SHARE-BASED COMPENSATION

As of September 30, 2018, approximately 4.4 million shares of common stock were reserved for future issuance under the Company’s stock plans. A maximum of approximately 1.9 million of these shares can be awarded as restricted stock units (“RSUs”).

Stock Option Information

A summary of stock option activity under all stock plans for the nine months ended September 30, 2018, is presented as follows (in millions, except per share amounts):



	Stock Options Outstanding
	Number Outstanding		Weighted Average Exercise Price Per Share
Balance at December 31, 2017	7.2		$	164.16
Granted	0.5		$	470.83
Exercised	(1.2	)	$	124.29
Forfeited/expired	(0.1	)	$	228.26
Balance at September 30, 2018	6.4		$	196.05

As of September 30, 2018, options to purchase an aggregate of 5.1 million shares of common stock were exercisable at a weighted average price of $163.69 per share.

Restricted Stock Units Information

A summary of RSUs activity for the nine months ended September 30, 2018, is presented as follows (in millions, except per share amounts):



	Shares		Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2017	2.1		$	209.55
Granted	0.8		$	425.22
Vested	(0.8	)	$	194.03
Forfeited	(0.1	)	$	271.63
Unvested balance at September 30, 2018	2.0		$	290.10

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately 0.2 million shares for $46.8 million and approximately 0.2 million shares for $38.3 million during the nine months ended September 30, 2018, and 2017, respectively.

Share-based Compensation Expense

The following table summarizes share-based compensation expense for the three and nine months ended September 30, 2018, and 2017 (in millions):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of sales - products	$	10.1	$	7.0	$	27.2	$	20.5
Cost of sales - services	4.5		3.7		12.5		10.4
Total cost of sales	14.6		10.7		39.7		30.9
Selling, general and administrative	35.9		30.0		98.1		82.3
Research and development	20.2		15.2		54.4		40.9
Share-based compensation expense before income taxes	70.7		55.9		192.2		154.1
Income tax benefit	14.9		18.4		40.0		50.3
Share-based compensation expense after income taxes	$	55.8	$	37.5	$	152.2	$	103.8

The Black-Scholes option pricing model is used to estimate the fair value of stock options granted under the Company’s stock plans and rights to acquire stock granted under the Company’s ESPP. The weighted average estimated fair values of stock options and rights to acquire stock under the ESPP, as well as the weighted average assumptions used in calculating those fair values, were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Stock Options
Risk-free interest rate	2.7		%	1.7		%	2.7		%	1.8		%
Expected term (in years)	4.3			3.9			4.3			4.1
Expected volatility	32		%	26		%	33		%	25		%
Fair value at grant date	$	159.67		$	74.37		$	145.15		$	65.12
ESPP
Risk-free interest rate	2.5		%	1.2		%	2.1		%	1.2		%
Expected term (in years)	1.3			1.2			1.3			1.2
Expected volatility	31		%	29		%	32		%	28		%
Fair value at grant date	$	153.72		$	85.23		$	135.84		$	79.77