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STOCK-BASED COMPENSATION | 9 Months Ended
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Sep. 30, 2017
STOCK-BASED COMPENSATION |
STOCK-BASED COMPENSATION | NOTE 12 — STOCK-BASED COMPENSATION The Company issues stock options and restricted stock units (“RSUs”) to employees under Stock Awards Plans approved by stockholders. 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 nine months of 2017 was approximately $12.6 million ($8.6 million after tax). The income tax benefit related to this compensation expense was approximately $4.0 million. Approximately $11.0 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 nine months of 2016 was approximately $15.5 million ($10.4 million after tax). The income tax benefit related to this compensation expense was approximately $5.1 million. Approximately $13.7 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 $11.86 and $10.59 per share during the first nine 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: |  |  |  |  |
Nine Months Ended September 30, |  | 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 nine months ended September 30, 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 |  |  | 1,622,082 |  |  | 74.90 |  | — |  |  | — |
Exercised |  |  | (1,345,252) |  |  | 46.67 |  | (66,367) |  |  | 53.23 |
Forfeited or expired |  |  | (122,282) |  |  | 71.42 |  | — |  |  | — |
Outstanding at September 30, 2017 |  |  | 8,224,992 |  | $ | 61.38 |  | 214,967 |  | $ | 57.44 |
Exercisable at September 30, 2017 |  |  | 5,310,730 |  | $ | 55.44 |  | 214,967 |  | $ | 57.44 |
Weighted-Average Remaining Contractual Term (Years): |  |  |  |  |  |  |  |  |  |  |  |
Outstanding at September 30, 2017 |  |  | 6.3 |  |  |  |  | 5.3 |  |  |  |
Exercisable at September 30, 2017 |  |  | 5.0 |  |  |  |  | 5.3 |  |  |  |
Aggregate Intrinsic Value: |  |  |  |  |  |  |  |  |  |  |  |
Outstanding at September 30, 2017 |  | $ | 206,938 |  |  |  | $ | 6,255 |  |  |  |
Exercisable at September 30, 2017 |  | $ | 165,175 |  |  |  | $ | 6,255 |  |  |  |
Intrinsic Value of Options Exercised During the Nine Months Ended: |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2017 |  | $ | 44,734 |  |  |  | $ | 1,995 |  |  |  |
September 30, 2016 |  | $ | 38,514 |  |  |  | $ | 536 |  |  |  |
The fair value of options vested during the nine months ended September 30, 2017 and 2016 was $16.9 million and $17.2 million, respectively. Cash received from option exercises was approximately $66.7 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $13.7 million in the nine months ended September 30, 2017. As of September 30, 2017, the remaining valuation of stock option awards to be expensed in future periods was $16.4 million and the related weighted-average period over which it is expected to be recognized is 2.0 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 September 30, 2017, and changes during the nine 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 |  | 89,110 |  |  | 74.43 |  | 14,793 |  |  | 80.45 |
Vested |  | (51,963) |  |  | 68.52 |  | (15,745) |  |  | 75.56 |
Nonvested at September 30, 2017 |  | 109,274 |  | $ | 73.86 |  | 14,793 |  | $ | 80.45 |
Compensation expense recorded attributable to RSUs for the first nine months of 2017 and 2016 was approximately $2.4 million and $2.3 million, respectively. The actual tax benefit realized for the tax deduction from RSUs was approximately $1.6 million in the nine months ended September 30, 2017. The fair value of units vested during the nine months ended September 30, 2017 and 2016 was $4.7 million and $1.9 million, respectively. The intrinsic value of units vested during the nine months ended September 30, 2017 and 2016 was $5.2 million and $2.3 million, respectively. As of September 30, 2017, there was $6.2 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.1 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 September 30, 2017 is approximately $4.0 million, of which $1.5 million and $973 thousand was recognized in the first nine months of 2017 and 2016, respectively.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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