NOTE 12 — STOCK-BASED COMPENSATION

The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders. Stock options and restricted stock units are issued to non-employee directors under Director Stock Option Plans and the Director Restricted Stock Unit Plan approved by shareholders. Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant. Restricted stock units granted to employees generally vest over three years.

Compensation expense recorded attributable to stock options for the first three months of 2016 was approximately $8.9 million ($5.9 million after tax). The income tax benefit related to this compensation expense was approximately $3.0 million. Approximately $7.9 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the first three months of 2015 was approximately $8.8 million ($5.7 million after tax). The income tax benefit related to this compensation expense was approximately $3.1 million. Approximately $8.0 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

The Company uses historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the Stock Awards Plans was $12.87 and $12.83 per share during the first three months of 2016 and 2015, respectively. These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


Stock Awards Plans:
Three Months Ended March 31,	2016		2015

Dividend Yield	1.8	%	1.7	%
Expected Stock Price Volatility	20.4	%	21.9	%
Risk-free Interest Rate	1.6	%	1.6	%
Expected Life of Option (years)	6.7		6.9

A summary of option activity under the Company’s stock plans during the three months ended March 31, 2016 is presented below:


	Stock Awards Plans					Director Stock Option Plans
			Weighted Average				Weighted Average
		Options	Exercise Price			Options	Exercise Price
Outstanding, January 1, 2016		8,032,030	$	51.44		303,501	$	56.00
Granted		1,472,180		71.12		—		—
Exercised		(510,012)		41.37		(15,833)		45.90
Forfeited or expired		(65,634)		58.33		—		—
Outstanding at March 31, 2016		8,928,564	$	55.21		287,668	$	56.56
Exercisable at March 31, 2016		6,092,834	$	49.04		214,827	$	54.20
Weighted-Average Remaining Contractual Term (Years):
Outstanding at March 31, 2016		6.6				6.7
Exercisable at March 31, 2016		5.4				6.2
Aggregate Intrinsic Value:
Outstanding at March 31, 2016	$	207,138			$	6,286
Exercisable at March 31, 2016	$	178,923			$	5,056
Intrinsic Value of Options Exercised During the Three Months Ended:
March 31, 2016	$	16,973			$	436
March 31, 2015	$	18,824			$	874

The fair value of shares vested during the three months ended March 31, 2016 and 2015 was $16.3 million and $14.8 million, respectively. Cash received from option exercises was approximately $21.0 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $5.6 million in the three months ended March 31, 2016. As of March 31, 2016, the remaining valuation of stock option awards to be expensed in future periods was $22.2 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date. A summary of restricted stock unit activity as of March 31, 2016, and changes during the three month period then ended, is presented below:


				Director Restricted
	Stock Awards Plans			Stock Unit Plan
		Weighted Average			Weighted Average
	RSUs	Grant-Date Fair Value		RSUs	Grant-Date Fair Value
Nonvested at January 1, 2016	66,376	$	66.61	18,857	$	63.10
Granted	21,754		73.45	—		—
Vested	(10,537)		62.21	—		—
Forfeited	(3,676)		68.00	—		—
Nonvested at March 31, 2016	73,917	$	69.18	18,857	$	63.10

Compensation expense recorded attributable to restricted stock unit grants for the first three months of 2016 and 2015 was approximately $1.2 million and $727 thousand, respectively. The fair value of units vested during the three months ended March 31, 2016 and 2015 was $656 thousand and $633 thousand, respectively. The intrinsic value of units vested during the three months ended March 31, 2016 and 2015 was $773 thousand and $732 thousand, respectively. As of March 31, 2016, there was $1.8 million of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.4 years.

The Company has a long-term incentive program for certain employees. Each award is based on the cumulative total shareholder return of our common stock during a three year performance period. Total expense related to this program for awards outstanding as of March 31, 2016 is expected to be approximately $5.8 million, of which $1.3 million and $227 thousand was recognized in the first three months of 2016 and 2015, respectively.