Stock-Based Compensation Plans

Teledyne has long-term incentive plans pursuant to which it has granted non-qualified stock options, restricted stock and performance shares to certain employees. The Company also has non-employee Board of Director stock compensation plans, pursuant to which non-qualified stock options (prior to 2015), common stock and restricted stock units, have been issued to its directors.

Stock Incentive Plan

The following disclosures are based on stock options granted to Teledyne’s employees and directors. Stock option compensation expense was $4.6 million for the third quarter of 2018 and was $3.2 million for the third quarter of 2017. Stock option compensation expense was $14.9 million for the first nine months of 2018 and was $11.0 million for the first nine months of 2017. Employee stock option grants are charged to expense evenly over the three year vesting period. For 2018, the Company currently expects approximately $20.0 million in stock option compensation expense based on stock options currently outstanding. This amount can be impacted by employee retirements and terminations or stock options granted during the remainder of the year. The Company issues shares of common stock upon the exercise of stock options.

The following assumptions were used in the valuation of stock options granted in 2018:



	2018
Expected volatility	31.0%
Risk-free interest rate range	1.99% to 2.58%
Expected life in years	6.8
Expected dividend yield	—

Based on the assumptions used in the valuation of stock options, the grant date weighted average fair value of stock options granted in 2018 was $71.89 per share.

Stock option transactions for the third quarter and nine months ended September 30, 2018 are summarized as follows:



	2018
	Third Quarter				Nine Months
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Beginning balance	2,290,893		$	103.11	2,285,703		$	83.73
Granted	2,580		$	231.98	377,472		$	192.28
Exercised	(163,702	)	$	75.13	(504,674	)	$	71.63
Canceled	(51,467	)	$	139.87	(80,197	)	$	130.87
Ending balance	2,078,304		$	104.57	2,078,304		$	104.57
Options exercisable at end of period	1,270,019		$	78.32	1,270,019		$	78.32

Performance Share Plan and Restricted Stock Award Program

In the first quarter of 2018, the Company issued 6,481 shares of Teledyne common stock for the first of three annual payouts under the 2015 to 2017 Performance Share Plan. A total of 31,117 shares remain to be issued in equal installments in 2019 and 2020. In the first quarter of 2018, the performance cycle for the three-year period ending December 31, 2020, was set. Under the plan, the target number of shares that could be issued in three equal installments in 2021, 2022 and 2023, is 25,989 (with a maximum of 51,978).

The following table shows the restricted stock activity for the first nine months of 2018:



	Shares		Weighted average fair value per share
Balance, December 31, 2017	88,436		$	90.63
Granted	16,733		$	171.80
Vested	(28,855	)	$	92.74
Forfeited/Canceled	(2,994	)	$	118.55
Balance, September 30, 2018	73,320		$	107.19