NOTE 12 — STOCK-BASED COMPENSATION

The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by stockholders. Restricted stock units (“RSUs”) are issued to non-employee directors under a Director Restricted Stock Unit Plan and the 2016 Equity Incentive Plan, and stock options were formally issued to non-employee directors under a Director Stock Option Plan. Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant. RSUs granted to employees generally vest over three years. Director RSUs generally vest over one year.

Compensation expense attributable to employee stock options for the first three months of 2017 was approximately $6.9 million ($4.6 million after tax). The income tax benefit related to this compensation expense was approximately $2.3 million. Approximately $6.0 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense attributable to stock options for the first three months of 2016 was approximately $8.9 million ($5.9 million after tax). The income tax benefit related to this compensation expense was approximately $3.0 million. Approximately $7.9 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

The Company uses historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the Stock Awards Plans was $11.85 and $10.59 per share during the first three months of 2017 and 2016, respectively. These values were estimated on the respective grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:


Stock Awards Plans:
Three Months Ended March 31,	2017		2016

Dividend Yield	1.7	%	1.8	%
Expected Stock Price Volatility	15.8	%	16.9	%
Risk-free Interest Rate	2.2	%	1.6	%
Expected Life of Option (years)	6.7		6.7

A summary of option activity under the Company’s stock plans during the three months ended March 31, 2017 is presented below:


	Stock Awards Plans					Director Stock Option Plans
			Weighted Average				Weighted Average
		Options	Exercise Price			Options	Exercise Price
Outstanding, January 1, 2017		8,070,444	$	56.36		281,334	$	56.45
Granted		1,607,773		74.79		—		—
Exercised		(452,677)		40.41		—		—
Forfeited or expired		(12,357)		69.22		—		—
Outstanding at March 31, 2017		9,213,183	$	60.35		281,334	$	56.45
Exercisable at March 31, 2017		6,198,605	$	54.63		255,998	$	55.44
Weighted-Average Remaining Contractual Term (Years):
Outstanding at March 31, 2017		6.7				5.7
Exercisable at March 31, 2017		5.5				5.5
Aggregate Intrinsic Value:
Outstanding at March 31, 2017	$	154,089			$	5,802
Exercisable at March 31, 2017	$	139,129			$	5,536
Intrinsic Value of Options Exercised During the Three Months Ended:
March 31, 2017	$	15,289			$	—
March 31, 2016	$	16,973			$	436

The fair value of options vested during the three months ended March 31, 2017 and 2016 was $16.9 million and $16.3 million, respectively. Cash received from option exercises was approximately $15.9 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $5.1 million in the three months ended March 31, 2017. As of March 31, 2017, the remaining valuation of stock option awards to be expensed in future periods was $23.4 million and the related weighted-average period over which it is expected to be recognized is 2.3 years.

The fair value of RSU grants is the market price of the underlying shares on the grant date. A summary of RSU activity as of March 31, 2017, and changes during the three month period then ended, is presented below:


				Director Restricted
	Stock Awards Plans			Stock Unit Plan
		Weighted Average			Weighted Average
	RSUs	Grant-Date Fair Value		RSUs	Grant-Date Fair Value
Nonvested at January 1, 2017	72,127	$	69.31	15,745	$	75.56
Granted	78,276		73.29	—		—
Vested	(40,963)		68.29	—		—
Forfeited	—		—	—		—
Nonvested at March 31, 2017	109,440	$	72.54	15,745	$	75.56

Compensation expense recorded attributable to RSUs for the first three months of 2017 and 2016 was approximately $0.9 million and $1.2 million, respectively. The fair value of units vested during the three months ended March 31, 2017 and 2016 was $2.8 million and $656 thousand, respectively. The intrinsic value of units vested during the three months ended March 31, 2017 and 2016 was $3.0 million and $773 thousand, respectively. As of March 31, 2017, there was $5.6 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.5 years.

The Company has a long-term incentive program for certain employees. Each award is based on the cumulative total shareholder return of our common stock during a three year performance period compared to a peer group. The total expected expense related to this program for awards outstanding as of March 31, 2017 is approximately $2.7 million, of which $282 thousand and $1.3 million was recognized in the first three months of 2017 and 2016, respectively.