Stock-Based Compensation

Stock-based compensation expense for each employee and director is presented in the same income statement caption as their cash compensation. Stock-based compensation expense by income statement caption and the related income tax benefit were as follows:



	Year Ended December 31,
(In thousands)	2016		2015		2014
Cost of sales	$	57	$	39	$	16
Research and development expenses	541		428		323
Selling, general and administrative expenses:
Employees	7,095		5,946		4,927
Outside directors	2,631		1,500		1,178
Total employee and director stock-based compensation expense	$	10,324	$	7,913	$	6,444

Income tax benefit	$	3,102	$	2,366	$	1,897

Stock Options

The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock option grants were the following:



	Year Ended December 31,
	2016			2015			2014
Weighted average fair value of grants	$	17.96		$	24.47		$	13.64
Risk-free interest rate	1.36		%	1.39		%	1.29		%
Expected volatility	41.38		%	43.36		%	44.84		%
Expected life in years	4.55			4.57			4.56

Stock option activity was as follows:



	2016							2015							2014
	Number of Options (in 000's)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000's)		Number of Options (in 000's)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000's)		Number of Options (in 000's)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in 000's)
Outstanding at beginning of the year	648		$	30.50				650		$	25.56				924		$	22.04
Granted	243		49.67					77		64.81					133		35.28
Exercised	(239	)	26.09			$	9,933	(71	)	23.97			$	2,193	(391	)	20.76			$	10,651
Forfeited/canceled/expired	—		—					(8	)	20.64					(16	)	20.77
Outstanding at end of the year ⁽¹⁾	652		$	39.27	4.78	$	16,553	648		$	30.50	4.85	$	14,556	650		$	25.56	5.59	$	25,653
Vested and expected to vest at the end of the year ⁽¹⁾	652		$	39.27	4.78	$	16,548	648		$	30.50	4.85	$	14,551	649		$	25.57	5.58	$	25,618
Exercisable at the end of the year ⁽¹⁾	363		$	30.21	3.88	$	12,511	493		$	25.03	4.51	$	12,979	421		$	23.84	4.87	$	17,345

⁽¹⁾

The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of 2016, 2015, and 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on December 31, 2016, 2015, and 2014. This amount will change based on the fair market value of our stock.

During the years ended December 31, 2016, 2015, and 2014, there were no modifications made to outstanding stock options.

Cash received from option exercises for the years ended December 31, 2016, 2015, and 2014 was $6.2 million, $1.7 million, and $8.1 million, respectively. The actual tax benefit realized from option exercises was $2.6 million, $0.5 million and $3.1 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Significant option groups outstanding at December 31, 2016 and the related weighted average exercise price and life information were as follows:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding (in 000’s)	Weighted-Average Remaining Years of Contractual Life	Weighted-Average Exercise Price		Number Exercisable (in 000’s)	Weighted-Average Exercise Price
$18.25 to $21.95	182	4.44	$	20.15	180	$	20.13
26.48 to 28.08	56	0.80	27.45		56	27.45
35.28 to 48.61	243	5.35	43.49		84	35.28
51.38 to 65.54	171	5.62	57.49		43	65.22
	652	4.78	$	39.27	363	$	30.21

As of December 31, 2016, we expect to recognize $3.8 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.9 years.

On February 8, 2017, certain executive employees were granted 91,795 stock options in connection with the 2016 annual review cycle. The options were granted as part of long-term incentive compensation to assist us in meeting our performance and retention objectives and are subject to a three-year vesting period (33.33% on February 8, 2018 and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.8 million.

Restricted Stock

Non-vested restricted stock award activity was as follows:



	2016				2015				2014
	Shares (in 000’s)		Weighted-Average Grant Date Fair Value		Shares (in 000’s)		Weighted-Average Grant Date Fair Value		Shares (in 000’s)		Weighted-Average Grant Date Fair Value
Non-vested at beginning of the year	225		$	51.31	266		$	39.28	285		$	24.64
Granted	77		63.30		138		53.64		155		51.29
Vested	(146	)	51.10		(178	)	35.09		(171	)	25.78
Forfeited	(3	)	60.17		(1	)	63.19		(3	)	37.78
Non-vested at end of the year	153		$	57.43	225		$	51.31	266		$	39.28

As of December 31, 2016, we expect to recognize $7.8 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.5 years.

In February 2017, certain executives and employees were granted 96,705 restricted stock awards in connection with the 2016 annual review cycle. These awards were granted as part of long-term incentive compensation to assist us in meeting our performance and retention objectives and are subject to a three-year vesting period (28,705 of these awards vest 33.33% on February 8, 2018 and 8.33% each quarter thereafter; and 68,000 of these awards vest at a rate of 33.33% per year beginning on February 16, 2018). The total grant date fair value of these awards was $6.1 million.

Stock Incentive Plans

Our active stock-based incentive plans include those adopted in 1999, 2003, 2006, 2010 and 2014 ("Stock Incentive Plans"). Under the Stock Incentive Plans, we may grant stock options, stock appreciation rights, restricted stock units, performance stock units, or any combination thereof for a period of ten years from the approval date of each respective plan, unless the plan is terminated by resolution of our Board of Directors. No stock appreciation rights or performance stock units have been awarded under our Stock Incentive Plans. Only directors and employees meeting certain employment qualifications are eligible to receive stock-based awards.

The grant price of stock option and restricted stock awards granted under our Stock Incentive Plans is the average of the high and low trades of our stock on the grant date. We prohibit the re-pricing or backdating of stock options. Our stock options become exercisable in various proportions over a three- or four-year time frame. Stock options have a maximum ten-year term. Restricted stock awards vest in various proportions over a one- to three-year time period.

Detailed information regarding our active Stock Incentive Plans was as follows at December 31, 2016:



Name	Approval Date	Initial Shares Available for Grant Under the Plan	Remaining Shares Available for Grant Under the Plan	Outstanding Shares Granted Under the Plan
1999A Stock Incentive Plan	10/7/1999	1,000,000	—	7,500
2003 Stock Incentive Plan	6/18/2003	1,000,000	—	37,541
2006 Stock Incentive Plan	6/13/2006	1,000,000	—	118,553
2010 Stock Incentive Plan	6/15/2010	1,000,000	—	222,935
2014 Stock Incentive Plan	6/12/2014	1,100,000	517,066	418,800
			517,066	805,329