SHARE-BASED COMPENSATION

The Company’s share-based compensation awards are issued under the 2015 Equity Incentive Plan (“2015 Plan”) and two predecessor plans, the 2005 Equity Incentive Plan (“2005 Plan”) and the 2007 Equity Incentive Plan (“2007 Plan”). Any awards that expire or are forfeited under the 2007 Plan become available for issuance under the 2015 Plan. The Company accounts for forfeitures as they occur when calculating share-based compensation expense. The aforementioned plans provide for the issuance of previously unissued common stock in connection with the exercise of stock options and conversion of other share-based awards. There were 3,511,206 shares of common stock reserved and authorized for issuance at December 31, 2017, under all plans, subject to adjustment for future stock splits, stock dividends, and similar changes in capitalization.

Share-Based Compensation Expense

Pre-tax share-based compensation expense reported in the Company’s consolidated statements of operations was as follows:



	Year Ended December 31,
	2017		2016		2015
	(in thousands)
Cost of sales	$	379	$	488	$	539
Selling, general and administrative expenses	9,394		10,199		10,697
Total share-based compensation expense	$	9,773	$	10,687	$	11,236

Stock Option Activity

Stock option activity during the year ended December 31, 2017 was:



	Shares		Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value
	(in thousands, except exercise price and years)
Outstanding as of December 31, 2016	518		$	16.90	3.99	$	186
Granted	200		6.98
Exercised	(16	)	6.00
Forfeited or expired	(161	)	25.52
Outstanding as of December 31, 2017	541		$	11.00	5.37	$	1,918
Exercisable at December 31, 2017	320		$	13.28	2.78	$	786
Vested and expected to vest at December 31, 2017	541		$	11.00	5.37	$	1,918

During the years ended December 31, 2017 and 2015, stock options were valued using a Black Scholes option pricing model using the following assumptions. No stock options were granted during 2016.



	Year Ended December 31,
	2017	2015
Expected volatility	40.7%	42.5%
Dividend yield	—	—
Risk-free interest rate	1.76%	1.50% - 1.72%
Expected life (in years)	4.00	4.00

The weighted average grant date fair value of stock options granted during the years ended December 31, 2017 and 2015 was approximately $2.37 and $4.74 per share, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $0.1 million, $0.5 million, and $1.7 million, respectively. During the years ended December 31, 2017, 2016, and 2015, the Company received $0.1 million, $0.4 million and $1.9 million cash in connection with the exercise of stock options. The total grant date fair value of stock options vested during the years ended December 31, 2017, 2016, and 2015 was $0.1 million, $0.3 million, and $0.7 million, respectively.

As of December 31, 2017, the Company had $0.5 million of total unrecognized share-based compensation expense related to unvested options, which is expected to be amortized over the remaining weighted average period of 2.29 years.

Stock options under the 2005 Plan, 2007 Plan, and 2015 Plan generally vest ratably over four years with the first vesting occurring one year from the date of grant, followed by monthly vesting for the remaining three years, and expire ten years after the date of grant.

Restricted Stock Awards and Restricted Stock Units Activity

From time to time, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) are granted to employees. RSAs and RSUs generally vest over three years, depending on the terms of the grant. Holders of unvested RSAs have the same rights as those of common stockholders including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot be transferred until vested. Holders of unvested RSUs have a contractual right to receive a share of common stock upon vesting. RSUs have dividend equivalent rights which accrue over the term of the award and are paid if and when the RSUs vest, but RSU holders have no voting rights. The Company grants both time-based RSUs and performance-based RSUs.

Time-based RSUs are typically granted on an annual basis to certain executive and non-executive employees and vest on a straight-line basis in three annual installments, beginning one year after the grant date. During the years ended December 31, 2017, 2016, and 2015, the Board approved grants of 1.1 million, 1.0 million, and 1.2 million time-based RSUs, respectively.

Performance-based RSUs are granted on an annual basis to certain executive employees and consist of a time-based and performance-based component. Under the time-based component, RSUs vest at the end of each of the three years, beginning one year from the grant date. The performance targets and vesting conditions for performance-based RSUs are based on achievement of multiple weighted performance goals, and vest upon certification by the compensation committee plus an additional service period. The fair value of performance-based awards is estimated using a Monte Carlo simulation valuation model. This pricing model utilizes multiple input variables that determine the probability of satisfying each performance condition stipulated in the terms of the award to estimate its grant date fair value. Compensation expense, net of forfeitures, is updated for the Company’s expected performance level against each related goal at the end of each reporting period. During the years ended December 31, 2017, 2016, and 2015, the Board approved the grant of 1.3 million, 1.2 million, and 1.5 million RSUs, respectively, to certain executive employees as part of the performance incentive program.

RSA and RSU activity during the year ended December 31, 2017 was:



	Restricted Stock Awards				Restricted Stock Units
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
	(in thousands, except fair value data)
Unvested at December 31, 2016	11		$	10.28	3,855		$	10.31
Granted	35		6.84		2,434		6.84
Vested	(29	)	8.19		(764	)	10.88
Forfeited	—		N/A		(1,734	)	9.60
Unvested at December 31, 2017	17		$	6.84	3,791		$	7.99

RSAs vested during the years ended December 31, 2017, 2016, and 2015 consisted entirely of time-based awards. The total grant date fair value of RSAs vested was $0.2 million in each of the years ended December 31, 2017, 2016, and 2015.

As of December 31, 2017, unrecognized share-based compensation expense for RSAs was $0.1 million, which is expected to amortize over a remaining weighted average period of 0.43 years.

RSUs vested during the year ended December 31, 2017 consisted of 696,083 time-based awards and 68,317 performance-based awards. RSUs vested during the year ended December 31, 2016 consisted of 599,071 time-based awards and 31,396 performance-based awards. RSUs vested during the year ended December 31, 2015 consisted of 437,132 time-based awards and 67,893 performance-based awards. The total grant date fair value of RSUs vested during the years ended December 31, 2017, 2016, and 2015 was $8.3 million, $8.0 million and $8.2 million, respectively.

As of December 31, 2017, unrecognized share-based compensation expenses for time-based and performance-based RSUs were $9.9 million and $3.8 million, respectively, and are expected to amortize over a remaining weighted average period of 1.56 years and 1.94 years, respectively.