EQUITY INCENTIVE PLAN

The Company’s equity incentive plan provides employees and directors of the Company additional incentives to join and/or remain in the service of the Company as well as to maintain and enhance the long-term performance and profitability of the Company. The Company’s 2013 equity incentive plan was approved by shareholders on May 2, 2013 and provides that 2 million shares of common stock, plus any shares that remained available for grant under the Company's prior equity incentive plan as well as options outstanding that terminate without being exercised, may be the subject of awards. The plan provides for the grant of options, restricted stock units, and other equity-based awards. The exercise price of options granted shall not be less than the fair market value of the common stock on the date of the award. Options primarily vest equally over a five-year period from the date of grant and have a maximum term of up to ten years and six months. Restricted units primarily vest equally over a five-year period from the date of grant. Performance share units generally vest after a three-year period from the date of the grant based upon satisfaction of the performance condition. The compensation committee of the Board of Directors has generally granted restricted share units to participating managers and non-qualified stock options and performance share units to executive officers.

All share-based compensation arrangements granted to employees, including stock option grants, are recognized in the consolidated statement of operations based on the grant-date fair value of the award over the period during which an employee is required to provide service in exchange for the award. Share-based compensation expense is recorded within selling, general, and administrative in the consolidated statement of operations with a corresponding offset to additional paid-in capital in the consolidated balance sheet.

The fair values of stock options granted were calculated using the Black-Scholes pricing model. The aggregate intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The following table summarizes all stock option activity from December 31, 2017 through December 31, 2018:



	Number of Options		Weighted Average Exercise Price	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2017	1,008,476		$232.99	$392.2
Granted	43,943		595.31
Exercised	(163,120	)	150.81
Forfeited	(41,469	)	369.93
Outstanding at December 31, 2018	847,830		$260.88	$264.0
Options exercisable at December 31, 2018	676,202		$208.01	$242.8

The following table details the weighted average remaining contractual life of options outstanding at December 31, 2018 by range of exercise prices:



Number of Options Outstanding	Weighted Average Exercise Price	Remaining Contractual Life of Options Outstanding	Options Exercisable
Number of Options Outstanding	Weighted Average Exercise Price	Remaining Contractual Life of Options Outstanding	Options Exercisable
74,868	$90.76	0.8	74,868
86,140	$133.00	1.8	86,140
214,451	$159.78	3.3	214,451
113,906	$244.99	4.9	113,906
358,465	$392.68	7.4	186,837
847,830		4.9	676,202

As of the date granted, the weighted average grant-date fair value of the options granted during the years ended December 31, 2018, 2017, and 2016 was $189.78, $206.56, and $118.31, respectively.

Such weighted average grant-date fair value was determined using the following assumptions:



	2018		2017		2016
Risk-free interest rate	3.09	%	2.00	%	1.26	%
Expected life in years	5.9		5.8		5.7
Expected volatility	26	%	28	%	29	%
Expected dividend yield	—		—		—

The total intrinsic value of options exercised during the years ended December 31, 2018, 2017, and 2016 was approximately $74.3 million, $105.6 million, and $69.5 million, respectively.

The total fair value of options vested during the years ended December 31, 2018, 2017, and 2016 was approximately $6.9 million, $8.3 million, and $7.4 million, respectively.

During the fourth quarter of 2016, the Company granted 12,678 performance-based options, with a grant-date fair value of $1.5 million. Compensation expense is recognized over the five-year vesting provisions based upon the probability of the performance condition being met.

The following table summarizes all restricted stock unit and performance share unit activity from December 31, 2017 through December 31, 2018:



	Number of Restricted Stock Units		Aggregate Intrinsic Value (in millions)	Number of Performance Share Units		Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2017	56,389		$34.9	8,050		$5.0
Granted	16,380			4,912
Vested	(20,259	)		—
Forfeited	(3,258	)		(148	)
Outstanding at December 31, 2018	49,252		$27.8	12,814		$7.2

The weighted average grant-date fair value of the restricted stock units granted during years ended 2018 and 2017 was $595.31 and $671.60 per unit, respectively, and the restricted units vest ratably primarily over a five-year period. The total fair value of the restricted stock units on the date of grant of $9.6 million for 2018 and $8.7 million for 2017 will be recorded as compensation expense on a straight-line basis over the vesting period. The total fair value of restricted stock units vested during the years ended December 31, 2018, 2017, and 2016 was approximately $7.2 million, $6.8 million, and $6.3 million, respectively. Approximately $6.8 million and $6.5 million of compensation expense was recognized during the years ended December 31, 2018 and 2017, respectively.

The Company granted performance share units with a market condition during 2018 and 2017, respectively. Grantees of performance share units will be eligible to receive shares of the Company's common stock depending upon the Company's total shareholder return relative to the performance of companies in the S&P 500 Healthcare and S&P 500 Industrials over a three-year period. The awards actually earned will range from zero to 200% of the targeted number of performance share units for the three-year performance period and will be paid, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period. These awards were valued using a Monte Carlo simulation based on the following assumptions:



	2018		2017
Risk-free interest rate	3.03	%	1.73	%
Expected life in years	3.0		3.0
Expected volatility	26	%	28	%
Expected dividend yield	—		—

As of the date granted, the fair value of the performance share units granted was $733.35 for 2018 and $844.39 for 2017, respectively. The total fair value of the performance share units on the date of the grant was $3.6 million for 2018 and $3.0 million for 2017 and will be recorded as compensation expense on a straight-line basis over the three-year period.

At December 31, 2018, a total of 2,182,289 shares of common stock were available for grant in the form of stock options, restricted stock units, or performance share units.

As of December 31, 2018, the unrecorded deferred share-based compensation balance related to stock options, restricted stock units, and performance share units was $51.3 million and will be recognized using a straight-line method over an estimated weighted average amortization period of 2.3 years.