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 June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Weighted average fair value of option grants	$24.68	$20.60	$24.12	$18.41
Dividend yield	1.43%	1.63%	1.45%	1.70%
Volatility	29.32%	29.62%	29.41%	29.71%
Risk-free forward interest rate	1.06%-2.90%	0.60% - 2.56%	0.83%-3.04%	0.53% - 2.50%
Expected life (in years)	5.82	5.91	5.83	5.91

Total compensation cost for stock options is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Cost of goods sold	$	88		$	143		$	274		$	262
Selling, general and administrative expenses	1,599			1,511			3,883			3,806
Total expense before income taxes	1,687			1,654			4,157			4,068
Income tax benefit	(547		)	(526		)	(1,294		)	(1,286		)
Total expense after income taxes	$	1,140		$	1,128		$	2,863		$	2,782

A summary of the Company’s stock option activity as of June 30, 2017, and changes during the six months ended June 30, 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	437,500		93.22
Exercised	(231,932	)	55.98
Forfeited	(37,642	)	77.76
Outstanding at June 30, 2017	2,155,872		$	68.56	7.08	$	95,835,269
Vested and expected to vest as of June 30, 2017	2,012,365		$	67.41	6.95	$	91,759,774
Exercisable at June 30, 2017	1,078,817		$	54.24	5.43	$	63,406,719

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 June 30, 2017, and changes during the six months ended June 30, 2017, are presented as follows:



Restricted Stock	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2017	217,898		$	76.19
Granted	57,930		93.16
Vested	(72,744	)	71.89
Forfeited	(8,495	)	78.14
Unvested at June 30, 2017	194,589		$	82.76

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Cost of goods sold	$	67		$	133		$	219		$	261
Selling, general and administrative expenses	1,306			968			2,559			2,498
Total expense before income taxes	1,373			1,101			2,778			2,759
Income tax benefit	(486		)	(324		)	(925		)	(837		)
Total expense after income taxes	$	887		$	777		$	1,853		$	1,922

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 June 30, 2017, and changes during the six months ended June 30, 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	33,670		93.32
Vested	(26,745	)	92.13
Forfeited	(12,310	)	113.01
Unvested at June 30, 2017	98,405		$	113.01

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Cost of goods sold	$	388		$	131		$	636		$	320
Selling, general and administrative expenses	1,077			461			1,507			961
Total expense before income taxes	1,465			592			2,143			1,281
Income tax benefit	(240		)	(86		)	(382		)	(184		)
Total expense after income taxes	$	1,225		$	506		$	1,761		$	1,097

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.



	Six Months Ended June 30,
	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 June 30, 2017, and changes during the six months ended June 30, 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		115.74
Vested	—		—
Forfeited and other	(4,260	)	101.79
Unvested at June 30, 2017	198,325		$	108.24

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Cost of goods sold	$	—		$	—		$	—		$	—
Selling, general and administrative expenses	1,714			1,815			3,320			3,496
Total expense before income taxes	1,714			1,815			3,320			3,496
Income tax benefit	(586		)	(633		)	(1,093		)	(1,168		)
Total expense after income taxes	$	1,128		$	1,182		$	2,227		$	2,328

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 June 30, 2017, there was $15.3 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.5 years, $6.8 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.1 years, $4.7 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.1 years, and $9.4 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.