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 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 3,089,000 shares under the 2013 Stock Plan. All future stock awards will be made under the 2013 Stock Plan. There were 1,556,114 shares available for grant under the 2013 Stock Plan as of May 31, 2019.

Stock Options

During fiscal 2019, 2018, and 2017, we granted stock options with respect to 300,240 shares, 463,140 shares and 687,000 shares, respectively. The weighted average fair value per share of stock options granted during fiscal 2019, 2018 and 2017 was $13.60, $9.29 and $6.50, 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
	2019		2018		2017
Risk-free interest rate	2.7	%	1.8	%	1.0	%
Expected volatility of common stock	30.8	%	31.7	%	36.8	%
Dividend yield	0.6	%	0.9	%	1.3	%
Expected option term in years	4.5		4.3		4.0

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, 2019 consisted of the following (shares in thousands):


	2019			2018			2017
		Weighted			Weighted			Weighted
		Average			Average			Average
	Shares	Exercise Price		Shares	Exercise Price		Shares	Exercise Price
Outstanding at beginning of year	2,082	$	26.72	2,334	$	23.02	2,096	$	22.17
Granted	300	$	47.84	463	$	35.33	687	$	24.10
Exercised	(571)	$	25.56	(704)	$	20.04	(396)	$	20.07
Cancelled	(34)	$	42.02	(11)	$	29.50	(53)	$	25.42
Outstanding at end of year	1,777	$	30.37	2,082	$	26.72	2,334	$	23.02
Options exercisable at end of year	981	$	25.28	883	$	23.81	910	$	21.97

The total fair value of stock options that vested during fiscal 2019, 2018, and 2017 was $5.6 million, $4.9 million, and $3.5 million, respectively. The total intrinsic value of stock options exercised during fiscal 2019, 2018, and 2017 was $12.2 million, $14.2 million, and $4.7 million, respectively. The aggregate intrinsic value of options outstanding was $6.7 million and $37.4 million as of May 31, 2019 and 2018, respectively. The tax benefit realized from stock options exercised during fiscal 2019, 2018, and 2017 was $2.7 million, $2.9 million, and $1.2 million, respectively. Expense recognized in selling, general and administrative expenses for stock options during fiscal 2019, 2018, and 2017 was $4.1 million, $5.1 million, and $4.6 million, respectively. As of May 31, 2019, we had $4.2 million of unrecognized compensation expense related to stock options that will be amortized over an average period of 1.3 years.

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 objectives, which generally include cumulative net income, average return on capital, and relative total shareholder return over a three-year performance period. During fiscal 2019, 2018, and 2017, we granted 43,680, 108,440, and 212,583 of performance‑based restricted shares, respectively. Time-based restricted shares of 46,470, 24,425, and 39,100 were granted to executives and key employees during fiscal 2019, 2018, and 2017, respectively. We also award time‑based restricted stock to our non‑employee directors as part of their annual compensation. Time‑based restricted shares of 29,128, 55,000, and 50,625 were granted to members of the Board of Directors during fiscal 2019, 2018, and 2017, 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 2019, 2018, and 2017 was $9.4 million, $10.2 million, and $6.4 million, respectively.

Restricted share activity during the fiscal 2019 was as follows (shares in thousands):


		Weighted Average
	Number of	Fair Value
	Shares	on Grant Date
Nonvested at May 31, 2018	684	$	27.89
Granted	168	$	40.83
Vested	(303)	$	28.08
Forfeited	(17)	$	40.67
Nonvested at May 31, 2019	532	$	31.70

As of May 31, 2019 we had $7.1 million of unearned compensation related to restricted shares that will be amortized to expense over a weighted average period of 1.1 years.