5. Stock-Based Compensation

We have granted stock-based awards under the AAR CORP. 2013 Stock Plan (the "2013 Stock Plan") and the AAR CORP. Stock Benefit Plan ("Stock Benefit Plan") each of which has been approved by our stockholders. No further awards will be made under the Stock Benefit Plan. Under the 2013 Stock Plan, we are authorized to issue stock options to employees and non-employee directors that allow the grant recipients to purchase shares of common stock at a price not less than the fair market value of the common stock on the date of grant. Generally, stock options awarded expire ten years from the date of grant and are exercisable in three, four or five equal annual increments commencing one year after the date of grant. In addition to stock options, the 2013 Stock Plan also provides for the grant of time-based restricted stock awards and performance-based restricted stock awards. The number of performance-based awards earned, subject to vesting, is based on achievement of certain Company-wide or segment financial goals or stock price targets. The 2013 Stock Plan also provides for the grant of stock appreciation units and restricted stock units; however, to date, no such awards have been granted.

Restricted stock grants (whether time-based or performance-based) are designed, among other things, to align employee interests with the interests of stockholders and to encourage the recipient to build a career with us. Restricted stock typically vests over periods of one to five years from date of grant. Restricted stock grants may be performance-based with vesting to occur over periods of three to five years. All restricted stock that has been granted and, if performance-based, earned according to performance criteria carries full dividend and voting rights, regardless of whether it has vested.

Substantially all stock options and restricted stock are subject to forfeiture prior to vesting if the employee's employment terminates for any reason other than death, disability or retirement. Since inception, a total of 11,149,000 shares have been granted under the Stock Benefit Plan. We have granted a total of 2,669,000 shares under the 2013 Stock Plan. All future stock awards will be made under the 2013 Stock Plan. There were 2,128,238 shares available for grant under the 2013 Stock Plan as of May 31, 2018.

Stock Options

During fiscal 2018, 2017, and 2016, we granted stock options with respect to 463,140 shares, 687,000 shares and 488,767 shares, respectively. The weighted average fair value per share of stock options granted during fiscal 2018, 2017 and 2016 was $9.29, $6.50 and $7.48, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

	Stock Options Granted In Fiscal Year
	2018			2017			2016
Risk-free interest rate		1.8	%		1.0	%		1.6	%
Expected volatility of common stock		31.7	%		36.8	%		36.1	%
Dividend yield		0.9	%		1.3	%		1.1	%
Expected option term in years		4.3			4.0			4.2

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on historical volatility of our common stock, and the expected option term represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends. The dividend yield represents our anticipated cash dividends at the grant date over the expected option term.

A summary of stock option activity for the three years ended May 31, 2018 consisted of the following (shares in thousands):

	2018					2017					2016
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		2,334		$	23.02		2,096		$	22.17		1,857		$	21.05
Granted		463		$	35.33		687		$	24.10		489		$	26.62
Exercised		(704	)	$	20.04		(396	)	$	20.07		(122	)	$	20.61
Cancelled		(11	)	$	29.50		(53	)	$	25.42		(128	)	$	24.47

Outstanding at end of year		2,082		$	26.72		2,334		$	23.02		2,096		$	22.17


Options exercisable at end of year		883		$	23.81		910		$	21.97		837		$	21.21

The total fair value of stock options that vested during fiscal 2018, 2017, and 2016 was $4.9 million, $3.5 million, and $2.7 million, respectively. The total intrinsic value of stock options exercised during fiscal 2018, 2017, and 2016 was $14.2 million, $4.7 million, and $1.0 million, respectively. The aggregate intrinsic value of options outstanding was $37.4 million and $27.8 million as of May 31, 2018 and 2017, respectively. The tax benefit realized from stock options exercised during fiscal 2018, 2017, and 2016 was $2.9 million, $1.2 million, and $0.2 million, respectively. Expense recognized in selling, general and administrative expenses for stock options during fiscal 2018, 2017, and 2016 was $5.1 million, $4.6 million, and $3.5 million, respectively. As of May 31, 2018, we had $4.6 million of unrecognized compensation expense related to stock options that will be amortized over an average period of 0.7 years.

The following table provides additional information regarding stock options outstanding as of May 31, 2018 (shares in thousands):

	Options Outstanding						Options Exercisable
Option Exercise Price Range	Number Outstanding as of 5/31/18		Weighted-Average Remaining Contractual Life in Years		Weighted- Average Exercise Price		Number Exercisable as of 5/31/18		Weighted- Average Exercise Price
$12.00 - $20.00		160		3.2	$	14.51		160	$	14.51
$20.01 - $26.00		1,041		6.8	$	24.63		447	$	24.93
$26.01 - $38.70		881		7.9	$	31.41		276	$	27.37

		2,082		7.0	$	26.72		883	$	23.81

Restricted Stock

We provide executives and other key employees an opportunity to be awarded performance-based and time-based restricted stock. The performance-based awards are contingent upon the achievement of certain performance objectives, including cumulative net income and average return on capital over a three-year performance period. During fiscal 2018, 2017, and 2016, we granted 108,440, 212,583, and 119,929 of performance-based restricted shares, respectively. Time-based restricted shares of 24,425, 39,100, and 42,557 were granted to executives and key employees during fiscal 2018, 2017, and 2016, respectively. We also award time-based restricted stock to our non-employee directors as part of their annual compensation. Time-based restricted shares of 55,000, 50,625, and 47,083 were granted to members of the Board of Directors during fiscal 2018, 2017, and 2016, respectively.

The fair value of restricted shares is the market value of our common stock on the date of grant. Expense recognized in selling, general and administrative expenses for all restricted share programs during fiscal 2018, 2017, and 2016 was $10.2 million, $6.4 million, and $3.2 million, respectively.

Restricted share activity during the fiscal year ended May 31, 2018 was as follows (shares in thousands):

	Number of Shares			Weighted Average Fair Value on Grant Date
Nonvested at May 31, 2017		595		$	25.93
Granted		188		$	35.35
Vested		(91	)	$	25.08
Forfeited		(8	)	$	26.43

Nonvested at May 31, 2018		684		$	27.89

As of May 31, 2018 we had $4.1 million of unearned compensation related to restricted shares that will be amortized to expense over a weighted average period of 2.5 years.