STOCK-BASED COMPENSATION

We have granted restricted stock awards under two stock incentive plans: the 2014 Long-Term Incentive Plan and the 2014 Nonemployee Director Stock Incentive Plan. Awards under the following three compensation programs have been granted pursuant to both plans: (1) the Performance Share Award Program ("PSAP"); (2) the Restricted Share Award Program ("RSAP") and (3) the Restricted Share Award Program for Nonemployee Directors (the "Program").

We issue shares from either treasury stock or authorized shares upon the lapsing of vesting restrictions on restricted stock. In 2018, we issued 218,625 shares out of treasury stock relating to the vesting of restricted stock. We do not use cash to settle equity instruments issued under stock-based compensation awards.

2014 Long-Term Incentive Plan

In 2014, the 2007 Long-Term Incentive Plan was amended, restated and renamed as the 2014 Long-Term Incentive Plan (the "Plan"). The primary changes effected by the 2014 amendment and restatement were to (a) extend the period during which awards may be granted under the Plan to May 12, 2024, and (b) increase the number of common shares subject to the Plan by 1,100,000 shares. The Plan, as amended, provides for a maximum of 11,900,000 common shares to be granted to eligible employees. At December 31, 2018, approximately 954,552 shares remained available for the grant of new awards under the Plan. Specifically, we encourage share ownership by awarding various long-term equity incentive awards under the Plan, consisting of the PSAP and RSAP. We believe that widespread common share ownership by key employees is an important means of encouraging superior performance and employee retention. Additionally, our equity-based compensation programs encourage performance and retention by providing additional incentives for executives to further our growth, development and financial success over a longer time horizon by personally benefiting through the ownership of our common shares and/or rights.

Performance Share Award Program

The PSAP allows us to compensate our executive and senior management teams as we meet or exceed our business objectives. The PSAP shares are unvested and may not be sold, assigned, pledged, hedged, margined or otherwise transferred by an award recipient until such time as, and then only to the extent that, the restricted performance shares have vested. In the event of a change in control (as defined in the Plan) prior to the last day of the Performance Period, all of the award recipient's restricted performance shares will vest as of the effective date of such change in control. Subject to continued employment with us, or upon death or disability, PSAP shares vest if we meet or exceed our business objectives.

The company recorded $9.9 million of additional non-cash stock compensation expense in the fourth quarter of 2018 associated with the 2018 and 2017 PSAP awards for certain members of our executive management team. The additional stock compensation expense has been recorded in accordance with FASB ASC Topic 718, "Compensation - Stock Compensation", which states that the period over which stock compensation expense is recognized should not extend beyond the eligible retirement age as defined in each executive's PSAP award agreement. The PSAP awards continue to remain unvested until such time as the performance criteria have been achieved for the designated performance period; however, the executive will not forfeit the right to vest in the awarded shares if they voluntarily retire from the Company after attaining the retirement age as defined in each agreement. Of this additional charge recognized in 2018, $7.9 million should have been recognized in 2017 when the executives reached the defined retirement age. We have concluded this amount is not material to our financial position or results of operations for either 2018 or 2017, and it does not impact our cash flows from operations.

On February 16, 2016, certain executives were awarded rights to receive an aggregate of up to 122,515 common shares if our calculated return on investment capital ("ROIC"), as defined in the PSAP, achieved certain performance criteria as compared to the Bloomberg Comp Group at the end of the performance period, which ended on December 31, 2018 as the last trading day of 2018. This arrangement was recorded as an equity award that required us to recognize compensation expense totaling $11.7 million over the performance period that began on January 1, 2016, of which $3.9 million was recognized annually in 2018, 2017, and 2016. At December 31, 2018, the Company had the highest ROIC compared to the Bloomberg Comp Group. The Compensation Committee of our Board of Supervisory Directors verified that the performance target criteria had been met at the end of the performance period and 122,515 shares vested. We issued these common shares on December 31, 2018 and, simultaneously, the participants surrendered 38,351 common shares to settle any personal tax liabilities which may result from the award, as permitted by the agreement. We recorded these surrendered shares as treasury stock with an aggregate cost of $2.3 million at $59.66 per share.

On February 14, 2017, certain executives were awarded rights to receive an aggregate of up to 128,112 common shares if our calculated ROIC, as defined in the PSAP, achieves certain performance criteria as compared to the Bloomberg Comp Group at the end of the performance period, which ends on the last trading day of 2019, December 31, 2019. This arrangement is recorded as an equity award that requires us to recognize compensation expense totaling $14.2 million over the shorter of the 3-year performance period or requisite service period, as determined for each participant individually, of which $8.7 million and $4.7 million has been recognized annually in 2018 and 2017, respectively. The unrecognized compensation expense is expected to be recognized over an estimated amortization period of 12 months.

On February 13, 2018, certain executives were awarded rights to receive an aggregate of up to 162,772 common shares if our calculated ROIC, as defined in the PSAP, achieves certain performance criteria as compared to the Bloomberg Comp Group at the end of the performance period, which ends on the last trading day of 2020, December 31, 2020. This arrangement is recorded as an equity award that requires us to recognize compensation expense totaling $16.2 million over the shorter of the 3-year performance period or requisite service period, as determined for each participant individually, of which $11.4 million has been recognized in 2018. The unrecognized compensation expense is expected to be recognized over an estimated amortization period of 24 months.

Restricted Share Award Program

In 2004, the Compensation Committee of our Board of Supervisory Directors approved the RSAP to attract and retain the best employees, and to better align employee interests with those of our shareholders. Under this arrangement we awarded grants totaling 115,618 shares, 101,811 shares, and 104,164 shares in 2018, 2017, and 2016, respectively. Each of these grants has a vesting period of principally six years and vests ratably on an annual basis. There are no performance accelerators for early vesting for these awards. Awards under the RSAP are classified as equity awards and recorded at the grant-date fair value with the compensation expense recognized over the expected life of the award. As of December 31, 2018, there was $27.2 million of unrecognized total stock-based compensation expense relating to non-vested RSAP awards. The unrecognized compensation expense is expected to be recognized over an estimated weighted-average amortization period of 46 months. The grant-date fair value of shares granted was $11.6 million, $9.5 million and $10.0 million in 2018, 2017 and 2016, respectively. We recognized compensation expense of $8.9 million, $9.0 million and $10.5 million in 2018, 2017 and 2016, respectively. The total grant-date fair value, which is the intrinsic value, of the shares vested was $9.0 million, $9.6 million and $9.9 million in 2018, 2017 and 2016, respectively.

2014 Nonemployee Director Stock Incentive Plan

On May 13, 2014, the 2006 Nonemployee Director Stock Option Plan was amended, restated and renamed as the 2014 Nonemployee Director Stock Incentive Plan (the "Director Plan"). The primary change effected by the 2014 amendment was to extend the period during which awards may be granted under the Director Plan to May 12, 2024. The Director Plan provides common shares for grant to our eligible Supervisory Directors. The maximum number of shares available for award under this plan is 1,400,000 common shares. As of December 31, 2018 approximately 537,086 shares remained available for issuance under the Director Plan. Only non-employee Supervisory Directors are eligible for these equity-based awards under the Director Plan.

In 2011, the Compensation Committee of our Board of Supervisory Directors approved the restricted share award program (the "Program") to compensate our non-employee Supervisory Directors. Under this arrangement we awarded grants totaling 8,322 shares, 9,093 shares and 10,680 shares in 2018, 2017, and 2016, respectively. The shares awarded in 2018 and 2017 have a vesting period of one year for each grant; the shares awarded in 2016 have a vesting period of three years. There are no performance accelerators for early vesting for these awards. Awards under the Program are classified as equity awards and recorded at the grant-date fair value with compensation expense recognized over the expected life of the award. As of December 31, 2018, there was $0.3 million of unrecognized stock-based compensation relating to non-vested Program awards. The unrecognized compensation expense is expected to be recognized over an estimated weighted-average amortization period of 3 months. The grant-date fair value of shares granted was $0.9 million, $1.0 million and $1.1 million in 2018, 2017, and 2016, respectively, and we have recognized compensation expense of $1.4 million, $1.5 million and $0.9 million in 2018, 2017, and 2016, respectively.

Equity Compensation Plan Information

Information about our equity compensation plans as of December 31, 2018 are as follows:

Stock-based Compensation

Non-vested restricted share awards outstanding under both the Plan and the Director Plan as of December 31, 2018 and changes during the year were as follows:



	Number of Shares		Weighted Average Grant Date Fair Value per Share
Non-vested at December 31, 2017	536,750		$	105.42
Granted	241,988		100.12
Vested	(218,625	)	103.61
Forfeited	(18,555	)	108.20
Non-vested at December 31, 2018	541,558		$	103.68

For the years ended December 31, 2018, 2017 and 2016, stock-based compensation expense under both the Plan and the Director Plan recognized in the income statement is as follows (in thousands):



	2018		2017		2016
Cost of product sales and services	$	8,648	$	8,879	$	10,073
General and administrative	25,546		14,063		12,006
Total stock-based compensation expense	$	34,194	$	22,942	$	22,079

In 2018, we recorded additional stock compensation expenses of $9.9 million for retirement eligible employees as discussed in the section "Performance Share Award Program" above.

Plan Category

Number of Shares to be Issued upon Vesting

Number of Shares Available for Future Grants

2014 Long-Term Incentive Plan

2014 Nonemployee Director Stock Incentive Plan