Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

STOCK-BASED COMPENSATION

Stock Incentive Plans

We maintain stock incentive plans to attract and retain officers, directors and employees. Stock awards under these plans may include both performance-based and non-performance based stock incentives. As of December 31, 2018, we had outstanding under these plans stock options to acquire approximately 5.0 million shares of our Class A common stock. Stock options granted prior to December 31, 2018 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant or the last trading day prior to the date of grant (if the grant date is not a trading day) and generally with a maximum term of ten years for our officers and employees and five years for our non-employee directors. While generally we issue stock awards subject to vesting, typically over five years, some stock awards have been granted with immediate or longer vesting and other stock awards vest also or only upon the achievement of certain performance objectives. Under these plans, we grant to certain of our employees awards of fully vested shares of Class A common stock under our Employee Innovator Recognition Program, which is available to all of our eligible employees. As of December 31, 2018, we had approximately 8 million shares of our Class A common stock available for future grant under our stock incentive plans.

Exercise prices for stock options outstanding and exercisable as of December 31, 2018 are as follows:



	Options Outstanding				Options Exercisable
Price Range	Number Outstanding as of December 31, 2018	Weighted- Average Remaining Contractual Term (In Years)	Weighted- Average Exercise Price		Number Exercisable as of December 31, 2018	Weighted- Average Remaining Contractual Term (In Years)	Weighted- Average Exercise Price
$0.00 - $20.00	51,359	2	$	18.74	51,359	2	$	18.74
$20.01 - $25.00	429,306	1	$	20.18	429,306	1	$	20.18
$25.01 - $30.00	3,300	3	$	26.42	3,300	3	$	26.42
$30.01 - $35.00	352,500	4	$	34.22	352,500	4	$	34.22
$35.01 - $40.00	1,985,200	4	$	38.19	1,832,500	3	$	38.09
$40.01 - $45.00	277,000	7	$	43.98	111,400	7	$	44.04
$45.01 - $50.00	766,973	6	$	47.58	577,473	5	$	47.64
$50.01 - $55.00	487,400	7	$	52.24	197,300	6	$	51.99
$55.01 - $60.00	600,000	8	$	56.97	127,000	8	$	56.95
$60.01 and over	60,000	7	$	60.70	28,000	5	$	60.70
	5,013,038	5	$	41.80	3,710,138	4	$	38.59

Stock Award Activity

Our stock option activity was as follows:



	For the years ended December 31,
	2018				2017				2016
	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Total options outstanding, beginning of period	4,951,256		$	41.42	5,968,763		$	39.30	5,893,241		$	38.38
Granted	215,500		$	51.71	1,262,500		$	57.12	732,000		$	41.86
Exercised	(108,318	)	$	40.67	(1,018,507	)	$	35.84	(453,182	)	$	28.83
Forfeited and canceled	(45,400	)	$	50.21	(1,261,500	)	$	51.63	(203,296	)	$	45.15
Total options outstanding, end of period	5,013,038		$	41.80	4,951,256		$	41.42	5,968,763		$	39.30
Exercisable at end of period	3,710,138		$	38.59	3,143,656		$	36.98	3,551,063		$	35.40

On April 1, 2017, we granted to Mr. Ergen, our Chairman, an option to purchase 1,100,000 shares of Class A common stock. On April 24, 2017, Mr. Ergen voluntarily forfeited a portion of the option covering 600,000 shares and we canceled such forfeited portion of the option.

We realized total tax benefits from stock options exercised of $0.4 million, $3 million and $2 million for the years ended December 31, 2018, 2017 and 2016, respectively. The aggregate intrinsic value of our stock options exercised was $2 million, $20 million and $8 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Our restricted stock unit activity was as follows:



	For the years ended December 31,
	2018			2017				2016
	Restricted Stock Units	Weighted- Average Grant Date Fair Value		Restricted Stock Units		Weighted- Average Grant Date Fair Value		Restricted Stock Units		Weighted- Average Grant Date Fair Value
Total restricted stock units outstanding, beginning of period	—	$	—	6,667		$	34.22	57,328		$	42.31
Vested	—	$	—	(6,667	)	$	34.22	(50,661	)	$	43.38
Total restricted stock units outstanding, end of period	—	$	—	—		$	—	6,667		$	34.22

The total fair value of restricted stock units vested was nil, $0.2 million and $2 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Stock-Based Compensation

Total noncash, stock-based compensation expense for all of our employees is shown in the following table for the years ended December 31, 2018, 2017 and 2016, respectively, and was assigned to the same expense categories as the base compensation for such employees:



	For the years ended December 31,
	2018		2017		2016
	(In thousands)
Research and development expenses	$	634	$	1,010	$	1,046
Selling, general and administrative expenses	9,356		10,630		9,865
Total stock-based compensation	$	9,990	$	11,640	$	10,911

The income tax benefits related to stock-based compensation expense was $2 million, $4 million and $4 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to our unvested stock awards was $14 million. This amount is based on an estimated future forfeiture rate of approximately 2.0% per year and will be recognized over a weighted-average period of approximately two years.

Valuation of Stock Options

The fair value of each stock option granted for the years ended December 31, 2018, 2017 and 2016 was estimated at the date of the grant using a Black-Scholes option valuation model. The estimated grant-date fair values and related assumptions were as follows:



	For the years ended December 31,
Assumptions:	2018	2017	2016
Risk-free interest rate	2.25% - 2.99%	1.98% - 2.05%	1.10% - 1.87%
Volatility factor	22.77% - 23.28%	24.20% - 26.69%	27.22% - 27.37%
Expected term of options in years	5.7 - 5.8	5.7 - 5.8	5.7 - 5.8
Weighted-average grant-date fair value	$12.38 - $16.23	$15.25 - $16.49	$11.15 - $12.49

We do not currently intend to pay dividends on our common stock and accordingly, the dividend yield used in the Black-Scholes option valuation model was assumed to be zero for all periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded stock options which have no vesting restrictions and are fully transferable. Consequently, our estimate of fair value may differ from that determined using other valuation models. Further, the Black-Scholes option valuation model requires the input of subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate.

Based on the closing market price of our Class A common stock on December 31, 2018, the aggregate intrinsic value of our stock options was $9 million for options outstanding and $9 million for options exercisable as of December 31, 2018.