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 September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Weighted average fair value of option grants	$30.46	$21.88	$24.17	$18.47
Dividend yield	1.27%	1.53%	1.45%	1.69%
Volatility	29.35%	29.60%	29.41%	29.71%
Risk-free forward interest rate	1.24% - 2.80%	0.51% - 2.01%	0.83% - 3.04%	0.53% - 2.50%
Expected life (in years)	5.83	5.91	5.83	5.91

Total compensation cost for stock options is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Cost of goods sold	$	67		$	92		$	341		$	354
Selling, general and administrative expenses	1,721			1,278			5,604			5,084
Total expense before income taxes	1,788			1,370			5,945			5,438
Income tax benefit	(593		)	(441		)	(1,887		)	(1,727		)
Total expense after income taxes	$	1,195		$	929		$	4,058		$	3,711

A summary of the Company’s stock option activity as of September 30, 2017, and changes during the nine months ended September 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	440,825		93.40
Exercised	(360,986	)	52.58
Forfeited	(47,046	)	78.67
Outstanding at September 30, 2017	2,020,739		$	69.98	6.99	$	104,045,261
Vested and expected to vest as of September 30, 2017	1,897,772		$	69.00	6.88	$	99,579,316
Exercisable at September 30, 2017	968,929		$	55.72	5.35	$	63,709,269

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 September 30, 2017, and changes during the nine months ended September 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	59,010		93.59
Vested	(75,099	)	72.15
Forfeited	(10,280	)	79.19
Unvested at September 30, 2017	191,529		$	82.97

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Cost of goods sold	$	46		$	64		$	265		$	325
Selling, general and administrative expenses	1,163			751			3,722			3,249
Total expense before income taxes	1,209			815			3,987			3,574
Income tax benefit	(370		)	(216		)	(1,295		)	(1,053		)
Total expense after income taxes	$	839		$	599		$	2,692		$	2,521

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 September 30, 2017, and changes during the nine months ended September 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	34,290		93.68
Vested	(27,050	)	92.44
Forfeited	(15,220	)	121.47
Unvested at September 30, 2017	95,810		$	121.47

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Cost of goods sold	$	327		$	307		$	963		$	627
Selling, general and administrative expenses	696			881			2,203			1,842
Total expense before income taxes	1,023			1,188			3,166			2,469
Income tax benefit	(175		)	(170		)	(557		)	(354		)
Total expense after income taxes	$	848		$	1,018		$	2,609		$	2,115

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.



	Nine months ended September 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 September 30, 2017, and changes during the nine months ended September 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	—		95.07
Forfeited and other	(5,625	)	109.75
Unvested at September 30, 2017	196,960		$	108.33

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Cost of goods sold	$	—		$	—		$	—		$	—
Selling, general and administrative expenses	1,725			348			5,045			3,844
Total expense before income taxes	1,725			348			5,045			3,844
Income tax benefit	(597		)	(98		)	(1,690		)	(1,266		)
Total expense after income taxes	$	1,128		$	250		$	3,355		$	2,578

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, 2017, there was $13.9 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, $5.9 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, $4.3 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.0 years, and $8.0 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.0 years.