Share-Based Compensation

Stock Options

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 March 31,
	2017	2016
Weighted average fair value of option grants	$24.11	$18.40
Dividend yield	1.45%	1.70%
Volatility	29.41%	29.71%
Risk-free forward interest rate	0.82% - 3.04%	0.53% - 2.50%
Expected life (in years)	5.83	5.91

Total compensation cost for stock options is as follows:



	Three Months Ended March 31,
	2017			2016
Cost of goods sold	$	186		$	119
Selling, general and administrative expenses	2,284			2,295
Total expense before income taxes	2,470			2,414
Income tax benefit	(747		)	(760		)
Total expense after income taxes	$	1,723		$	1,654

A summary of the Company’s stock option activity as of March 31, 2017, and changes during the three months ended March 31, 2017, are presented in the following table:



Stock Options	Shares		Weighted Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2017	1,987,946		$	61.83	6.84	$	56,144,876
Granted	427,895		93.17
Exercised	(110,112	)	55.17
Forfeited	(25,755	)	77.15
Outstanding at March 31, 2017	2,279,974		$	67.87	7.25	$	58,471,654
Vested and expected to vest as of March 31, 2017	2,117,100		$	66.61	7.10	$	56,949,565
Exercisable at March 31, 2017	1,188,689		$	54.28	5.67	$	46,633,546

Restricted Stock

Restricted stock awards generally cliff vest after three years for employees and non-employee directors. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. A summary of the Company’s restricted stock activity as of March 31, 2017, and changes during the three months ended March 31, 2017, are presented as follows:



Restricted Stock	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2017	217,898		$	76.19
Granted	55,440		93.05
Vested	(62,994	)	71.02
Forfeited	(11,725	)	79.24
Unvested at March 31, 2017	198,619		$	82.36

Dividends are paid on restricted stock awards, whose fair value is equal to the market price of the Company’s stock at the date of the grant.

Total compensation cost for restricted shares is as follows:



	Three Months Ended March 31,
	2017			2016
Cost of goods sold	$	152		$	128
Selling, general and administrative expenses	1,253			1,530
Total expense before income taxes	1,405			1,658
Income tax benefit	(439		)	(513		)
Total expense after income taxes	$	966		$	1,145

Cash-Settled Restricted Stock

The Company also maintains a cash-settled share based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after three years. A summary of the Company’s unvested cash-settled restricted stock activity as of March 31, 2017, and changes during the three months ended March 31, 2017, are presented in the following table:



Cash-Settled Restricted Stock	Shares		Weighted-Average Fair Value
Unvested at January 1, 2017	103,790		$	90.06
Granted	33,505		93.51
Vested	(26,300	)	91.96
Forfeited	(7,550	)	93.51
Unvested at March 31, 2017	103,445		$	93.51

Dividend equivalents are paid on certain cash-settled restricted stock awards. Total compensation cost for cash-settled restricted stock is as follows:



	Three Months Ended March 31,
	2017			2016
Cost of goods sold	$	248		$	189
Selling, general and administrative expenses	430			500
Total expense before income taxes	678			689
Income tax benefit	(142		)	(98		)
Total expense after income taxes	$	536		$	591

Performance Share Units

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 Months Ended March 31,
	2017	2016
Weighted average fair value of performance share units	$115.74	$111.42
Dividend yield	—%	—%
Volatility	17.36%	17.99%
Risk-free forward interest rate	1.45%	0.89%
Expected life (in years)	2.85	2.86

A summary of the Company’s performance share unit activity as of March 31, 2017, and changes during the three months ended March 31, 2017, are presented in the following table:



Performance Share Units	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2017	137,055		$	104.18
Granted	65,530		115.76
Vested	—		—
Forfeited and other	(3,925	)	100.95
Unvested at March 31, 2017	198,660		$	108.06

The Company granted 63,325 performance share units in February 2014, which vested on December 31, 2016. Based on the Company’s relative total shareholder return rank during the three year period ended December 31, 2016, the Company achieved a 141% payout that resulted in 89,288 shares issued in February 2017.

Total compensation cost for performance share units is as follows:



	Three Months Ended March 31,
	2017			2016
Cost of goods sold	$	—		$	—
Selling, general and administrative expenses	1,606			1,681
Total expense before income taxes	1,606			1,681
Income tax benefit	(507		)	(535		)
Total expense after income taxes	$	1,099		$	1,146

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 March 31, 2017, there was $16.6 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.6 years, $7.5 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.2 years, $4.6 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.2 years, and $10.7 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.2 years.