STOCKHOLDERS' EQUITY

Preferred Stock

We are authorized to issue up to 15,000,000 shares of preferred stock at $1.00 par value. At December 31, 2017, no shares of preferred stock have been issued; however, 2,000,000 shares of Series A Junior Participating Preferred Stock have been reserved for issuance in connection with the Company’s Shareholder Rights Plan. Additional series of preferred stock may be designated and the related rights and preferences fixed by action of the Board of Directors.

Shareholder Rights Plan

In May 2008, the Board of Directors approved a shareholder rights plan and declared a dividend of one preferred share purchase right for each outstanding share of common stock. Each right represents the right to purchase one-hundredth of a share of Preferred Stock, at an exercise price of $100, subject to adjustment. The rights are only exercisable ten days after a person or group acquires, or commences a tender or exchange offer to acquire, beneficial ownership of 15% or more of the Company’s outstanding common stock.

Subject to the terms of the shareholder rights plan and the discretion of the Board of Directors, each right would entitle the holder to purchase a number of additional shares of common stock of LP having a total market value of twice the exercise price of each right. The rights expire in June 2018, but can be redeemed by action of the Board of Directors prior to that time at $0.01 per right.

Common Stock Plan

We have a stock-based compensation plan under which stock options, SSARs, incentive shares, restricted stock and performance shares awards are granted. At December 31, 2017, 2.9 million shares were available under the current plan for these awards.



	Year ended December 31,
Dollar amounts in millions	2017		2016		2015
Total stock-based compensation expense (costs of sales and selling and administrative)	$	9.7	$	13.0	$	9.3
Income tax benefit related to stock-based compensation	$	0.8	$	3.4	$	—
Impact on cash flow due to taxes paid related to net share settlement of equity awards	$	5.9	$	9.2	$	6.1

We recognize the compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three years. Compensation costs that were capitalized to inventory were not material.

Stock-Settled Stock Appreciation Rights

We grant SSARs to key employees. On exercise, we generally issue these shares from treasury. The SSARs are granted at market price at the date of grant. SSARs become exercisable over three years and expire ten years after the date of grant. The following table sets out the weighted average assumptions used to estimate the fair value of the SSARs granted using the Black-Scholes option-pricing model:



	2017			2016			2015
Expected stock price volatility	41		%	45		%	54		%
Expected dividend yield	—		%	—		%	—		%
Risk-free interest rate	2.1		%	1.4		%	1.5		%
Expected life of options (in years)	6.0 years			6 years			6 years
Weighted average fair value of options and SSARs granted	$	8.02		$	6.99		$	8.80

Expected Stock Price Volatility: The fair values of stock-based payments were valued using the Black-Scholes valuation method with a volatility factor based on our historical stock prices.

Expected Dividend Yield: The Black-Scholes valuation model calls for a single expected dividend yield as an input. This is determined based upon current annual dividend as of the date of grant compared to the grant price.

Risk-Free Interest Rate: We base the risk-free interest rate used in the Black-Scholes valuation method on U.S. Treasury issues with an equivalent term. Where the expected term of our stock-based awards do not correspond with the terms for which interest rates are quoted, we perform a straight-line interpolation to determine the rate from the available maturities.

Expected Life of SSARs: Expected life represents the period that LP’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Estimated Pre-vesting Forfeitures: When estimating forfeitures, we consider voluntary termination behavior as well as workforce reduction programs.

The following table summarizes stock options and SSARs outstanding as of December 31, 2017 as well as activity during the last year.



	Options/ SSARs		Weighted Average Exercise Price		Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2016	4,229,247		$	15.84
Granted	285,934		$	19.14
Exercised	(1,093,553	)	$	12.79
Expired	(993,752	)	$	22.94
Forfeited	(23,068	)	$	16.54
Outstanding at December 31, 2017	2,404,808		$	14.76	5.8	$	27.7
Vested and expected to vest at December 31, 2017⁽¹⁾	2,284,568		$	14.76	5.8	$	27.5
Exercisable at December 31, 2017	1,703,031		$	13.70	4.8	$	21.4

_______________


⁽¹⁾	Expected to vest based upon historical forfeiture rate

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of 2017 and the exercise price, multiplied by the number of in-the-money options and SSARs) that would have been received by the holders had all holders exercised their awards on December 31, 2017. This amount changes based on the market value of our stock as reported by the New York Stock Exchange.

As of December 31, 2017, there was $2.0 million of total unrecognized compensation costs related to stock options and SSARs. These costs are expected to be recognized over a weighted-average period of 1.5 years. We recognized $2.5 million, $4.6 million and $3.6 million in compensation expense associated with these awards for the years ended December 31, 2017, 2016 and 2015. The intrinsic value of SSARs exercised in the years ended December 31, 2017, 2016 and 2015 was $26.5 million, $29.8 million and $23.9 million

Restricted Share Units

We grant restricted share units to certain key employees and directors. The awards entitle the participant to receive unrestricted shares of LP common stock at no cost to the participant. Awards granted under this plan to employees generally vest three years from the date of grant and to directors over one year. The market value of these grants approximates the fair value. The fair value of the restricted awards on the date of the grant is amortized ratably over the service period which is generally three years. We recorded compensation expense related to these awards in 2017, 2016 and 2015 of $3.9 million, $4.7 million and $3.5 million. As of December 31, 2017, there was $4.1 million of total unrecognized compensation cost related to unvested restricted awards.

The following table summarizes restricted awards outstanding as of December 31, 2017 as well as activity during the past year.



	Shares		Weighted Average Grant Date Fair Value		Weighted Average Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2016	676,267		$	16.64
Granted	249,011		$	20.11
Vested	(207,306	)	$	17.17
Forfeited	(54,802	)	$	16.92
Outstanding at December 31, 2017	663,170		$	17.75	1.2	$	17.4

The total fair value of awards vested during the years ended December 31, 2017, 2016 and 2015, was $4.5 million, $2.4 million and $5.4 million.

Restricted Shares

We grant restricted stock to certain senior executive employees. The shares vest three years from the date of grant. During the vesting period, the participants have voting rights and receive dividends, but the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. Additionally, granted but unvested shares are forfeited upon termination of employment. The fair value of the restricted shares on the date of the grant is amortized ratably over the service period which is generally three years. We recorded compensation expense related to these awards in 2017, 2016 and 2015 of $1.5 million, $2.4 million and $1.7 million. As of December 31, 2017, there was $2.2 million of total unrecognized compensation cost related to unvested restricted stock to be recognized over 1.3 years.

The following table summarizes restricted awards outstanding as of December 31, 2017 as well as activity during the past year.



	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	345,537		$	16.73
Granted	109,386		$	19.80
Vested	(115,352	)	$	17.92
Forfeited	(28,356	)	$	17.10
Outstanding at December 31, 2017	311,215		$	17.33

The total fair value of awards vested during the years ended December 31, 2017, 2016 and 2015, was $2.2 million, $1.4 million and $3.8 million.

Performance Share Awards

We grant performance shares awards to certain senior key employees. The right to earn shares under these awards is based on the achievement of various segment or company-wide performance conditions, including revenue growth of certain product segments or individual products as compared to housing start growth. The achievement of the performance goals is ratable from 0% to 200%. Compensation cost is amortized into expense over the service period, which is generally three years, and is based on the probability of meeting performance targets. We recorded compensation expense related to these awards in 2017 and 2016 of $1.6 million and $1.0 million. As of December 31, 2017, there was $1.8 million of total unrecognized compensation cost related to these performance shares to be recognized over 1.6 years.

The following table summarizes information about performance share awards as of December 31, 2017, as well as activity during the year then ended, based on the target award amounts in the performance share award agreements:



	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	85,361		$	20.45
Granted	121,724		24.87
Vested	—		—
Forfeited	(19,011	)	22.71
Outstanding at December 31, 2017	188,074		$	23.08