
	Years Ended December 31,
	2020		2019		2018
	(In thousands)
Cost of goods sold	344		317		449
Research and development	1,471		1,785		1,609
Selling, general and administrative	$	17,776	$	19,153	$	18,721
Total stock-based compensation expense	19,591		21,255		20,779
Total estimated tax benefit related to stock-based compensation expense	6,221		9,420		10,430
Net effect on net income	$	13,370	$	11,835	$	10,349

The purpose of the Employee Stock Purchase Plan (the “ESPP”) is to provide eligible employees of the Company with the opportunity to acquire shares of common stock at periodic intervals by means of accumulated payroll deductions. The ESPP is a non-compensatory plan. Under the ESPP, a total of 3.0 million shares of common stock are reserved for issuance. These shares will be made available either from the Company’s authorized but unissued shares of common stock or from shares of common stock reacquired by the Company as treasury stock. At December 31, 2020, 2.0 million shares remain available for purchase under the ESPP. During the years ended December 31, 2020, 2019 and 2018, the Company issued 18,284 shares, 12,531 shares and 16,721 shares under the ESPP for $1.1 million, $0.7 million and $0.7 million, respectively.

As of December 31, 2020, the Company had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock unit awards outstanding under three plans, the 2000 Equity Incentive Plan (the “2000 Plan”), the 2001 Equity Incentive Plan (the “2001 Plan”), and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, (the “Plans”)).

In May 2010 and May 2017, the stockholders of the Company approved amendments to the 2003 Plan to increase by 3.5 million and 1.7 million, respectively, the number of shares of common stock that may be issued under the 2003 Plan. The Company has reserved 4.0 million shares under each of the 2000 Plan and the 2001 Plan, and 14.7 million shares under the 2003 Plan. The Plans permit the Company to grant incentive and non-qualified stock options, stock appreciation rights, restricted stock, contract stock, performance stock, or dividend equivalent rights to designated directors, officers, employees and associates of the Company.

Stock options issued under the Plans become exercisable over specified periods, generally within four years from the date of grant for officers and employees, and within one year from the date of the grant for members of the Board of Directors. The awards generally expire eight years from the grant date for employees and from six to ten years for directors and certain executive officers. Restricted stock issued under the Plans vests ratably over specified periods, generally three years after the date of grant.

The Company values stock option grants using the binomial distribution model. Management believes that the binomial distribution model is preferable to the Black-Scholes model because it is a more flexible model that gives consideration to the impact of non-transferability and vesting provisions in valuing employee stock options.

In determining the value of stock options granted, the Company considered that it has never paid cash dividends and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield. Expected volatilities are based on the historical volatility of the Company’s stock price. The expected life of stock options is estimated based on historical data on exercise of stock options, post-vesting forfeitures and other factors to estimate the expected term of the stock options granted. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected life of the options. The Company accounts for forfeitures as they occur.


	Years Ended December 31,
	2020	2019	2018
Dividend yield	0%	0%	0%
Expected volatility	27%	28%	28%
Risk free interest rate	0.89%	2.51%	2.79%
Expected life of option from grant date	7 years	7 years	8 years
Weighted average grant date fair value of options granted	$13.03	$18.74	$21.78


		Weighted Average Exercise Price		Weighted Average Contractual Term in Years	Aggregate Intrinsic Value

	Shares
Stock Options	(In thousands)				(In thousands)
Outstanding at January 1, 2020	1,284	$	34.83	—	—

Granted	349	43.39		—	—
Exercised	(236)	19.20		—	—
Forfeited or Expired	(51)	49.12		—	—
Outstanding at December 31, 2020	1,346	$	39.25	4.41	$	34,560

Exercisable at December 31, 2020	881,261	$	35.19	3.20	$	26,197

The Company recognized $3.2 million, $3.0 million and $2.6 million in expense related to stock options during the years ended December 31, 2020, 2019 and 2018, respectively. The intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 were $8.7 million, $14.6 million and $16.9 million, respectively. Cash received from option exercises and employee stock purchase plan was $5.2 million, $6.9 million and $9.4 million, for the years ended December 31, 2020, 2019 and 2018, respectively. The realized tax benefit from options exercised were $1.7 million, $3.0 million and $3.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, there was approximately $5.1 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately two years.



	Restricted Stock Awards			Performance Stock and Contract Stock Awards
	Shares	Weighted Average Grant Date Fair Value Per Share		Shares	Weighted Average Grant Date Fair Value Per Share


	(In thousands)			(In thousands)
Unvested, January 1, 2020	460	$	54.31	192	55.38


Granted	286	44.78		234	43.63
Adjustments for performance achievement related to award target	—	—		14	51.93
Cancellations	(42)	50.11		(31)	—

Released	(232)	52.07		(157)	43.48
Vested but not released	—	—		(55)	51.84
Unvested, December 31, 2020	472	$	50.02	197	47.66

The Company recognized $16.4 million, $18.1 million and $18.1 million in expense related to such awards during the years ended December 31, 2020, 2019 and 2018, respectively. The total fair market value of shares vested and released in 2020, 2019 and 2018 was $17.3 million, $21.1 million and $24.8 million, respectively. Vested awards include shares that have been fully earned but had not been delivered as of December 31, 2020.

Performance stock awards have performance features associated with them. Performance stock, restricted stock and contract stock awards generally have requisite service periods of three years. The fair value of these awards is being expensed on a straight-line basis over the vesting period.

As of December 31, 2020, there was approximately $22.6 million of total unrecognized compensation costs related to unvested restricted stock, performance stock and contract stock awards. These costs are expected to be recognized over a weighted-average period of approximately two years.

As of December 31, 2020, there were approximately 0.5 million vested Restricted Units and 0.1 million vested performance share units held by various employees for which the related shares have not yet been issued. The final determination of the number of shares to be issued is made by the Company's Compensation Committee of the Board of Directors which is is contingent upon achieving certain revenue and organic revenue growth performance metric.

The Company capitalized into inventory, share based compensation costs of $0.4 million, $0.3 million and $0.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Such share-based compensation was recognized as cost of goods sold when related inventory was sold.