8. STOCK-BASED COMPENSATION

As of September 30, 2014, the Company maintains employee stock-based compensation plans for stock options, restricted stock, restricted units, and incentive stock awards as governed by the 2011 Stock Incentive Compensation Plan (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a 10-year term through March 27, 2021 and provides a maximum of 3,800,000 shares for grants or awards. The 2011 Plan was approved by stockholders of Wabtec on May 11, 2011. The Company also maintains a Non-Employee Directors’ Fee and Stock Option Plan (“Directors Plan”). No awards may be made under the Directors Plan subsequent to October 31, 2016.

Stock-based compensation expense was $19.1 million and $17.6 million for the nine months ended September 30, 2014 and 2013, respectively. Included in the stock-based compensation expense for the nine months ended September 30, 2014 above is $1.8 million of expense related to stock options, $4.5 million related to restricted stock, $1.8 million related to restricted units, $10.3 million related to incentive stock awards and $0.7 million related to awards issued for Directors’ fees. At September 30, 2014, unamortized compensation expense related to stock options, restricted stock, restricted units and incentive stock awards expected to vest totaled $27.7 million and will be recognized over a weighted average period of 1.2 years.

Stock Options Stock options are granted to eligible employees and directors at the fair market value, which is the average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options become exercisable over a four-year vesting period and expire 10 years from the date of grant.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the nine months ended September 30, 2014:

				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic value
	Options			Price		Contractual Life		(in thousands)
Outstanding at December 31, 2013		1,232,862		$	24.36		6.1	$	61,530
Granted		81,552			73.20				661
Exercised		(144,210	)		21.11				(8,682	)
Canceled		(3,070	)		52.73				(88	)
Outstanding at September 30, 2014		1,167,134		$	28.10		5.7	$	62,101
Exercisable at September 30, 2014		815,518		$	20.69		4.8	$	49,435

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Nine Months Ended
	September 30,
	2014			2013
Dividend yield		0.11	%		0.21	%
Risk-free interest rate		2.19	%		1.38	%
Stock price volatility		33.0	%		43.8	%
Expected life (years)		5.0			5.0

The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury bond rates for the expected life of the option.

Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006 the Company adopted a restricted stock program. As provided for under the 2011 and 2000 Plans, eligible employees are granted restricted stock or restricted units that generally vest over four years from the date of grant. Under the Directors Plan, restricted stock awards vest one year from the date of grant.

In addition, the Company has issued incentive stock awards to eligible employees that vest upon attainment of certain cumulative three year performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock awards can vest and be awarded ranging from 0% to 200% of the initial incentive stock awards granted. The incentive stock awards included in the table below represent the number of shares that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of September 30, 2014, the Company estimates that it will achieve 180%, 104% and 100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2014, 2015, and 2016, respectively, and has recorded incentive compensation expense accordingly. If our estimate of the number of these stock awards expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

Compensation expense for the restricted stock and incentive stock awards is based on the average of the high and low Wabtec stock price on the date of grant and recognized over the applicable vesting period.

The following table summarizes the restricted stock and unit activity for the 2011 Plan, the 2000 Plan and the Directors Plan, and incentive stock awards activity for the 2011 Plan and the 2000 Plan with related information for the nine months ended September 30, 2014:

							Weighted
	Restricted			Incentive			Average Grant
	Stock			Stock			Date Fair
	and Units			Awards			Value
Outstanding at December 31, 2013		510,128			1,043,594		$	35.27
Granted		149,136			140,240			61.72
Vested		(218,502	)		(458,536	)		29.83
Adjustment for incentive stock awards expected to vest		-			52,292			39.37
Canceled		(3,970	)		(8,370	)		45.92
Outstanding at September 30, 2014		436,792			769,220		$	44.74