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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2012
Share-Based Compensation |
13. | Share-Based Compensation
The Company maintains two share-based compensation plans for executives, non-employee directors, and certain key employees that authorize the granting of stock options, unvested shares, unvested share units, and other types of awards consistent with the purpose of the plans. The number of shares authorized for issuance under the Company’s plans as of December 31, 2012 totals 10.6 million, of which 3.4 million shares were available for future issuance. Stock options granted under these plans are generally non-qualified, and are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. The majority of the options issued to employees become exercisable in four equal installments, beginning one year from the date of grant, and generally expire 10 years from the date of grant. Stock options granted to non-employee directors cliff vest after one year. Unvested share and unvested share unit awards generally cliff vest after three years for employees and non-employee directors. The Company issued 230,975, 341,876 and 264,915 of unvested shares as compensation to key employees in 2012, 2011 and 2010, respectively. All unvested shares carry dividend and voting rights, and the sale of the shares is restricted prior to the date of vesting. The Company accounts for share-based payments in accordance with ASC 718. Accordingly, the Company expenses the fair value of awards made under its share-based plans. That cost is recognized in the consolidated financial statements over the requisite service period of the grants. Weighted average option fair values and assumptions for the period specified are disclosed in the following table:
|  | Years Ended December 31,
|  | 2012 |  | 2011 |  | 2010
Weighted average fair value of grants |  | $11.40 |  | $12.30 |  | $ 9.56
Dividend yield |  | 1.59% |  | 1.46% |  | 1.51%
Volatility |  | 32.00% |  | 32.72% |  | 33.43%
Risk-free interest rate |  | 0.17% - 3.96% |  | 0.28% - 5.61% |  | 0.32% - 5.67%
Expected life (in years) |  | 5.98 |  | 6.14 |  | 5.98
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 years ended December 31, 2012, 2011 and 2010 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 years ended December 31, 2012, 2011 and 2010, 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 new shares of common stock to satisfy stock option exercises or grants of unvested shares. Total compensation cost for stock options is as follows:
|  | Years Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (In thousands) |
Cost of goods sold |  | $ | 650 |  |  | $ | 805 |  |  | $ | 804 |
Selling, general and administrative expenses |  |  | 5,642 |  |  |  | 6,153 |  |  |  | 6,923 |
Total expense before income taxes |  |  | 6,292 |  |  |  | 6,958 |  |  |  | 7,727 |
Income tax benefit |  |  | (1,988 | ) |  |  | (2,208 | ) |  |  | (2,450 | )
Total expense after income taxes |  | $ | 4,304 |  |  | $ | 4,750 |  |  | $ | 5,277 |
Total compensation cost for unvested shares is as follows:
|  | Years Ended December 31, |
|  | 2012 |  |  | 2011(1) |  |  | 2010 |
|  | (In thousands) |
Cost of goods sold |  | $ | 991 |  |  | $ | 684 |  |  | $ | 311 |
Selling, general and administrative expenses |  |  | 5,819 |  |  |  | 4,434 |  |  |  | 8,382 |
Restructuring expenses |  |  | — |  |  |  | — |  |  |  | 938 |
Total expense before income taxes |  |  | 6,810 |  |  |  | 5,118 |  |  |  | 9,631 |
Income tax benefit |  |  | (1,682 | ) |  |  | (1,827 | ) |  |  | (2,097 | )
Total expense after income taxes |  | $ | 5,128 |  |  | $ | 3,291 |  |  | $ | 7,534 |
(1) | Reflects the forfeiture of unvested shares related to the Company’s transition to a new CEO in August 2011.
Recognition of compensation cost was consistent with recognition of cash compensation for the same employees. Compensation cost capitalized as part of inventory was immaterial. As of December 31, 2012, there was $8.3 million and $9.4 million of total unrecognized compensation cost related to stock options and unvested shares, respectively, that is expected to be recognized over a weighted-average period of 1.4 years and 1.0 years, respectively. A summary of the Company’s stock option activity as of December 31, 2012, and changes during the year ended December 31, 2012 is presented in the following table:
Stock Options |  | Shares |  |  | Weighted Average Price |  |  | Weighted-Average Remaining Contractual Term |  |  | Aggregate Intrinsic Value |
Outstanding at January 1, 2012 |  |  | 4,314,044 |  |  | $ | 29.61 |  |  |  | 7.01 |  |  | $ | 34,899,200 |
Granted |  |  | 764,700 |  |  |  | 42.66 |  |  |  |  |  |  |  |  |
Exercised |  |  | (1,631,923 | ) |  |  | 27.77 |  |  |  |  |  |  |  |  |
Forfeited/Expired |  |  | (223,079 | ) |  |  | 36.60 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2012 |  |  | 3,223,742 |  |  | $ | 33.16 |  |  |  | 6.37 |  |  | $ | 43,106,153 |
Vested and expected to vest at December 31, 2012 |  |  | 3,100,929 |  |  | $ | 32.86 |  |  |  | 6.28 |  |  | $ | 42,398,877 |
Exercisable at December 31, 2012 |  |  | 1,780,761 |  |  | $ | 29.00 |  |  |  | 4.82 |  |  | $ | 31,219,847 |
The intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of the Company’s common stock as of the end of the period, and the grant price. The total intrinsic value of options exercised in 2012, 2011 and 2010, was $23.5 million, $21.9 million and $14.4 million, respectively. In 2012, 2011 and 2010, cash received from options exercised was $45.8 million, $33.1 million and $18.1 million, respectively, while the actual tax benefit realized for the tax deductions from stock options exercised totaled $8.6 million, $8.0 million and $5.2 million, respectively. A summary of the Company’s unvested share activity as of December 31, 2012, and changes during the year ending December 31, 2012 is presented in the following table:
Unvested Shares |  | Shares |  |  | Weighted-Average Grant Date Fair Value |
Nonvested at January 1, 2012 |  |  | 613,375 |  |  | $ | 32.44 |
Granted |  |  | 230,975 |  |  |  | 43.56 |
Vested |  |  | (166,134 | ) |  |  | 22.00 |
Forfeited |  |  | (88,230 | ) |  |  | 38.61 |
Nonvested at December 31, 2012 |  |  | 589,986 |  |  | $ | 40.27 |
Unvested share grants accrue dividends and their fair value is equal to the market price of the Company’s stock at the date of the grant. As of 2011, the Company also maintains a share based compensation plan for non-executives. Total expense related to this plan was $2.3 million and $0.8 million in 2012 and 2011, respectively. At December 31, 2012 and 2011, the Company has $2.0 million and $0.8 million, respectively, included in Accrued expenses in the Consolidated Balance Sheets and $1.0 million included in Other non-current liabilities at December 31, 2012.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
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