10. Stock-Based Compensation Plans

Stock-Based Compensation Expense

The Company measures compensation cost related to stock options based on the grant-date fair value of the awards, calculated using the Black-Scholes option-pricing model. The compensation cost related to restricted stock units is based on the market price of the stock on the date of the award. The fair value of the stock options and restricted stock units, less estimated forfeitures, is recognized ratably over their respective vesting periods. In 2017, Nexstar granted 1,086,250 restricted stock units and 228,438 stock options. In 2016, Nexstar granted 33,750 restricted stock units and no stock options. In 2015, Nexstar granted 200,000 options and 210,000 restricted stock units.

The assumptions used in calculating the fair values of options granted during the years ended December 31, 2017 and 2015 were as follows:

	2017		2015
Expected volatility	32.4% to 47.7%		86.3%
Risk-free interest rates	0.5% to 2.2%		1.6%
Expected life	0.2 to 7 years		7 years
Dividend yields	1.9%		1.6%
Weighted-average grant date fair value per share	$	46.85	$	31.45

The expected volatility assumptions used for stock option grants were based on Nexstar’s historical volatility rates over a period approximating the expected life of the options. The expected term assumption is calculated utilizing Nexstar’s historical exercise and post-vesting cancellation experience combined with expectations developed over outstanding options. The risk-free interest rates used are based on the daily U.S. Treasury yield curve rate in effect at the time of the grant having a period commensurate with the expected term assumption. The expected dividend yield is based on the current annual dividend divided by the stock price on the date of grant.

The Company recognized stock-based compensation expense of $24.1 million, $11.4 million and $11.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, there was $56.0 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options and restricted stock units, expected to be recognized over a weighted-average period of 2.89 years.

Stock-Based Compensation Plans

Nexstar has two stock-based compensation plans that provide for the granting of stock options, stock appreciation rights, restricted stock and performance awards to directors, employees or consultants of Nexstar: the 2015 Long-Term Equity Incentive Plan, approved by Nexstar’s majority stockholders on June 11, 2015 (the “2015 Plan”) and the 2012 Long-Term Equity Incentive Plan, approved by Nexstar’s majority stockholders on September 26, 2012 (the “2012 Plan”). A maximum of 2,500,000 shares and 1,500,000 shares of Nexstar’s Class A common stock can be issued under the 2015 Plan and the 2012 Plan, respectively. No new awards are granted under equity incentive plans prior to these plans but any unissued available shares can be issued under the 2012 Plan.

Under Nexstar’s equity incentive plans, options to purchase 1,960,459 shares of Nexstar’s Class A common stock were outstanding and 1,140,125 restricted stock units were unvested as of December 31, 2017. Options are granted with an exercise price at least equal to the fair market value of the underlying shares of common stock on the date of the grant, vest over a range of four to five years and expire ten years from the date of grant. Except as otherwise determined by the compensation committee or with respect to the termination of a participant’s services in certain circumstances, including a change of control, no option may be exercised within six months of the date of the grant. Upon the employee’s termination, all nonvested options are forfeited immediately and any unexercised vested options are cancelled from 30 to 180 days following the termination date. The restricted stock units vest over a range of two to four years from the date of the award. All unvested restricted stock units are forfeited immediately upon the employee’s termination for any reason other than change of control. Nexstar utilizes any available treasury stock or issues new shares of its Class A common stock when options are exercised or restricted stock units vest.

The following table summarizes stock award activity and related information for all of Nexstar’s Equity Plans for the year ended December 31, 2017:

				Outstanding Options								Non-Vested Options					Restricted Stock Units
									Weighted-
							Weighted-		Average	Aggregate					Weighted-					Weighted-
	Shares						Average		Remaining	Intrinsic					Average					Average
	Available						Exercise		Contractual	Value⁽¹⁾					Grant-Date		Unvested			Grant-Date
	for Grant			Shares			Price		Term (Years)	(thousands)		Shares			Fair Value		Shares			Fair Value
Balances as of December 31, 2016		2,511,625			2,376,500		$	21.56	5.38		99,197		498,750		$	31.79		188,000		$	46.33
Increase in available for grant associated with the merger (Note 3)		228,452			-		$	-					-		$	-		-		$	-
Replacement stock options granted in connection with the merger (Note 3)		(228,438	)		228,438		$	16.53					228,438		$	46.85		-		$	-
Restricted stock units awarded		(1,086,250	)		-		$	-					-		$	-		1,086,250		$	63.99
Exercised		-			(621,506	)	$	13.12					-		$	-		-			-
Vested		-			-		$	-					(448,924	)	$	39.17		(62,687	)	$	46.14
Forfeited/cancelled		94,411			(22,973	)	$	35.75					(21,389	)	$	38.28		(71,438	)	$	60.96
Balances as of December 31, 2017⁽²⁾		1,519,800			1,960,459		$	23.48	5.06	$	107,273		256,875		$	31.75		1,140,125		$	62.25
Exercisable as of December 31, 2017					1,703,584		$	20.02	4.85	$	99,113
Fully vested and expected to vest as of December 31, 2017					1,959,185		$	23.47	5.06	$	107,234

(1)	Aggregate intrinsic value represents the difference between the closing market price of Nexstar’s common stock on the last day of the fiscal period, which was $78.20 on December 31, 2017, and the stock option exercise prices multiplied by the number of options outstanding.

(2)	Includes 1,454,938 shares and 56,875 shares available for future grants under the 2015 Plan and the 2012 Plan, respectively. Additionally, 7,987 shares associated with the merger replacement stock options were unused.

For the years ended December 31, 2017, 2016 and 2015, the aggregate intrinsic value of options exercised, on their respective exercise dates, was $34.1 million, $2.3 million and $22.8 million, respectively. For the years ended December 31, 2017, 2016 and 2015, the aggregate fair value of options vested was $17.6 million, $9.0 million and $8.0 million, respectively.