Stock-Based Compensation

Our shareholders approved the 2011 Stock Incentive Plan (the “2011 Plan”) at our Annual Meeting of Shareholders in December 2011. The 2011 Plan replaced the 1973 Non-Qualified Stock Option Plan, as amended, and the 2003 Incentive Stock Plan (the “Prior Plans”). No new awards will be made under the Prior Plans and outstanding awards will remain outstanding under the Prior Plans until settled. Under the 2011 Plan, we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees or members of the Board of Directors. We are authorized to grant an aggregate of 1,355,764 shares under the 2011 Plan. As of December 31, 2016, there were 729,095 shares available for issuance of future grants of awards under the 2011 Plan. As of December 31, 2016, there were 37,350 shares representing outstanding awards under the Prior Plans and 361,610 shares representing outstanding awards under the 2011 Plan. We may issue new shares or use shares held in treasury to deliver shares to employees for our equity grants or upon exercise of non-qualified stock options.

The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands):



	Years ended December 31,
	2016		2015		2014
Cost of revenue	$	2,545	$	2,366	$	1,609
Selling, general and administrative expenses	684		684		519
Total stock-based compensation expense	$	3,229	$	3,050	$	2,128

We recognized a deferred income tax benefit of $1.2 million, $1.1 million and $0.7 million, respectively, during the years ended December 31, 2016, 2015, and 2014 associated with the compensation expense recognized in our consolidated financial statements. As of December 31, 2016, we had non-qualified stock options and restricted stock units outstanding under these plans as discussed below.

Non-Qualified Stock Options

Non-qualified stock options are granted with an exercise price not less than the fair market value of our common stock at the date of grant, vest over a period up to ten years, and expire at various terms up to ten years from the date of grant.

Summarized information for our non-qualified stock options is as follows:



Stock Options	Number of options		Weighted average exercise price		Weighted average remaining contractual term	Aggregate intrinsic value
Outstanding at December 31, 2015	110,550		$	14.54
Granted	—		—
Exercised	(41,900	)	13.16
Forfeited	(500	)	15.65
Expired	(600	)	19.38
Outstanding at December 31, 2016	67,550		$	15.34	0.54	$	896,000
Exercisable at December 31, 2016	64,150		$	15.30	0.50	$	853,000

As of December 31, 2016, we had less than $0.1 million of unrecognized compensation cost related to the unvested portion of outstanding stock options to be recognized on a straight-line basis over a weighted average remaining service period of approximately 0.6 years.

We received cash for the exercise price associated with stock options exercised of $0.1 million during each of the years ended December 31, 2016, 2015 and 2014, respectively. During the years ended December 31, 2016, 2015, and 2014 we settled 30,700, 104,000, and 327,100 outstanding stock options, respectively, held by our employees by issuing 9,976, 46,432 and 140,544 fully vested shares, respectively, which represented the fair value of those stock options upon settlement, net of required income tax withholdings. The total intrinsic value realized by participants on stock options exercised and/or settled was $0.5 million, $2.3 million and $7.0 million during the years ended December 31, 2016, 2015 and 2014, respectively. During the years ended December 31, 2016, 2015 and 2014, we realized excess income tax benefits of $0.1 million, $0.8 million and $2.5 million, respectively, related to stock option exercises and restricted stock vesting, which are reflected as an increase to additional paid-in capital on the consolidated statements of stockholders’ equity.

Restricted Stock Units

In addition to stock options, we issue restricted stock units to key employees and members of the Board of Directors based on meeting certain service goals. The stock units vest to the recipients at various dates, up to five years, based on fulfilling service requirements. We recognize the value of the market price of the underlying stock on the date of grant to compensation expense over the requisite service period. Upon vesting, the stock units are settled in shares of our common stock. Summarized share information for our restricted stock units is as follows:



	Year ended December 31, 2016		Weighted average grant date fair value
	(In shares)		(In dollars)
Outstanding and unvested, beginning of period	221,664		$	28.74
Granted	66,019		26.89
Vested	(76,010	)	24.32
Forfeited	(4,657	)	25.19
Outstanding and unvested, end of period	207,016		$	29.85

The total intrinsic value realized by participants upon the vesting of restricted stock units was $1.8 million, $2.0 million and $1.6 million during the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had unrecognized compensation cost of $3.9 million related to the unvested portion of our outstanding restricted stock units to be recognized over a weighted average remaining service period of 1.9 years.

In 2015, the Compensation Committee approved a long-term incentive program providing for the issuance to certain executives performance-based and time-based restricted stock units under the 2011 Plan. Under the program, a target level of equity compensation is set for each officer. The total equity compensation is divided into performance-based and time-based restricted stock units. Under the program, the Compensation Committee sets the performance-based goals within the first 90 days of each year. Vesting of the performance-based stock units (PSU's) is contingent upon the employee's continued employment and the Company's achievement of certain performance goals during a three-year performance period. The performance goals are established by the Compensation Committee for a three-year performance period based on financial targets, including an average annual return on invested capital (“ROIC”) and average annual growth in earnings before interest, taxes, depreciation and amortization (adjusted to exclude the effect of acquisitions, dispositions, and certain other nonrecurring or extraordinary items) (“Adjusted EBITDA”). We recognize compensation expense, net of estimated forfeitures, for PSU's on a straight-line basis over the performance period based on the probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PSU's expected to vest, based on the probability and extent to which the performance goals will be met, and take into account these estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the performance period, we will make a cumulative adjustment to compensation expense based on the revised number of shares expected to be earned.

Summarized share information for our performance-based restricted stock units is as follows:



	Year ended December 31, 2016	Weighted average grant date fair value
	(In shares)	(In dollars)
Outstanding and unvested, beginning of period	52,476	$	36.71
Granted	71,918	26.97
Vested	—	—
Forfeited	—	—
Outstanding and unvested, end of period	124,394	$	31.08

As of December 31, 2016, we had unrecognized compensation cost of $0.4 million related to the unvested portion of our outstanding restricted stock units to be recognized over a weighted average remaining service period of 1.8 years.