Stock-Based Compensation

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



	Year Ended December 31,
(In thousands)	2017		2016		2015
Cost of sales	$	71	$	57	$	39
Research and development expenses	551		541		428
Selling, general and administrative expenses:
Employees	7,368		7,095		5,946
Outside directors	3,953		2,631		1,500
Total employee and director stock-based compensation expense	$	11,943	$	10,324	$	7,913

Income tax benefit	$	2,954	$	3,102	$	2,366

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,
	2017			2016			2015
Weighted average fair value of grants	$	19.61		$	17.96		$	24.47
Risk-free interest rate	1.75		%	1.36		%	1.39		%
Expected volatility	34.25		%	41.38		%	43.36		%
Expected life in years	4.52			4.55			4.57

Stock option activity was as follows:



	2017							2016							2015
	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	652		$	39.27				648		$	30.50				650		$	25.56
Granted	92		62.70					243		49.67					77		64.81
Exercised	(56	)	25.72			$	2,140	(239	)	26.09			$	9,933	(71	)	23.97			$	2,193
Forfeited/canceled/expired	(168	)	46.44					—		—					(8	)	20.64
Outstanding at end of the year ⁽¹⁾	520		$	42.56	4.25	$	5,607	652		$	39.27	4.78	$	16,553	648		$	30.50	4.85	$	14,556
Vested and expected to vest at the end of the year ⁽¹⁾	520		$	42.56	4.25	$	5,607	652		$	39.27	4.78	$	16,548	648		$	30.50	4.85	$	14,551
Exercisable at the end of the year ⁽¹⁾	381		$	36.39	3.72	$	5,607	363		$	30.21	3.88	$	12,511	493		$	25.03	4.51	$	12,979

⁽¹⁾

The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of 2017, 2016, and 2015 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, 2017, 2016, and 2015. 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 year ended December 31, 2017. This amount represented all remaining unamortized compensation expense associated with the surrendered stock options as of the surrender date.

During the years ended December 31, 2017, 2016, and 2015, there were no modifications made to outstanding stock options.

Cash received from option exercises for the years ended December 31, 2017, 2016, and 2015 was $1.4 million, $6.2 million, and $1.7 million, respectively. The actual tax benefit realized from option exercises was $0.7 million, $2.6 million and $0.5 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Significant option groups outstanding at December 31, 2017 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 Contractual Term (in years)	Weighted-Average Exercise Price		Number Exercisable (in 000’s)	Weighted-Average Exercise Price
$18.25 to $21.95	155	3.79	$	19.92	155	$	19.92
26.48 to 27.74	17	0.30	27.02		17	27.02
35.28	85	3.12	35.28		85	35.28
51.38 to 65.54	263	5.14	59.31		124	59.10
	520	4.25	$	42.56	381	$	36.39

As of December 31, 2017, we expect to recognize $2.0 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.7 years.

On February 8, 2018, certain executive employees were granted 119,220 stock options in connection with the 2017 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, 2019 and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.7 million.

Restricted Stock

Non-vested restricted stock award activity was as follows:



	2017				2016				2015
	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	153		$	57.43	225		$	51.31	266		$	39.28
Granted	133		64.14		77		63.30		138		53.64
Vested	(119	)	59.67		(146	)	51.10		(178	)	35.09
Forfeited	(5	)	60.11		(3	)	60.17		(1	)	63.19
Non-vested at end of the year	162		$	61.19	153		$	57.43	225		$	51.31

As of December 31, 2017, we expect to recognize $7.7 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.6 years.

In February 2018, certain executives and employees were granted 133,406 restricted stock awards in connection with the 2017 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 (37,820 of these awards vest 33.33% on February 8, 2019 and 8.33% each quarter thereafter; and 95,586 of these awards vest at a rate of 33.33% per year beginning on February 21, 2019). The total grant date fair value of these awards was $6.0 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, 2017:



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	—	14,391
2006 Stock Incentive Plan	6/13/2006	1,000,000	—	82,572
2010 Stock Incentive Plan	6/15/2010	1,000,000	—	203,303
2014 Stock Incentive Plan	6/12/2014	1,100,000	448,051	373,673
			448,051	681,439