Share-Based Compensation

9 Months Ended

Sep. 30, 2012

Share-Based Compensation

14.    Share-Based Compensation

During the nine months ended September 30, 2012, the Company granted approximately 0.8 million stock options and 0.2 million unvested shares, respectively. During the nine months ended September 30, 2011, the Company granted approximately 0.8 million stock options and 0.3 million unvested shares, respectively.

Weighted average option fair values and assumptions for the periods specified are disclosed in the following table:

	Three Months Ended September 30,
	2012	2011
Weighted average fair value of option grants	$ 9.55	$ 11.66
Dividend yield	2.07%	1.63%
Volatility	31.96%	31.84%
Risk-free forward interest rate	0.18% - 3.34%	0.18% - 5.15%
Expected life (in years)	5.89	6.08

	Nine Months Ended September 30,
	2012	2011
Weighted average fair value of option grants	$11.40	$12.31
Dividend yield	1.59%	1.45%
Volatility	32.01%	32.72%
Risk-free forward interest rate	0.17% - 3.97%	0.28% - 5.62%
Expected life (in years)	5.97	6.14

The assumptions are as follows:

• The Company estimated volatility using its historical share price performance over the contractual term of the option.

• The Company uses historical data to estimate the expected life of the option. The expected life assumption for the three and nine months ended September 30, 2012 and 2011 is an output of the Binomial lattice option-pricing model, which incorporates vesting provisions, rate of voluntary exercise and rate of post-vesting termination over the contractual life of the option to define expected employee behavior.

• The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option. For the three and nine months ended September 30, 2012 and 2011, we present the range of risk-free one-year forward rates, derived from the U.S. treasury yield curve, utilized in the Binomial lattice option-pricing model.

• The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.

The Company’s policy is to recognize compensation cost on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s general policy is to issue authorized and unissued shares of common stock to satisfy stock option exercises or grants of unvested shares.

Total compensation cost for the stock options is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Cost of goods sold	$	111		$	202		$	593		$	645
Selling, general and administrative expenses		1,233			1,157			4,661			5,140
Total expense before income taxes		1,344			1,359			5,254			5,785
Income tax benefit		(442	)		(390	)		(1,642	)		(1,842	)
Total expense after income taxes	$	902		$	969		$	3,612		$	3,943

Total compensation cost for the unvested shares is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011(1)			2012			2011(1)
	(In thousands)
Cost of goods sold	$	199		$	197		$	802		$	495
Selling, general and administrative expenses		1,443			(1,883	)		5,106			3,475
Total expense before income taxes		1,642			(1,686	)		5,908			3,970
Income tax benefit		(412	)		(451	)		(1,552	)		(1,537	)
Total expense after income taxes	$	1,230		$	(2,137	)	$	4,356		$	2,433

(1) Reflects the forfeiture of unvested shares related to the Company’s transition to a new CEO in August 2011.

Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees and $0.2 million of compensation cost was capitalized as part of inventory at both September 30, 2012 and December 31, 2011.

As of September 30, 2012, there was $10.1 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, and $10.9 million of total unrecognized compensation cost related to unvested shares that is expected to be recognized over a weighted-average period of 1.1 years.