Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

Stock-based compensation is included in the following financial statement captions:


	Year Ended December 31,
	2018		2017		2016
Cost of sales	$	6,535	$	5,863	$	6,018
Sales and marketing	2,550		2,041		1,820
Research and development	6,410		5,001		4,905
General and administrative	12,532		10,116		8,991
Total stock-based compensation	28,027		23,021		21,734
Tax benefit recognized	(6,632)		(7,367)		(6,971)
Net stock-based compensation	$	21,395	$	15,654	$	14,763

Incentive Plans — In February 2006, the Company's board of directors adopted the 2006 Incentive Compensation Plan (the "2006 Plan"), which provides for the issuance of stock options, restricted stock units, performance stock units, other equity-based awards and cash awards to the Company's directors, employees, consultants and advisors. In June 2006, the Company's board of directors adopted the Non-Employee Directors Stock Plan (the "Directors Plan") for non-employee directors, which was subsequently merged into the 2006 Plan. A total of 10,363,465 shares are reserved under the 2006 Plan. At December 31, 2018, 3,680,071 shares of the Company's stock were available for future grant under the 2006 Plan. The Company may grant stock options only at an exercise price equal to or greater than the fair market value of its common stock on the date of grant. Equity awards generally become exercisable over periods of one to four years and generally expire ten years after the date of the grant. The vesting of awards under the 2006 Plan accelerate following the occurrence of certain change of control events, if the participant's employment is terminated within two years without cause or if the successor entity does not agree to assume existing awards or replace with equivalent value awards. Awards granted to non-employee directors automatically become exercisable upon a change of control. All shares issued under the 2006 Plan and Directors Plan are registered shares, newly issued by the Company.

Compensation cost for all stock-based payment awards is based on the estimated grant-date fair value. The Company allocates and records stock-based compensation expense on a straight-line basis over the requisite service period. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions, including the expected life of the stock-based payment awards, stock price volatility and, prior to the adoption of ASU 2016-09 effective January 1, 2017, forfeiture rates. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future.

The Company calculates the fair value of stock option grants using the Black-Scholes option pricing model. The assumptions used in the Black-Scholes model or the calculation of compensation were as follows for the years ended December 31.


	2018	2017	2016
Expected term	4.1 - 4.9 years	3.8 - 5.0 years	4.4 - 6.1 years
Volatility	31% - 36%	31% - 35%	37% - 45%
Risk-free rate of return	2.54% - 3.01%	1.57% - 1.97%	1.06% - 1.41%
Dividend yield	0.25%	0.25%	0.25%
Forfeiture rate	—%	—%	2.65% - 5.26%

A summary of option activity is presented below (see Note 13, "Employee Benefit Plans" for further information):


	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
				(In years)	(In thousands)
Outstanding — January 1, 2016	2,224,169	$	53.82
Granted	260,930	82.84
Exercised	(392,887)	35.81
Forfeited	(27,959)	72.87
Outstanding — December 31, 2016	2,064,253	60.65		6.04	$	78,556
Granted	293,284	124.57
Exercised	(546,931)	50.50
Forfeited	(13,113)	90.81
Outstanding — December 31, 2017	1,797,493	73.95		6.02	$	251,970
Granted	257,111	232.26
Exercised	(282,720)	58.94
Forfeited	(24,810)	131.36
Outstanding — December 31, 2018	1,747,074	$	98.93	5.80	$	58,084
Unvested — December 31, 2018	830,076	$	140.80	7.82	$	9,179
Exercisable — December 31, 2018	916,998	$	61.03	3.96	$	48,905

The intrinsic value of the options exercised during the years ended December 31, 2018, 2017 and 2016, was $51,266, $50,131 and $23,315, respectively. The weighted-average grant fair value per share for options granted during the years ended December 31, 2018, 2017 and 2016, was $71.06, $38.01 and $33.08, respectively. The total compensation cost related to non-vested awards not yet recorded at December 31, 2018 was $22,367 which is expected to be recognized over a weighted-average of 2.7 years. The aggregate fair value of awards vested during the year ended December 31, 2018 was $12,660.

The following table summarizes the restricted stock units ("RSU's") activity for the year ended December 31:


	Number of Shares	Weighted-Average Grant-Date Fair Value		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
				(In years)	(In thousands)
Outstanding — January 1, 2016	277,719	$	77.22
Granted	140,452	81.86
Converted	(44,656)	70.64
Canceled	(6,745)	81.89
Outstanding — December 31, 2016	366,770	79.72		2.55	$	36,204
Granted	106,764	127.29
Converted	(90,385)	66.18
Canceled	(4,888)	90.54
Outstanding — December 31, 2017	378,261	96.23		2.55	$	80,997
Granted	80,254	227.45
Converted	(97,997)	91.62
Canceled	(9,497)	121.37
Outstanding — December 31, 2018	351,021	$	126.93	2.62	$	39,767
Unvested — December 31, 2018	351,021	$	126.93	2.62	$	39,767

The intrinsic value of the RSU's converted during the years ended December 31, 2018, 2017 and 2016, was $22,978, $11,684 and $3,931, respectively. The weighted-average grant fair value per share for RSU's granted during the years ended December 31, 2018, 2017 and 2016, was $227.45, $127.29 and $81.86, respectively. The total compensation cost related to non-vested awards not yet recorded at December 31, 2018 was $24,214 which is expected to be recognized over a weighted-average of 2.7 years. The aggregate fair value of awards vested during the year ended December 31, 2018 was $8,979.

The Company grants performance stock units to executive officers. The performance stock unit agreements provide for the award of performance stock units with each unit representing the right to receive one share of the Company's common stock to be issued after the applicable award vesting period. The final number of units awarded, if any, for these performance grants will be determined as of the vesting dates, based upon the Company's total shareholder return over the performance period compared to the Russell 3000 Index and could range from no units to a maximum of twice the amount of awarded units. The weighted-average fair value of these performance units was determined using the Monte Carlo simulation model incorporating the following weighted-average assumptions:


	2018	2017	2016
Performance term	3.0 years	3.0 years	3.0 years
Volatility	13% - 32%	13% - 31%	13% - 32%
Risk-free rate of return	2.41%	1.49%	.88%
Dividend yield	—%	—%	—%
Weighted-average fair value per share	284.78	147.25	88.51

The following table summarizes the performance stock units ("PSU's") activity for the year ended December 31:


	Number of Shares	Weighted-Average Grant-Date Fair Value		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
				(In years)	(In thousands)
Outstanding — January 1, 2016	27,233	$	128.54
Granted	27,272	88.51
Converted	—
Canceled	—
Outstanding — December 31, 2016	54,505	108.51		2.64	$	5,380
Granted	21,444	147.25
Converted	—
Canceled	—
Outstanding — December 31, 2017	75,949	119.45		1.93	$	16,263
Granted	33,706	238.12
Converted	—
Canceled	—
Outstanding — December 31, 2018	109,655	$	146.96	1.77	$	12,423
Unvested — December 31, 2018	109,655	$	146.96	1.77	$	12,423

PSU's are included at 100% of target goal; under the terms of the awards, the recipient may earn between 0% and 200% of the awarded units. The total compensation cost related to nonvested awards not yet recorded at December 31, 2018 was $5,586 which is expected to be recognized over a weighted average of 1.8 years.