NOTE 13 – STOCK-BASED COMPENSATION

The Company issues stock options and restricted stock units (“RSUs”), which consist of time-based and performance-based awards, to employees under stock awards plans approved by stockholders. In addition, RSUs are issued to non-employee directors under a Director Restricted Stock Unit Plan and the 2016 Equity Incentive Plan. Previously, non-employee directors were issued stock options under a Director Stock Option Plan. Stock 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.

RSUs granted to employees vest according to a specified performance period and/or vesting period. Time-based RSUs generally vest over three years. Performance-based RSUs vest at the end of the specified performance period, generally three years, assuming required performance or market vesting conditions are met. Performance-based RSUs have one of two vesting conditions: 1) based on Aptar’s internal financial performance metrics and 2) based on Aptar’s total shareholder return (“TSR”) relative to total shareholder returns of an industrial peer group, subject to discretion if the overall TSR is negative at the conclusion of the performance period. At the time of vesting, Aptar will issue or cause to be issued in the employee’s name the vested shares of common stock. In addition, RSU awards are generally net settled (shares are withheld to cover the employee tax obligation). Director RSUs are only time-based, and generally vest over one year.

Compensation expense attributable to employee stock options for the first three months of 2018 was approximately $4.9 million ($3.5 million after tax). The income tax benefit related to this compensation expense was approximately $1.4 million. Approximately $4.0 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 attributable to stock options for the first three months of 2017 was approximately $6.9 million ($4.6 million after tax). The income tax benefit related to this compensation expense was approximately $2.3 million. Approximately $6.0 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 $14.82 and $11.85 per share during the first three months of 2018 and 2017, respectively. These values were estimated on the respective grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:


Stock Awards Plans:
Three Months Ended March 31,	2018		2017
Dividend Yield	1.5	%	1.7	%
Expected Stock Price Volatility	14.2	%	15.8	%
Risk-free Interest Rate	2.8	%	2.2	%
Expected Life of Option (years)	6.6		6.7

A summary of option activity under the Company’s stock plans during the three months ended March 31, 2018 is presented below:


	Stock Awards Plans					Director Stock Option Plans
			Weighted Average				Weighted Average
		Options	Exercise Price			Options	Exercise Price
Outstanding, January 1, 2018		8,059,319	$	61.67		214,967	$	57.44
Granted		603,901		88.39		—		—
Exercised		(613,913)		52.73		(44,000)		53.35
Forfeited or expired		(26,738)		63.13		—		—
Outstanding at March 31, 2018		8,022,569	$	64.36		170,967	$	58.49
Exercisable at March 31, 2018		5,935,087	$	59.55		170,967	$	58.49
Weighted-Average Remaining Contractual Term (Years):
Outstanding at March 31, 2018		6.4				4.9
Exercisable at March 31, 2018		5.5				4.9
Aggregate Intrinsic Value:
Outstanding at March 31, 2018	$	204,336			$	5,358
Exercisable at March 31, 2018	$	179,720			$	5,358
Intrinsic Value of Options Exercised During the Three Months Ended:
March 31, 2018	$	22,804			$	1,608
March 31, 2017	$	15,289			$	—

The grant date fair value of options vested during the three months ended March 31, 2018 and 2017 was $16.5 million and $16.9 million, respectively. Cash received from option exercises was approximately $34.9 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $6.0 million in the three months ended March 31, 2018. As of March 31, 2018, the remaining valuation of stock option awards to be expensed in future periods was $17.4 million and the related weighted-average period over which it is expected to be recognized is 2.0 years.

The fair value of both time-based RSUs and performance-based RSUs pertaining to internal performance metrics is determined using the closing price of our common stock on the grant date. The fair value of performance-based RSUs pertaining to TSR is estimated using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value are shown in the table below. The fair value of these RSUs is expensed over the vesting period using the straight-line method or using the graded vesting method when an employee becomes eligible to retain the award at retirement.


Three Months Ended March 31,		2018
Fair value per stock award	$	128.70
Grant date stock price	$	89.42
Assumptions:
Aptar's stock price expected volatility		12.30	%
Expected average volatility of peer companies		27.50	%
Correlation assumption		20.20	%
Risk-free interest rate		2.42	%
Dividend yield assumption		1.43	%

A summary of RSU activity as of March 31, 2018, and changes during the three month period then ended, is presented below:



	Time-Based RSUs			Performance-Based RSUs
		Weighted Average			Weighted Average
	Units	Grant-Date Fair Value		Units	Grant-Date Fair Value
Nonvested at January 1, 2018	124,067	$	74.65	—	$	—
Granted	80,067		89.42	80,843		111.55
Vested	(14,281)		71.72	—		—
Nonvested at March 31, 2018	189,853	$	81.10	80,843	$	111.55

Included in the March 31, 2018 time-based RSUs are 14,793 units awarded to non-employee directors. There were no grants or vesting activity for non-employee director awards.

Compensation expense recorded attributable to RSUs for the first three months of 2018 and 2017 was approximately $2.6 million and $0.9 million, respectively. The actual tax benefit realized for the tax deduction from RSUs was approximately $383 thousand in the three months ended March 31, 2018. The fair value of units vested during the three months ended March 31, 2018 and 2017 was $1.0 million and $2.8 million, respectively. The intrinsic value of units vested during the three months ended March 31, 2018 and 2017 was $1.3 million and $3.0 million, respectively. As of March 31, 2018, there was $24.4 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.7 years.

The Company has a long-term incentive program for certain employees. Each award is based on the cumulative TSR of our common stock during a three-year performance period compared to a peer group. The total expected expense related to this program for awards outstanding as of March 31, 2018 is approximately $2.6 million, of which $409 thousand and $282 thousand was recognized in the first three months of 2018 and 2017, respectively.