Stock-Based Compensation

Prior to the Spin-Off, the Company's employees historically participated in MTW's stock-based compensation plans. Stock-based compensation expense relating to awards under MTW's stock-based compensation plans have been allocated to the Company based on the awards and terms previously granted to its employees. Until consummation of the Spin-Off, the Company continued to participate in MTW's stock-based compensation plans and record stock-based compensation expense based on the stock-based awards granted to the Company's employees.

The Company adopted the 2016 Omnibus Incentive Plan (the "2016 Plan") that permits the granting of stock options, restricted stock awards and units, performance share awards and units, and other types of stock-based and cash awards. In addition, the 2016 Plan allowed for the adjustment and replacement of certain awards of MTW common stock that were outstanding immediately prior to the Spin-Off through the issuance of replacement awards ("Replacement Awards"). As of December 31, 2017, the maximum number of shares of common stock available for issuance pursuant to the 2016 Plan was 13.7 million.

The Company recognizes stock-based compensation expense based on the fair value of the award on the grant date over the requisite service period and estimates forfeitures when calculating compensation expense, which is generally recognized in "Selling, general and administrative expenses" in the consolidated statements of operations. The Company recognized stock-based compensation expense as a result of the modification of certain MTW performance share units to pay out at target upon consummation of the Spin-Off, which is reflected in "Separation expense" in the consolidated statements of operations. Additionally, the Company recognized stock-based compensation for the accelerated vesting of certain equity awards in connection with the retirement of two executives during the first half of 2017 and in connection with a company-wide reduction in force ("August 2017 RIF") during the third quarter of 2017. These events are described in Note 19, "Restructuring," and are reflected in "Restructuring expense" in the consolidated statements of operations. Stock-based compensation expense was recorded in the aforementioned financial statement line items for the years ended December 31, 2017, 2016 and 2015 as follows:



	Years Ended December 31,
(in millions)	2017		2016		2015
Stock-based compensation expense:
Selling, general and administrative expenses	$	8.1	$	4.7	$	2.3
Separation expense	0.1		1.6		—
Restructuring expense	2.9		—		—
Total stock-based compensation expense	$	11.1	$	6.3	$	2.3

Stock -based compensation expense by award type was as follows for the periods indicated:



	Years Ended December 31,
(in millions)	2017		2016		2015
Stock-based compensation expense:
Stock options	$	3.0	$	1.2	$	0.6
Restricted stock awards and units	3.6		3.0		1.3
Performance share units	4.5		2.1		0.4
Total stock-based compensation expense	$	11.1	$	6.3	$	2.3

Stock Options

Prior to the Spin-Off, any stock option granted to directors of MTW was exercisable immediately upon grant and expires ten years subsequent to the grant date. For all outstanding grants made to officers and employees prior to 2011, stock options became exercisable in 25% increments annually over a four-year period beginning on the second anniversary of the grant date and expire ten years subsequent to the grant date. Beginning in 2011 for grants to officers and employees, such stock options became exercisable in 25% increments annually over a four-year period beginning on the first anniversary of the grant date and expire ten years subsequent to the grant date.

A summary of the Company's stock option activity for all holders of Welbilt stock options is as follows:



(in millions, except weighted average exercise price and contractual life)	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Options outstanding as of January 1, 2017	3.6		$	15.62	4.5	$	20.0
Granted	0.3		18.67
Exercised	(0.6	)	8.19
Forfeited	(0.1	)	16.54
Canceled	(0.5	)	24.34
Options outstanding as of December 31, 2017 ⁽¹⁾	2.7		$	15.95	4.9	$	22.9

Options vested and expected to vest as of December 31, 2017 ⁽²⁾	2.7		$	15.94	4.8	$	22.5

Options exercisable as of December 31, 2017	2.2		$	15.81	4.0	$	18.8

⁽¹⁾ The outstanding stock options at December 31, 2017 have a range of exercise prices from $3.51 to $31.14 per share.

⁽²⁾Number of options expected to vest is total unvested options less estimated forfeitures.

The Company uses the Black-Scholes valuation model to value stock options. The Company used historical stock prices for MTW shares of common stock as the basis for its volatility assumptions prior to the Spin-Off. Subsequent to the Spin-Off, the volatility assumption is based on the reported data of a peer group of publicly traded companies for which historical information is available. The assumed risk-free rates were based on ten-year U.S. Treasury rates in effect at the time of grant. The expected option life represents the period of time that the options granted are expected to be outstanding and is based on historical experience.

The assumptions used in the Black-Scholes option pricing model and the weighted average fair value of option awards granted were as follows for the periods indicated:



	Years Ended December 31,
	2017		2016		2015
Expected life (years)	6.0		6.0		6.0
Risk-free interest rate	2.3	%	1.6	%	1.8	%
Expected volatility	39.0	%	39.0	%	56.0	%
Expected dividend yield	—	%	—	%	0.3	%

The following represents stock option compensation information for the periods indicated:



	Years Ended December 31,
(in millions, except weighted average grant date fair value per option granted)	2017		2016		2015
Weighted average grant date fair value per option granted	$	7.86	$	5.97	$	10.40
Fair value of options vested	3.0		2.8		6.8
Intrinsic value of options exercised	7.5		8.5		0.1
Excess tax benefit for tax deductions related to the exercise of stock options	1.2		—		—
Cash received from option exercises, net of tax withholding	1.9		12.9		—
Tax benefits for stock-option compensation expense	0.7		0.5		0.2

As of December 31, 2017, the Company had $2.4 million of unrecognized compensation expense before tax related to stock options, which will be recognized over a weighted average period of 2.5 years.

Restricted Stock Awards and Units

The fair value of restricted stock awards and units (collectively, "restricted stock") is based on the closing price of the Company’s common stock on the grant date. Restricted stock granted in 2017 to employees generally vests over three years in an equal number of shares each year beginning on the first anniversary of the date of grant and for directors generally cliff vests after two years from the date of grant, both assuming continued employment. Restricted stock granted in 2016 and 2015 for directors and employees generally cliff vest on either the second or third anniversary of the grant date, assuming continued employment. Additional restricted stock granted to the chairperson of the Board of Directors vests immediately.

A summary of activity for all Welbilt restricted stock for the year ended December 31, 2017 is as follows:



(in millions, except weighted average grant date fair value)	Restricted Stock		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2017	0.9		$	16.86
Granted	0.1		21.39
Vested	(0.2	)	18.29
Forfeited	(0.1	)	16.56
Unvested as of December 31, 2017	0.7		$	17.14

The following represents restricted stock compensation information for the periods indicated:



	Years Ended December 31,
(in millions, except weighted average grant date fair value per award granted)	2017		2016		2015
Weighted average grant date fair value per award granted	$	21.39	$	15.25	$	21.90
Fair value of awards vested	4.0		2.8		—
Tax benefits for restricted stock compensation expense	0.8		1.2		0.5

As of December 31, 2017, the Company had $3.4 million of unrecognized compensation expense before tax related to restricted stock, which will be recognized over a weighted average period of 2.0 years.

Performance Share Units

The Company granted performance share units ("PSUs") that cliff vest after three years. The number of units that vest is determined for each grant based on the achievement of certain Company performance criteria as set forth in the award agreement and may range from zero to 200% of the target shares granted. The PSUs are settled in shares of common stock, with holders receiving one share of common stock for each PSU that vests. The fair value of PSUs is based on the closing price of the Company’s common stock on the grant date. Compensation expense for PSUs is recognized over the vesting period when it is probable the performance criteria will be achieved. As of December 31, 2017, the following PSU programs were in progress:



Award Date	PSUs Outstanding (in millions)	Expected Vesting Threshold
2016 Program	0.3	125.0	%
2017 Program	0.2	100.0	%
Total PSUs outstanding	0.5

A summary of activity for all Welbilt performance share units for the year ended December 31, 2017 is as follows:



(in millions, except weighted average grant date fair value)	Performance Share Units		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2017	0.5		$	16.88
Granted	0.3		18.67
Vested	(0.2	)	20.52
Forfeited	(0.1	)	16.60
Unvested as of December 31, 2017	0.5		$	16.87

The following represents PSU compensation information for the periods indicated:



	Years Ended December 31,
(in millions, except weighted average grant date fair value per award granted)	2017		2016		2015
Weighted average grant date fair value per award granted	$	18.70	$	14.97	$	—
Fair value of awards vested	3.0		3.6		6.0
Tax benefits for PSU compensation expense	1.0		0.8		0.1

As of December 31, 2017, the Company had $5.5 million of unrecognized compensation expense before tax related to PSUs, which will be recognized over a weighted average period of 1.8 years.