Stock-Based Compensation Plans

In 2006, the Company adopted the 2006 Stock Incentive Plan (the "Plan"). Upon adoption, all previously existing plans were merged into the Plan and ceased to separately exist. The Plan was amended and restated effective June 2016 resulting in an increase in the maximum number of shares of common stock that may be issued under the Plan by 2,900,000, from 7,850,000 to 10,750,000. The Plan was further amended and restated effective September 6, 2018 resulting in an increase in the maximum number of shares of common stock that may be issued under the Plan by 1,035,000, from 10,750,000 to 11,785,000. The Company’s policy is to issue shares resulting from the exercise of stock options, issuance of performance stock units and conversion of restricted stock units as new shares.

The Company recorded share-based stock compensation expense of $5.3 million, $6.8 million, and $5.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company adopted ASU 2016-09 in 2017 and for the year ended December 31, 2017 began recognizing forfeitures as they occurred. The 2016 stock-based compensation expense is recorded net of an estimated forfeiture rate and adjusted to reflect actual forfeiture activity. The estimated forfeiture rates applied as of December 31, 2016 ranged from 7.0% to 8.0% for various types of employees. The Company recorded $0.9 million of additional stock-based compensation expense for the year ended December 31, 2016, for awards vested which exceeded the expense recorded using the estimated forfeiture rate.

Stock Options

Eligible employees receive non-qualified stock options as a portion of their total compensation. The options vest over various time periods depending upon the grant, but generally vest ratably over a four year service period. Vested options may be exercised and converted to one share of the Company’s common stock in exchange for the exercise price which is generally equal to the closing share price on the grant date. Compensation expense is measured by determining the fair value of each award using the Black-Scholes option valuation model. The fair value is then recognized over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis for the entire award. The stock-based compensation expense related to stock options for the years ended December 31, 2018, 2017 and 2016 was $2.5 million, $2.9 million, and $2.3 million, respectively.

A summary of stock option activity for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands, except per share amounts):



	Outstanding Options		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at December 31, 2015	4,060		$	8.37	$	2,760
Granted	1,348		8.15		—
Exercised	(420	)	6.27		4,455
Forfeited	(227	)	10.20		—

Outstanding at December 31, 2016	4,761		8.40		8,655
Granted	568		10.73		—
Exercised	(428	)	7.85		1,300
Forfeited	(467	)	10.39		539

Outstanding at December 31, 2017	4,434		8.57		9,340
Granted	912		8.20		—
Exercised	(662	)	5.33		967
Forfeited	(573	)	11.21		—

Outstanding at December 31, 2018	4,111		$	8.53	$	37

Options vested and exercisable at December 31, 2018	2,030		$	8.68	$	37

The Company’s stock options have a maximum term of 10 years from the date of grant. The weighted average remaining contractual life for options outstanding and options vested and exercisable at December 31, 2018 is 6.48 and 4.61 years, respectively.

The weighted-average fair values and ranges of exercise prices for stock options granted during the years ended December 31, 2018, 2017 and 2016, which vest ratably over four or five years, are as follows (in thousands, except per share amounts):



	Options Granted	Weighted-Average Fair Value		Exercise Prices
2016	1,348	$	3.38	$6.99 - $9.20
2017	568	$	4.42	$9.32 - $11.47
2018	912	$	3.37	$7.56 - $9.49

The number of vested options totaled 2.0 million, 2.5 million and 2.5 million as of December 31, 2018, 2017 and 2016, respectively.

The aggregate intrinsic value of options outstanding and exercisable represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of each fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options in 2018, 2017 and 2016, respectively. These amounts change based on the fair market value of the Company’s stock which was $3.74, $10.03 and $9.98 on the last business day of the years ended December 31, 2018, 2017 and 2016, respectively.

The following assumptions were utilized in the Black-Scholes valuation model for options granted in 2018, 2017 and 2016:



	2018	2017	2016
Dividend yield	—	—	—
Risk-free interest rate	2.76%-3.15%	1.98%-2.34%	1.53%-2.03%
Expected life	6.4 years	6.5 years	6.5 years
Volatility	35.0%-36.2%	36.0%-38.0%	38.0%-50.0%

No dividend yield is used as the Company does not currently, nor historically, pay dividends. The risk-free interest rate is based on actual U.S. Treasury zero-coupon rates for bonds commensurate with the expected term. Expected term is estimated based on historical experience related to similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The Company believes that its historical experience provides the best estimate of future expected life. The expected volatility assumption is based on the historical volatility of the Company’s common stock over a period commensurate with the expected term.

There was $4.9 million, $5.0 million and $7.4 million of unrecognized compensation costs related to the stock options granted under the Plan as of December 31, 2018, 2017 and 2016, respectively. This cost is expected to be recognized over a weighted average period of 2.8, 2.4 and 3.6 years, respectively.

The following table summarizes information about all stock options outstanding for the Company as of December 31, 2018 (share amounts in thousands):



Options Outstanding					Options Vested
Exercise Price	Number Outstanding	Weighted-Average Life Remaining (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$0.00 - $4.36	27	0.15	$	2.36	27	$	2.36
$4.37 - $7.95	2,145	6.83	$	7.19	924	$	6.82
$7.96 - $11.97	1,621	6.68	$	9.47	762	$	9.25
$11.98 - $15.05	318	3.63	$	13.28	318	$	13.28
	4,111	6.48	$	8.53	2,030	$	8.68

Restricted Common Shares

Eligible employees receive restricted common shares as a portion of their total compensation. The restricted common shares vest over various time periods depending upon the grant, but generally vest from one to five years. The Company measures the compensation cost based on the closing market price of the Company’s common stock at the grant date. The stock-based compensation expense related to restricted common shares for the years ended December 31, 2018, 2017 and 2016 was $2.3 million, $3.5 million and $3.3 million, respectively.

A summary of restricted share activity is as follows (in thousands, except per share amounts):



	Outstanding Restricted Common Shares		Weighted- Average Grant- Date Fair Value
Nonvested Restricted Common shares at December 31, 2015	957		$	7.66
Granted	559		$	8.24
Vested and transferred to unrestricted common stock	(429	)	$	7.71
Forfeited	(78	)	$	8.04

Nonvested Restricted Common shares at December 31, 2016	1,009		$	7.92
Granted	332		$	11.00
Vested and transferred to unrestricted common stock	(403	)	$	8.28
Forfeited	(166	)	$	8.51

Nonvested Restricted Common shares at December 31, 2017	772		$	8.98
Granted	84		$	9.37
Vested and transferred to unrestricted common stock	(341	)	$	8.83
Forfeited	(68	)	$	9.29
Nonvested Restricted Common shares at December 31, 2018	447		$	9.13

There were $3.0 million, $5.1 million and $7.6 million of total unrecognized compensation costs related to the restricted common shares as of December 31, 2018, 2017 and 2016, respectively. This cost is expected to be recognized over a weighted average period of 2.2, 2.5 and 2.6 years, as of December 31, 2018, 2017 and 2016, respectively.

Restricted Share Units

Eligible employees receive restricted share units as a portion of their total compensation. The restricted share units vest over various time periods depending upon the grant, but generally vest from one to four years and convert to common stock at the conclusion of the vesting period. The Company measures the compensation cost based on the closing market price of the Company’s common stock at the grant date. The stock-based compensation expense related to restricted share units for the year ended December 31, 2018 was $0.7 million.

A summary of restricted share unit activity is as follows (in thousands, excepts per share amounts):



	Outstanding Restricted Share Units		Weighted- Average Grant- Date Fair Value
Nonvested Restricted Share Units at December 31, 2017	—		$	—
Granted	577		$	7.74
Vested and transferred to unrestricted share units	(16	)	$	7.75
Forfeited	(9	)	$	7.75
Nonvested Restricted Share Units at December 31, 2018	552		$	7.74

There was $3.5 million of total unrecognized compensation costs related to restricted share units as of December 31, 2018. This cost is expected to be recognized over a weighted average period of 3 years as of December 31, 2018.

Performance-Based Restricted Stock Units:

During fiscal 2017, the Company granted a performance share unit ("PSUs") award to the Company's executive officers and certain other employees. The performance-based restricted stock unit awards are subject to vesting based on a performance-based condition and a service-based condition. At the end of the three-year service period, based on the cumulative adjusted earnings per share and the return on invested capital achieved by the Company between April 1, 2017 and December 31, 2019 as approved by the Compensation Committee, these performance-based restricted stock units will vest in a percentage of the target number of shares between 0% and 200%, depending on the extent the performance condition is achieved. Each of the units granted represent the right to receive one share of the Company’s common stock at a specified future date.

On October 12, 2018, the Compensation Committee approved, pursuant to the 2006 Stock Incentive Plan, awards of PSUs for certain executive officers and employees. The PSUs are performance-based awards that will settle in shares of the Company's common stock in an amount between 0% and 200% of the target award level, based on the cumulative adjusted earnings per share and the return on invested capital achieved by the Company between July 1, 2018 and December 31, 2020. As of December 31, 2018, the number of common shares issuable upon vesting of these PSUs could range from zero to 586,574 shares.

Compensation expense for PSUs is measured by determining the fair value of the award using the closing share price on the grant date and is recognized ratably from the grant date to the vesting date for the number of awards expected to vest. The amount of compensation expense recognized for PSUs is dependent upon a quarterly assessment of the likelihood of achieving the performance conditions and is subject to adjustment based on management's assessment of the Company's performance relative to the target number of shares performance criteria.

A summary of performance share unit activity is as follows (share amounts in thousands):



	Outstanding Performance Share Units		Weighted- Average Grant- Date Fair Value
Nonvested Performance Share Units at December 31, 2016	—		$	—
Granted	152		$	11.10
Forfeited	(24	)	$	11.10
Nonvested Performance Share Units at December 31, 2017	128		$	11.10
Granted	187		$	7.36
Forfeited	(22	)	$	11.10
Nonvested Performance Share Units at December 31, 2018	293		$	8.72

Compensation expense for PSUs is subject to adjustment based on management's assessment of the Company's performance relative to the target number of shares performance criteria. The stock-based compensation expense (benefit) related to PSUs for the year ended December 31, 2018 and 2017 was $(0.4) million and $0.4 million, respectively.