18)	Stock-Based Compensation

In connection with the completion of the Newport Merger, the Company assumed:

•

all restricted stock units (“RSUs”) granted under any Newport equity plan that were outstanding immediately prior to the effective time of the Newport Merger, and as to which shares of Newport common stock were not fully distributed in connection with the closing of the Newport Merger, and

•

all stock appreciation rights granted under any Newport equity plan, whether vested or unvested, that were outstanding immediately prior to the effective time of the Newport Merger.

As of the effective time of the Newport Merger, based on a formula provided in the Merger Agreement, (a) the Newport RSUs were converted automatically into RSUs with respect to 360,674 shares of the Company’s common stock (the “Assumed RSUs”), and (b) the Newport stock appreciation rights were converted automatically into stock appreciation rights with respect to 899,851 shares of the Company’s common stock (the “Assumed SARs”).

Included in the total number of Assumed RSUs were 36,599 RSUs for outside directors that were part of the Newport Deferred Compensation Plan (the “DC Plan”), from which 19,137 underlying shares were released in May 2016. As of September 30, 2016, 17,462 RSUs remained outstanding under the DC Plan, and an additional 136 shares were added to the DC Plan due to reinvested dividends. These Assumed RSUs will not become issued shares until their respective release dates.

The shares of the Company’s common stock that are subject to the Assumed SARs and the Assumed RSUs are issuable pursuant to the Company’s 2014 Stock Incentive Plan (the “Plan”).

The 1,260,525 shares of the Company’s common stock that are issuable pursuant to the Assumed RSUs and the Assumed SARs under the Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”), on a registration statement on Form S-8. These shares are in addition to the 18,000,000 shares of the Company’s common stock reserved for issuance under the Plan and previously registered under the Securities Act on a registration statement on Form S-8.

During the nine months ended September 30, 2016, the Company granted 740,985 RSUs with a weighted average grant date fair value of $35.51 and the Company did not grant any stock appreciation rights.

The total stock-based compensation expense included in the Company’s consolidated statements of income and comprehensive income was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenues	$	666	$	432	$	1,996	$	1,489
Research and development expense		551		405		1,614		1,255
Selling, general and administrative expense		3,941		2,410		16,216		7,281

Total pre-tax stock-based compensation expense	$	5,158	$	3,247	$	19,826	$	10,025

At September 30, 2016, the total compensation expense related to unvested stock-based awards granted to employees, officers and directors under the Company’s stock–based compensation plan that had not been recognized was $29,283, net of estimated forfeitures. The future compensation expense is recognized on a straight-line basis over the requisite service period, net of estimated forfeitures except for retirement eligible employees in which the Company expenses the fair value of the grant in the period the grant is issued. The Company considers many factors when estimating expected forfeitures, including types of awards and historical experience. Actual results, and future changes in estimates, may differ substantially from the Company’s current estimates.

The following table presents the activity for RSUs under the Plan:


	Nine Months Ended September 30, 2016
	Non-vested RSUs			Weighted Average Grant Date Fair value
Non-vested RSUs – beginning of period		733,162		$	30.94
Assumed RSUs from Newport Merger		360,674			35.01
Accrued dividend shares		136			43.64
Granted		740,985			35.51
Vested		(452,251	)		31.18
Forfeited		(55,474	)		33.74

Non-vested RSUs – end of period		1,327,232		$	34.40

For the three months ended September 30, 2016, there were approximately 529,000 and 213,000 weighted-average RSUs and stock appreciation rights, respectively, that would have an anti-dilutive effect on EPS, and would thus need to be excluded from the computation of diluted weighted-average shares. For the nine months ended September 30, 2016, there were approximately 401,000 and 181,000 weighted-average RSUs and stock appreciation rights, respectively, that would have an anti-dilutive effect on EPS, and would thus need to be excluded from the computation of diluted weighted-average shares.

As of September 30, 2015, stock options and RSUs related to an aggregate of approximately 752,000 shares were outstanding. For the three and nine months ended September 30, 2015, there were no RSUs or stock options that were excluded from the computation of diluted weighted-average shares outstanding that would have had an anti-dilutive effect on EPS.

At September 30, 2016, the Company’s outstanding and exercisable stock appreciation rights, the weighted-average base value, the weighted average remaining contractual life and the aggregate intrinsic value thereof, were as follows:


	Number of shares		Weighted Average Base Value		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Stock appreciation rights outstanding		712,284	$	27.86		4.1	$	15,581
Stock appreciation rights exercisable		482,001	$	26.52		3.5	$	11,185