Stock-Based Compensation

On March 31, 2017 the Company’s Board of Directors adopted the American Public Education, Inc. 2017 Omnibus Incentive Plan, or 2017 Incentive Plan, and on May 12, 2017, or the Effective Date, the Company’s stockholders approved the 2017 Incentive Plan, at which time the 2017 Incentive Plan became effective. Upon effectiveness of the 2017 Incentive Plan, the Company ceased making awards under the American Public Education, Inc. 2011 Omnibus Incentive Plan, or the 2011 Incentive Plan. The 2017 Incentive Plan allows the Company to grant up to 1,675,000 shares, as well as shares of the Company’s common stock that were available for issuance under the American Public Education, Inc. 2011 Incentive Plan as of the Effective Date. In addition, the number of shares of common stock available under the 2017 Incentive Plan will be increased from time to time by the number of shares subject to outstanding awards granted under the 2011 Incentive Plan, the American Public Education, Inc. 2007 Omnibus Incentive Plan and the American Public Education, Inc. 2002 Stock Incentive Plan that terminate by expiration or forfeiture, cancellation or otherwise without issuance of such shares following the Effective Date. Prior to 2012, the Company issued a mix of stock options and restricted stock, but since 2011 the Company has not issued any stock options.

Restricted Stock and Restricted Stock Unit Awards

Stock-based compensation expense related to restricted stock and restricted stock unit grants is expensed over the vesting period using the straight-line method for Company employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s stock price on the date of grant. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The table below summarizes the restricted stock and restricted stock unit awards activity for the nine months ended September 30, 2017 (unaudited):



	Number of Shares		Weighted-Average Grant Price and Fair Value
Non-vested, December 31, 2016	437,971		$	21.54
Shares granted	278,934		$	23.36
Vested shares	(184,670	)	$	25.88
Shares forfeited	(31,450	)	$	21.07
Non-vested, September 30, 2017	500,785		$	21.24

Option Awards

The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model. Prior to 2012, the Company calculated the expected term of stock option awards using the “simplified method” in accordance with Securities and Exchange Commission Staff Accounting Bulletins No. 107 and 110 because the Company lacked historical data and was unable to make reasonable assumptions regarding the future. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk-free interest rate by selecting the U.S. Treasury five-year constant maturity, quoted on an investment basis in effect at the time of grant for that business day. Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made under FASB ASC 718. Options previously granted vest ratably over periods of three to five years and expire seven to ten years from the date of grant. Option activity is summarized as follows (unaudited):



	Number of Options		Weighted Average Exercise Price		Weighted-Average Contractual Life (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding, December 31, 2016	259,969		$	34.68	0.53	246
Options granted	—		$	—
Awards exercised	(14,002	)	$	6.99
Awards forfeited	(132,351	)	$	35.17
Outstanding, September 30, 2017	113,616		$	37.52	0.26	$	—

Exercisable, September 30, 2017	113,616		$	37.52	0.26	$	—

Stock-Based Compensation Expense

Stock-based compensation expense charged against income during the three and nine months ended September 30, 2017 and 2016 is as follows (unaudited):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Instructional costs and services	$	229		$	274		$	958		$	1,077
Selling and promotional	200			168			559			524
General and administrative	1,137			813			2,745			2,371
Stock-based compensation expense in operating income	1,566			1,255			4,262			3,972
Tax benefit	(620		)	(504		)	(1,688		)	(1,566		)
Stock-based compensation expense, net of tax	$	946		$	751		$	2,574		$	2,406

As of September 30, 2017, there was $6.9 million of total unrecognized compensation cost, representing unrecognized compensation cost associated with non-vested restricted stock and restricted stock units. The total remaining cost is expected to be recognized over a weighted average period of 1.9 years.