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Share-Based Compensation | 9 Months Ended
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Sep. 30, 2022
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based Compensation The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Board of Directors based on the recommendation from the Compensation Committee. 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 Condensed Consolidated Statements of Income is consistent with classification of cash compensation for the same employees. Stock Options Stock options generally vest ratably over four years, with vesting beginning one year from the date of grant, and generally expire 10 years from the date of grant. The service period for certain retiree eligible participants is accelerated. 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 (for options granted before March 2021) or the Black Scholes valuation model (for options granted after February 2021). The adoption of the Black Scholes model in 2021 was driven by a review of option exercise history, which more closely aligned with the methodology of the Black Scholes model.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Weighted average fair value of grants | $52.91 |  | $45.44 |  | $41.90 |  | $38.86
Dividend yield | 1.16% |  | 0.96% |  | 1.14% |  | 1.01%
Volatility | 25.99% |  | 24.60% |  | 25.16% |  | 23.77%
Risk-free interest rate | 3.35% |  | 0.71% - 0.82% |  | 1.87% |  | 0.12% - 1.54%
Expected life (in years) | 4.90 |  | 4.90 |  | 4.90 |  | 5.70
Total compensation cost for stock options is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of goods sold | $ | 0.1 |  |  | $ | 0.1 |  |  | $ | 0.4 |  |  | $ | 0.4 |
Selling, general and administrative expenses | 0.7 |  |  | 1.8 |  |  | 6.6 |  |  | 6.3 |
Total expense before income taxes | 0.8 |  |  | 1.9 |  |  | 7.0 |  |  | 6.7 |
Income tax benefit | (0.1) |  |  | (0.2) |  |  | (0.6) |  |  | (0.6) |
Total expense after income taxes | $ | 0.7 |  |  | $ | 1.7 |  |  | $ | 6.4 |  |  | $ | 6.1 |
A summary of the Company’s stock option activity as of September 30, 2022 and changes during the nine months ended September 30, 2022 are presented in the following table:
Stock Options | Shares |  | Weighted Average Price |  | Weighted-Average Remaining Contractual Term |  | Aggregate Intrinsic Value
| (Dollars in millions except weighted average price)
Outstanding at January 1, 2022 | 1,008,586 |  |  | $ | 147.60 |  |  | 6.97 |  | $ | 89.5 |
Granted | 272,530 |  |  | 189.64 |  |  |  |  |
Exercised | (75,104) |  |  | 120.41 |  |  |  |  |
Forfeited | (85,764) |  |  | 183.32 |  |  |  |  |
Outstanding at September 30, 2022 | 1,120,248 |  |  | $ | 156.92 |  |  | 6.95 |  | $ | 48.4 |
Vested and expected to vest as of September 30, 2022 | 1,080,032 |  |  | $ | 155.67 |  |  | 6.88 |  | $ | 48.0 |
Exercisable at September 30, 2022 | 560,148 |  |  | $ | 127.47 |  |  | 5.34 |  | $ | 40.6 |
As of September 30, 2022, there was $11.0 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 0.9 years. Restricted Stock Restricted stock awards generally cliff vest after three years for employees and non-employee directors. The service period for certain retiree eligible participants is accelerated. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the grant. A summary of the Company’s restricted stock activity as of September 30, 2022 and changes during the nine months ended September 30, 2022 are presented in the following table:
Restricted Stock | Shares |  | Weighted-Average Grant Date Fair Value
Unvested at January 1, 2022 | 107,475 |  |  | $ | 169.58 |
Granted | 43,180 |  |  | 189.44 |
Vested | (26,684) |  |  | 153.41 |
Forfeited | (13,147) |  |  | 179.66 |
Unvested at September 30, 2022 | 110,824 |  |  | $ | 180.01 |
Total compensation cost for restricted stock is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of goods sold | $ | — |  |  | $ | 0.1 |  |  | $ | 0.2 |  |  | $ | 0.3 |
Selling, general and administrative expenses | 2.2 |  |  | 1.3 |  |  | 5.4 |  |  | 3.9 |
Total expense before income taxes | 2.2 |  |  | 1.4 |  |  | 5.6 |  |  | 4.2 |
Income tax benefit | (0.4) |  |  | (0.3) |  |  | (1.0) |  |  | (0.9) |
Total expense after income taxes | $ | 1.8 |  |  | $ | 1.1 |  |  | $ | 4.6 |  |  | $ | 3.3 |
As of September 30, 2022, there was $7.0 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.0 year. 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. The service period for certain retiree eligible participants is accelerated. Cash-settled restricted stock awards are recorded at fair value on a quarterly basis using the market price of the Company’s stock on the last day of the quarter. Dividend equivalents are paid on certain cash-settled restricted stock awards. A summary of the Company’s unvested cash-settled restricted stock activity as of September 30, 2022 and changes during the nine months ended September 30, 2022 are presented in the following table:
Cash-Settled Restricted Stock | Shares |  | Weighted-Average Fair Value
Unvested at January 1, 2022 | 57,949 |  |  | $ | 236.32 |
Granted | 23,070 |  |  | 189.41 |
Vested | (20,676) |  |  | 190.67 |
Forfeited | (5,762) |  |  | 199.85 |
Unvested at September 30, 2022 | 54,581 |  |  | $ | 199.85 |
Total compensation (benefit) cost for cash-settled restricted stock is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of goods sold | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 0.4 |
Selling, general and administrative expenses | 1.1 |  |  | 0.4 |  |  | 1.1 |  |  | 2.7 |
Total expense before income taxes(1) | 1.1 |  |  | 0.4 |  |  | 1.1 |  |  | 3.1 |
Income tax benefit | — |  |  | — |  |  | — |  |  | (0.2) |
Total expense after income taxes | $ | 1.1 |  |  | $ | 0.4 |  |  | $ | 1.1 |  |  | $ | 2.9 |
(1) The three and nine months ended September 30, 2021 amount was previously included in Share-based compensation expense on the Condensed Consolidated Statements of Cash Flows. This amount has been reclassified to Accrued expenses and Other-net such that the amount presented in Share-based compensation expense on the Condensed Consolidated Statements of Cash Flows relates solely to non-cash awards for both periods presented. There was no change to the reported amount of net cash flows provided by operating activities for three and nine months ended September 30, 2021 as a result of the reclassification. As of September 30, 2022, there was $4.1 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 year. 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,
| 2022 |  | 2021
Weighted average fair value of grants | $235.54 |  | $247.49
Dividend yield | —% |  | —%
Volatility | 28.09% |  | 28.6%
Risk-free interest rate | 1.73% |  | 0.33%
Expected life (in years) | 2.93 |  | 2.93
A summary of the Company’s performance share unit activity as of September 30, 2022 and changes during the nine months ended September 30, 2022 are presented in the following table:
Performance Share Units | Shares |  | Weighted-Average Grant Date Fair Value
Unvested at January 1, 2022 | 52,025 |  |  | $ | 236.75 |
Granted | 31,370 |  |  | 235.54 |
Vested | — |  |  | — |
Forfeited | (12,240) |  |  | 235.90 |
Unvested at September 30, 2022 | 71,155 |  |  | $ | 236.66 |
On December 31, 2021, 29,840 performance share units vested. Based on the Company’s relative total shareholder return rank during the three year period ended December 31, 2021, the Company achieved a 143% payout factor and issued 42,688 common shares in February 2022 for awards that vested in 2021. Total compensation cost for performance share units is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of goods sold | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Selling, general and administrative expenses | 0.2 |  |  | 1.7 |  |  | 4.0 |  |  | 4.6 |
Total expense before income taxes | 0.2 |  |  | 1.7 |  |  | 4.0 |  |  | 4.6 |
Income tax benefit | — |  |  | (0.1) |  |  | (0.1) |  |  | (0.2) |
Total expense after income taxes | $ | 0.2 |  |  | $ | 1.6 |  |  | $ | 3.9 |  |  | $ | 4.4 |
As of September 30, 2022, there was $5.3 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 0.8 years.

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