Table of Contents COHERENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. EMPLOYEE STOCK AWARD AND BENEFIT PLANS (continued) Fiscal 2019 2018 2017 Risk-free interest rate 2.9 % 1.7 % 1.3 % Volatility 43.7% 37.0% 31.0% Weighted average fair value $ 117.43 $ 315.05 $ 163.17 We recognize the estimated cost of these awards, as determined under the simulation model, over the related service period of approximately 3 years, with no adjustment in future periods based upon the actual shareholder return over the performance period. The following table shows total stock-based compensation expense and related tax benefits included in the Consolidated Statements of Operations for fiscal 2019, 2018 and 2017 (in thousands): As a result of our acquisition of Rofin on November 7, 2016, we made a payment of $15.3 million due to the cancellation of options held by employees of Rofin. The payment was allocated between total estimated merger consideration of $11.1 million and post-merger stock-based compensation expense of $4.2 million, recorded in the first quarter of fiscal 2017, based on the portion of the total service period of the underlying options that have not been completed by the merger date. During fiscal 2019, $4.8 million of stock-based compensation cost was capitalized as part of inventory for all stock plans, $4.8 million was amortized into cost of sales and $1.5 million remained in inventory at September 28, 2019. During fiscal 2018, $4.7 million of stock-based compensation cost was capitalized as part of inventory for all stock plans, $4.4 million was amortized into cost of sales and $1.5 million remained in inventory at September 29, 2018. At fiscal 2019 year-end, the total compensation cost related to unvested stock-based awards granted to employees under our stock plans but not yet recognized was approximately $33.1 million. We do not estimate forfeitures. This cost will be amortized on a straight-line basis over a weighted-average period of approximately 1.5 years. The stock option exercise tax benefits, if any, are reported in the statement of cash flows. The tax benefits result from tax deductions in excess of the stock-based compensation cost recognized and are determined on a grant-by-grant basis. During fiscal 2017, we recorded approximately $1.6 million of excess tax benefits as cash flows from financing activities. We adopted the new accounting standard on share-based compensation in the first quarter of fiscal 2018. As a result, we recognized net excess tax benefits from stock award exercises and restricted stock unit vesting as a discrete tax benefit, which reduced the provision for income taxes by $2.5 million and $12.8 million for fiscal 2019 and 2018, respectively. At each of fiscal 2019, 2018 and 2017 year-end, we had 24,000 shares subject to vested stock options outstanding. The vested stock options at fiscal 2019 are held by one non-employee director and expire on September 20, 2021. Stock Compensation Expense Stock Awards Activity 103 Fiscal 2019 2018 2017 Cost of sales $ 4,880 $ 4,403 $ 3,541 Research and development 2,990 3,247 2,973 Selling, general and administrative 28,596 25,088 23,911 Income tax benefit (4,946) (5,073) (7,073) $ 31,520 $ 27,665 $ 23,352