STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2013

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 12 — STOCK-BASED COMPENSATION

The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders.  Stock options are issued to non-employee directors for their services as directors under Director Stock Option Plans approved by shareholders.  Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant.  Restricted stock units generally vest over three years.

Compensation expense recorded attributable to stock options for the first nine months of 2013 was approximately $11.5 million ($7.7 million after tax).  The income tax benefit related to this compensation expense was approximately $3.8 million.  Approximately $10.2 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.  Compensation expense recorded attributable to stock options for the first nine months of 2012 was approximately $10.8 million ($7.2 million after tax).  The income tax benefit related to this compensation expense was approximately $3.6 million.  Approximately $9.6 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

The Company uses historical data to estimate expected life and volatility.  The weighted-average fair value of stock options granted under the Stock Awards Plans was $10.16 and $10.35 per share in 2013 and 2012, respectively.  These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Stock Awards Plans:
Nine months ended September 30,	2013		2012
Dividend Yield	1.8	%	1.8	%
Expected Stock Price Volatility	22.7	%	22.9	%
Risk-free Interest Rate	1.3	%	1.3	%
Expected Life of Option (years)	6.9		6.9

The fair value of stock options granted under the Director Stock Option Plan was $10.89 and $10.59 per share during the first nine months of 2013 and 2012, respectively.  These values were estimated on the respective date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Director Stock Option Plans:
Nine months ended September 30,	2013		2012
Dividend Yield	1.9	%	1.7	%
Expected Stock Price Volatility	23.0	%	22.5	%
Risk-free Interest Rate	1.3	%	1.3	%
Expected Life of Option (years)	6.9		6.9

A summary of option activity under the Company’s stock option plans as of September 30, 2013, and changes during the nine months then ended is presented below:

	Stock Awards Plans					Director Stock Option Plans
				Weighted Average					Weighted Average
	Shares			Exercise Price		Shares			Exercise Price
Outstanding, January 1, 2013	7,879,197			$	37.27	276,667			$	45.48
Granted	1,385,300			51.83		85,500			56.49
Exercised	(1,249,180		)	28.60		(48,333		)	43.11
Forfeited or expired	(47,399		)	47.24		--			--
Outstanding at September 30, 2013	7,967,918			$	41.10	313,834			$	48.85
Exercisable at September 30, 2013	5,396,418			$	36.26	146,001			$	42.05
Weighted-Average Remaining Contractual Term (Years):
Outstanding at September 30, 2013	6.3					7.8
Exercisable at September 30, 2013	5.1					6.4
Aggregate Intrinsic Value ($000):
Outstanding at September 30, 2013	$	151,630				$	3,541
Exercisable at September 30, 2013	$	128,807				$	2,640
Intrinsic Value of Options Exercised ($000) During the Nine Months Ended:
September 30, 2013	$	33,123				$	732
September 30, 2012	$	34,674				$	937

The grant date fair value of options vested during the nine months ended September 30, 2013 and 2012 was $12.9 million and $12.1 million, respectively.  Cash received from option exercises was approximately $38.4 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $7.9 million in the nine months ended September 30, 2013.  As of September 30, 2013, the remaining valuation of stock option awards to be expensed in future periods was $12.0 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date.  A summary of restricted stock unit activity as of September 30, 2013, and changes during the period then ended is presented below:

			Weighted-Average
	Shares		Grant-Date Fair Value
Nonvested at January 1, 2013	25,862		$	48.76
Granted	12,448		54.92
Vested	(12,629	)	45.20
Nonvested at September 30, 2013	25,681		$	53.49

Compensation expense recorded attributable to restricted stock unit grants for the first nine months of 2013 and 2012 was approximately $574 thousand and $438 thousand, respectively.  The fair value of units vested during the nine months ended September 30, 2013 and 2012 was $571 thousand and $316 thousand, respectively.  The intrinsic value of units vested during the nine months ended September 30, 2013 and 2012 was $661 thousand and $448 thousand, respectively.  As of September 30, 2013 there was $611 thousand of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.5 years.