Weighted average option fair values and assumptions for the periods specified are disclosed below. The fair value of each option grant was estimated on the date of the grant using the Binomial lattice option pricing model.



	Three Months Ended September 30,
	2014	2013
Weighted average fair value of option grants	$20.34	$15.09
Dividend yield	1.44%	1.57%
Volatility	30.24%	30.65%
Risk-free forward interest rate	0.12% - 3.67%	0.11% - 4.60%
Expected life (in years)	5.87	5.85




	Nine Months Ended September 30,
	2014	2013
Weighted average fair value of option grants	$19.54	$12.94
Dividend yield	1.26%	1.57%
Volatility	30.36%	30.93%
Risk-free forward interest rate	0.12% - 4.66%	0.17% - 4.12%
Expected life (in years)	5.89	5.86

Weighted average performance share unit fair values and assumptions for the period specified are disclosed below. The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model.



	Three and Nine Months Ended September 30,
	2014	2013
Weighted average fair value of performance share units	$94.55	$50.45
Dividend yield	0.00%	0.00%
Volatility	26.41%	28.99%
Risk-free forward interest rate	0.65%	0.40%
Expected life (in years)	2.88	2.87

Total compensation cost for stock options is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Cost of goods sold	$	126		$	94		$	501		$	385
Selling, general and administrative expenses	1,411			1,238			5,026			4,659
Total expense before income taxes	1,537			1,332			5,527			5,044
Income tax benefit	(492		)	(439		)	(1,743		)	(1,620		)
Total expense after income taxes	$	1,045		$	893		$	3,784		$	3,424

Total compensation cost for unvested shares is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Cost of goods sold	$	259		$	338		$	1,424		$	1,065
Selling, general and administrative expenses	1,843			2,077			7,167			6,721
Total expense before income taxes	2,102			2,415			8,591			7,786
Income tax benefit	(447		)	(551		)	(1,778		)	(1,864		)
Total expense after income taxes	$	1,655		$	1,864		$	6,813		$	5,922

Total compensation cost for performance share units is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Cost of goods sold	$	—		$	—		$	—		$	—
Selling, general and administrative expenses	843			229			2,327			634
Total expense before income taxes	843			229			2,327			634
Income tax benefit	(294		)	(82		)	(768		)	(195		)
Total expense after income taxes	$	549		$	147		$	1,559		$	439

The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.

As of September 30, 2014, there was $11.6 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.4 years, $11.3 million of total unrecognized compensation cost related to unvested shares/units that is expected to be recognized over a weighted-average period of 1.0 years, and $6.2 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.1 years.

A summary of the Company’s stock option activity as of September 30, 2014, and changes during the nine months ended September 30, 2014, is presented in the following table:



Stock Options	Shares		Weighted Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2014	2,516,618		$	39.60	6.87	$	86,200,655
Granted	511,850		72.80
Exercised	(398,579	)	34.56
Forfeited/Expired	(107,984	)	50.23
Outstanding at September 30, 2014	2,521,905		$	46.68	6.91	$	65,012,309
Vested and expected to vest as of September 30, 2014	2,397,330		$	45.92	6.81	$	63,608,285
Exercisable at September 30, 2014	1,239,830		$	36.47	5.40	$	44,513,426