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 six months of 2016 was approximately $12.7 million ($8.5 million after tax). The income tax benefit related to this compensation expense was approximately $4.2 million. Approximately $11.2 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 six months of 2015 was approximately $12.0 million ($7.8 million after tax). The income tax benefit related to this compensation expense was approximately $4.2 million. Approximately $10.7 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 six 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:
Six Months Ended June 30,	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

There were no grants under the Director Stock Option Plan during the second quarter of 2015 as this plan was cancelled and replaced by the Director Restricted Stock Unit Plan.

A summary of option activity under the Company’s stock plans during the six months ended June 30, 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		1,481,180		71.17		—		—
Exercised		(920,300)		41.48		(22,167)		50.37
Forfeited or expired		(119,739)		62.02		—		—
Outstanding at June 30, 2016		8,473,171	$	55.82		281,334	$	56.45
Exercisable at June 30, 2016		5,670,829	$	49.55		255,998	$	55.44
Weighted-Average Remaining Contractual Term (Years):
Outstanding at June 30, 2016		6.5				6.4
Exercisable at June 30, 2016		5.2				6.2
Aggregate Intrinsic Value:
Outstanding at June 30, 2016	$	197,495			$	6,381
Exercisable at June 30, 2016	$	167,719			$	6,064
Intrinsic Value of Options Exercised During the Six Months Ended:
June 30, 2016	$	31,595			$	536
June 30, 2015	$	23,592			$	1,449

The fair value of shares vested during the six months ended June 30, 2016 and 2015 was $16.9 million and $15.8 million, respectively. Cash received from option exercises was approximately $37.1 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $10.2 million in the six months ended June 30, 2016. As of June 30, 2016, the remaining valuation of stock option awards to be expensed in future periods was $18.5 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 June 30, 2016, and changes during the six 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	15,745		75.56
Vested	(10,537)		62.21	(18,857)		63.10
Forfeited	(4,632)		68.00	—		—
Nonvested at June 30, 2016	72,961	$	69.19	15,745	$	75.56

Compensation expense recorded attributable to restricted stock unit grants for the first six months of 2016 and 2015 was approximately $1.7 million and $2.0 million, respectively. The fair value of units vested during the six months ended June 30, 2016 and 2015 was $1.8 million and $633 thousand, respectively. The intrinsic value of units vested during the six months ended June 30, 2016 and 2015 was $2.2 million and $732 thousand, respectively. As of June 30, 2016, there was $2.4 million of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.2 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 June 30, 2016 is expected to be approximately $5.8 million, of which $1.9 million and $483 thousand was recognized in the first half of 2016 and 2015, respectively.