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)	2019		2018		2017
Cost of sales	$	139	$	84	$	71
Research and development expenses	1,096		744		551
Selling, general and administrative expenses:
Employees	6,431		6,491		7,368
Outside directors	1,179		1,501		3,953
Total employee and director stock-based compensation expense	$	8,845	$	8,820	$	11,943

Income tax benefit	$	1,877	$	1,870	$	2,954

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,
	2019			2018			2017
Weighted average fair value of grants	$	11.51		$	14.26		$	19.61
Risk-free interest rate	2.38		%	2.51		%	1.75		%
Expected volatility	41.73		%	33.09		%	34.25		%
Expected life in years	4.60			4.53			4.52

Stock option activity was as follows:



	2019							2018							2017
	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	597		$	44.27				520		$	42.56				652		$	39.27
Granted	170		30.08					119		44.95					92		62.70
Exercised	(22	)	20.34			$	569	(35	)	24.67			$	744	(56	)	25.72			$	2,140
Forfeited/canceled/expired	—		—					(7	)	27.74					(168	)	46.44
Outstanding at end of the year ⁽¹⁾	745		$	41.73	3.97	$	9,798	597		$	44.27	4.08	$	758	520		$	42.56	4.25	$	5,607
Vested and expected to vest at the end of the year ⁽¹⁾	745		$	41.73	3.97	$	9,798	597		$	44.27	4.08	$	758	520		$	42.56	4.25	$	5,607
Exercisable at the end of the year ⁽¹⁾	517		$	44.95	3.01	$	5,636	430		$	42.30	3.43	$	758	381		$	36.39	3.72	$	5,607

⁽¹⁾

The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of 2019, 2018, and 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 December 31, 2019, 2018, and 2017. This amount will change based on the fair market value of our stock.

Cash received from option exercises for the years ended December 31, 2019, 2018, and 2017 was $0.4 million, $0.9 million, and $1.4 million, respectively. The actual tax benefit realized from option exercises was $0.01 million, $0.2 million and $0.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Significant option groups outstanding at December 31, 2019 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
$19.25 to $27.07	263	4.72	$	23.83	112	$	19.49
$35.28 to $44.95	200	3.50	41.04		150	39.75
$51.38 to $65.54	282	3.62	58.85		255	59.21
	745	3.97	$	41.73	517	$	44.95

As of December 31, 2019, we expect to recognize $2.2 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 12, 2020, certain executive employees were granted 108,755 stock options in connection with the 2019 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 12, 2021 and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.9 million.

Restricted Stock

Non-vested restricted stock award activity was as follows:



	2019				2018				2017
	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	204		$	49.23	162		$	61.19	153		$	57.43
Granted	268		30.67		167		42.65		133		64.14
Vested	(141	)	47.26		(109	)	56.16		(119	)	59.67
Forfeited	(21	)	35.78		(16	)	54.16		(5	)	60.11
Non-vested at end of the year	310		$	34.99	204		$	49.23	162		$	61.19

As of December 31, 2019, we expect to recognize $7.2 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.

On February 12, 2020, certain executive employees were granted 41,695 restricted stock awards in connection with the 2019 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 (33.33% on February 12, 2021 and 8.33% each quarter thereafter). The total grant date fair value of these awards was $1.9 million.

Stock Incentive Plans

Our active stock-based incentive plans include those adopted in 2003, 2006, 2010, 2014 and 2018 ("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, 2019:



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
2003 Stock Incentive Plan	6/18/2003	1,000,000	—	14,391
2006 Stock Incentive Plan	6/13/2006	1,000,000	—	28,945
2010 Stock Incentive Plan	6/15/2010	1,000,000	—	198,971
2014 Stock Incentive Plan	6/12/2014	1,100,000	—	413,333
2018 Equity and Incentive Compensation Plan	6/4/2018	1,000,000	544,092	399,726
			544,092	1,055,366