NOTE 11 — 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 three months of 2014 was approximately $8.4 million ($5.5 million after tax). The income tax benefit related to this compensation expense was approximately $2.9 million. Approximately $7.6 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 three months of 2013 was approximately $6.5 million ($4.4 million after tax). The income tax benefit related to this compensation expense was approximately $2.1 million. Approximately $5.9 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 $14.84 and $10.07 per share in 2014 and 2013, 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:
Three months ended March 31,	2014		2013

Dividend Yield	1.7	%	1.8	%
Expected Stock Price Volatility	22.2	%	22.7	%
Risk-free Interest Rate	2.3	%	1.2	%
Expected Life of Option (years)	6.9		6.9

There were no grants under the Director Stock Option Plan during the three months ended March 31, 2014 and 2013.

A summary of option activity under the Company’s stock plans as of March 31, 2014, and changes during the three months then ended is presented below:

Stock Awards Plans

Director Stock Option Plans

Weighted Average

Shares

Exercise Price

Shares

Exercise Price

Outstanding, January 1, 2014

7,815,932

41.26

313,834

48.85

Granted

1,349,850

68.00

Exercised

(216,498

)

33.82

Forfeited or expired

(19,400

)

50.18

Outstanding at March 31, 2014

8,929,884

45.47

313,834

48.85

Exercisable at March 31, 2014

6,252,800

39.23

146,000

42.05

Weighted-Average Remaining Contractual Term (Years):

Outstanding at March 31, 2014

6.5

7.3

Exercisable at March 31, 2014

5.3

5.9

Aggregate Intrinsic Value ($000):

Outstanding at March 31, 2014

186,827

5,415

Exercisable at March 31, 2014

168,000

3,511

Intrinsic Value of Options Exercised ($000) During the Three Months Ended:

March 31, 2014

6,912

March 31, 2013

16,515

The fair value of shares vested during the three months ended March 31, 2014 and 2013 was $13.0 million and $12.1 million, respectively. Cash received from option exercises was approximately $2.4 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $7.8 million in the three months ended March 31, 2014. As of March 31, 2014, the remaining valuation of stock option awards to be expensed in future periods was $21.0 million and the related weighted-average period over which it is expected to be recognized is 1.6 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 March 31, 2014, and changes during the period then ended is presented below:

			Weighted-Average
	Shares		Grant-Date Fair Value

Nonvested at January 1, 2014	25,681		$	53.49
Granted	43,671		67.57
Vested	(9,355	)	52.50
Nonvested at March 31, 2014	59,997		$	63.90

Compensation expense recorded attributable to restricted stock unit grants for the first three months of 2014 and 2013 was approximately $733 thousand and $416 thousand, respectively. The fair value of units vested during the three months ended March 31, 2014 and 2013 was $491 thousand and $496 thousand, respectively. The intrinsic value of units vested during the three months ended March 31, 2014 and 2013 was $613 thousand and $582 thousand, respectively. As of March 31, 2014 there was $2.7 million of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.8 years.

During the first quarter of 2014, the Company approved a new long-term incentive program for certain employees. The program is based on the cumulative total shareholder return of our common stock during a three year performance period. Total expense related to this program is expected to be approximately $1.2 million over the performance period, of which $159 thousand was recognized in the first quarter of 2014.