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:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2017		2016		2017		2016
Cost of sales	$	19	$	14	$	53	$	43
Research and development expenses	149		136		412		409
Selling, general and administrative expenses:
Employees	1,843		1,748		5,562		5,324
Outside directors	1,910		770		3,449		1,862
Total employee and director stock-based compensation expense	$	3,921	$	2,668	$	9,476	$	7,638

Income tax benefit	$	603	$	812	2,307		2,281

Stock Options

Stock option activity was as follows:



	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 December 31, 2016	652		$	39.27
Granted	92		62.70
Exercised	(45	)	24.87			$	1,893
Forfeited/canceled/expired	(168	)	46.44
Outstanding at September 30, 2017 ⁽¹⁾	531		$	42.26	4.49	$	11,391
Vested and expected to vest at September 30, 2017⁽¹⁾	531		$	42.26	4.49	$	11,390
Exercisable at September 30, 2017 ⁽¹⁾	378		$	35.35	3.94	$	10,731

⁽¹⁾

The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the third quarter of 2017 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 September 30, 2017. This amount will change based on the fair market value of our stock.

On September 11, 2017, the independent members of our Board of Directors voluntarily surrendered 150,000 stock options originally granted to them in February 2016, resulting in the acceleration and recording of $1.2 million of stock-based compensation expense during the three and nine months ended September 30, 2017. This amount represented all remaining unamortized compensation expense associated with the surrendered stock options as of the surrender date.

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:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Weighted average fair value of grants	$	—		$	—		$	19.61		$	17.96
Risk-free interest rate	—		%	—		%	1.75		%	1.36		%
Expected volatility	—		%	—		%	34.25		%	41.38		%
Expected life in years	0.00			0.00			4.52			4.55

As of September 30, 2017, we expect to recognize $2.4 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.8 years.

Restricted Stock

Non-vested restricted stock award activity was as follows:



	Shares (in 000's)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2016	153		$	57.43
Granted	132		64.14
Vested	(59	)	61.28
Forfeited	(4	)	60.71
Non-vested at September 30, 2017	222		$	60.34

As of September 30, 2017, we expect to recognize $9.8 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.7 years.