3.Stock-Based Compensation

On May 14, 2010, the Bruker Corporation 2010 Incentive Compensation Plan (the “2010 Plan”) was approved by the Company’s stockholders. The 2010 Plan provided for the issuance of up to 8,000,000 shares of the Company’s common stock. The 2010 Plan allowed a committee of the Board of Directors (the “Compensation Committee”) to grant incentive stock options, non-qualified stock options and restricted stock awards. The Compensation Committee had the authority to determine which employees would receive the awards, the amount of the awards and other terms and conditions of any awards. Awards granted under the 2010 Plan typically were made subject to a vesting period of three to five years.

On May 20, 2016, the Bruker Corporation 2016 Incentive Compensation Plan (the “2016 Plan”) was approved by the Company’s stockholders. With the approval of the 2016 Plan, no further grants will be made under the 2010 Plan. The 2016 Plan provides for the issuance of up to 9,500,000 shares of the Company’s common stock and permits the grant of awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares and performance units, as well as cash-based awards. The 2016 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee has the authority to determine which employees will receive awards, the amount of any awards, and other terms and conditions of such awards. Awards granted under the 2016 Plan typically vest over a period of one to four years.

The Company recorded stock-based compensation expense as follows in the unaudited condensed consolidated statements of income and comprehensive income (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Stock options	$	1.8	$	2.1	$	5.2	$	5.6
Restricted stock awards	0.4		0.4		1.1		1.2
Restricted stock units	0.9		—		2.1		—

Total stock-based compensation	$	3.1	$	2.5	$	8.4	$	6.8

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Costs of product revenue	$	0.5	$	0.4	$	1.3	$	1.0
Selling, general and administrative	2.1		1.7		5.8		4.8
Research and development	0.5		0.4		1.3		1.0

Total stock-based compensation	$	3.1	$	2.5	$	8.4	$	6.8

Stock-based compensation expense is recognized on a straight-line basis over the underlying requisite service period of the stock-based award.

Stock options to purchase the Company’s common stock are periodically awarded to executive officers and other employees of the Company subject to a vesting period of three to four years. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions for the nine months ended September 30, 2017 and 2016 regarding volatility, expected life, dividend yield and risk-free interest rates are required for the Black-Scholes model and are presented in the table below:

	2017	2016
Risk-free interest rates	1.78% - 2.09%	1.23% - 2.05%
Expected life	5.56 years	5.75 - 7.02 years
Volatility	30.78% - 34.13%	33.57% - 41.60%
Expected dividend yield	0.55% - 0.74%	0.0% - 0.73%

Stock option activity for the nine months ended September 30, 2017 was as follows:

	Shares Subject to Options		Weighted Average Option Price		Weighted Average Remaining Contractual Term (Yrs)	Aggregate Intrinsic Value (in millions) (b)
Outstanding at December 31, 2016	4,625,678		$	18.73
Granted	180,677		27.97
Exercised	(961,651	)	16.15
Forfeited	(187,946	)	19.87

Outstanding at September 30, 2017	3,656,758		$	19.81	6.4	$	36.4


Exercisable at September 30, 2017	1,963,600		$	17.55	5.2	$	24.0


Exercisable and expected to vest at September 30, 2017 (a)	3,543,147		$	19.72	6.3	$	35.5

(a)

In addition to the options that are vested at September 30, 2017, the Company expects a portion of the unvested options to vest in the future. Options expected to vest in the future are determined by applying an estimated forfeiture rate to the options that are unvested as of September 30, 2017.

(b)

The aggregate intrinsic value is based on the positive difference between the fair value of the Company’s common stock price of $29.75 on September 30, 2017 and the exercise price of the underlying stock options.

The weighted average fair value of options granted was $7.61 and $9.67 per share for the nine months ended September 30, 2017 and 2016, respectively.

The total intrinsic value of options exercised was $10.9 million and $10.4 million for the nine months ended September 30, 2017 and 2016, respectively.

Restricted stock award activity for the nine months ended September 30, 2017 was as follows:

	Shares Subject to Restriction		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	172,506		$	19.37
Vested	(82,924	)	18.17
Forfeited	(4,053	)	22.46

Outstanding at September 30, 2017	85,529		$	20.39

The total fair value of restricted stock vested was $1.5 million and $1.4 million in each of the nine months ended September 30, 2017 and 2016.

Restricted stock unit activity for the nine months ended September 30, 2017 was as follows:

	Shares Subject to Restriction		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	262,317		$	22.32
Granted	484,234		26.46
Vested	(8,692	)	22.70
Forfeited	(24,729	)	22.51

Outstanding at September 30, 2017	713,130		$	25.08

The total fair value of restricted stock units vested was $0.2 million in the nine months ended September 30, 2017, with no corresponding amount in the comparable period in 2016.

At September 30, 2017, the Company expects to recognize pre-tax stock-based compensation expense of $10.0 million associated with outstanding stock option awards granted under the Company’s stock plans over the weighted average remaining service period of 2.35 years. The Company expects to recognize additional pre-tax stock-based compensation expense of $1.4 million associated with outstanding restricted stock awards granted under the Company’s stock plans over the weighted average remaining service period of 1.63 years. The Company also expects to recognize additional pre-tax stock-based compensation expense of $14.5 million associated with outstanding restricted stock units granted under the 2016 Plan over the weighted average remaining service period of 3.57 years.

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation - Improvements to Employee Share-Based Payment Accounting. The new standard simplifies accounting for share-based payment transactions, including income tax consequences and the classification of the tax impact on the statement of cash flows. The Company adopted this standard effective January 1, 2017. The ASU requires that the difference between the actual tax benefit realized upon exercise or vesting, as applicable, and the tax benefit recorded based on the fair value of the stock award at the time of grant (the “excess tax benefits”) be reflected as a reduction of the current period provision for income taxes with any shortfall recorded as an increase in the tax provision rather than as a component of changes to additional paid-in capital. The ASU also requires the excess tax benefit realized be reflected as an operating cash flow rather than a financing cash flow. This standard was adopted by the Company on a modified retrospective basis, which resulted in a cumulative adjustment to retained earnings of $3.6 million related to the timing of when excess tax benefits are recognized. The actual benefit realized in future periods is inherently uncertain and will vary based on the timing and relative value realized for future share-based transactions. The Company continues to utilize a historical forfeiture rate to estimate future forfeitures.