6. Stock-Based Compensation

We issue shares in connection with stock-based compensation pursuant to the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan. For purposes of counting the shares remaining available under the 2011 Incentive Plan, each share issuable pursuant to outstanding full value awards, such as restricted stock units and performance shares, counts as two shares used, whereas each share underlying a stock appreciation right or stock option counts as one share used. Under the 2011 Incentive Plan, 5,560 shares of common stock have been authorized and reserved for issuance to eligible participants, of which 1,786 represent shares that were authorized for issuance but not issued or subject to outstanding awards at December 31, 2017. The 2011 Incentive Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted or to delegate its authority under the plan to make grants (subject to certain legal and regulatory restrictions), to determine the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule and all other terms and conditions of the awards. The exercise price for stock awards granted under the 2011 Incentive Plan cannot be less than fair market value at the date of grant.

The following table sets forth stock-based compensation expense, including SOSARs and stock awards:



	Year ended December 31,
	2017		2016		2015
Stock-based compensation expense	$	66,396	$	65,112	$	59,465
Stock-based compensation expense, net of tax	$	40,370	$	35,974	$	36,666
Stock-based compensation expense recognized as capitalized development	$	1,141	$	946	$	1,554
Excess tax benefit on stock-based compensation recognized in provision for income taxes	$	448	$	-	$	-

The tables below summarize the SOSAR activity under the stock incentive plans (in thousands, except years and per share data):



	2017			2016			2015
	Shares	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share
Outstanding, beginning of year	1,917	$	490.06	1,694	$	490.70	2,087	$	395.46
Granted	304	$	426.70	460	$	457.77	379	$	659.12
Exercised	(35)	$	307.83	(124)	$	315.87	(716)	$	297.25
Forfeited or cancelled	(187)	$	527.53	(113)	$	559.25	(56)	$	554.73
Outstanding, end of year	1,999	$	480.09	1,917	$	490.06	1,694	$	490.70



	Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Years of Contractual Life	Aggregate Intrinsic Value
Outstanding as of December 31, 2017	1,999	$	480.09	3.7	$	209
Vested and expected to vest as of December 31, 2017	1,957	$	480.77	3.7	$	209
Exercisable as of December 31, 2017	1,130	$	474.20	2.7	$	209

In the past, we have granted SOSARs that included performance conditions. As of December 31, 2017, 278 outstanding SOSARs that included performance conditions were determined to have met the performance conditions. For the remaining 110 outstanding SOSARs that included performance conditions, the financial targets underlying the performance conditions had been satisfied as of December 31, 2017, and vesting of the awards was pending confirmation by the Compensation Committee that the performance conditions were met. The total intrinsic value of options and SOSARs exercised during the years ended December 31, 2017, 2016 and 2015 was $4,296, $15,946 and $260,466. Unearned compensation as of December 31, 2017 was $21,998 for SOSAR awards, and is expected to be recognized over a weighted average period of 1.4 years.

The following table reflects the weighted average assumptions utilized in the Black-Scholes option-pricing model to value SOSAR awards granted for each year:



	2017			2016			2015
Risk-free interest rate		1.6	%		1.0	%		1.1	%
Expected life (years)		3.7			3.5			3.4
Expected dividend yield		0.0	%		0.0	%		0.0	%
Volatility		29.9	%		32.2	%		30.8	%
Weighted-average Black-Scholes fair value per share at date of grant	$	105.97		$	117.48		$	156.32

The risk-free interest rate is based upon U.S. Treasury rates for instruments with similar terms and the expected life assumptions were based on our historical data. We have not paid dividends to date and do not plan to pay dividends in the near future. The volatility assumption was based on our historical data and implied volatility.

A summary of non-vested stock award activity under the 2011 Stock Incentive Plans and prior stock compensation plan is as follows (in thousands, except per share data):



	2017			2016			2015
	Shares	Weighted Average Grant Date Fair Value Per Share		Shares	Weighted Average Grant Date Fair Value Per Share		Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding, beginning of year	125	$	606.24	116	$	511.88	70	$	525.60
Granted	127	$	436.36	90	$	509.05	47	$	785.32
Vested	(8)	$	454.84	(7)	$	605.83	(1)	$	413.07
Forfeited or cancelled	(31)	$	502.46	(74)	$	529.54	-	$	534.55
Outstanding, end of year	213	$	519.62	125	$	606.24	116	$	511.88

There were 141 non-vested stock awards with a weighted average grant date fair value per share of $522.38 that were vested and expected to vest as of December 31, 2017. The aggregate intrinsic value of the shares was $32,829 and the weighted average remaining contractual life was 5.8 years. Unearned compensation for non-vested stock awards we have determined are probable of vesting was $37,962 as of December 31, 2017, and is expected to be recognized over a weighted average period of 1.6 years. The fair value of shares earned as of the vesting date during the year ended December 31, 2017, 2016, and 2015 was $3,524, $2,787, and $634, respectively.

As of December 31, 2017, 133 of the outstanding non-vested stock awards were subject to performance and/or market conditions, in addition to service vesting conditions. During the first quarter of 2017, we awarded 36 performance shares that are subject to service, market and performance vesting conditions. Two-thirds of the shares had a grant date fair value of $485.53 per share and have vesting criteria based on the price of our common stock reaching certain targets for a consecutive number of days during the three-year period starting on the grant date, with the quantity of shares that vest ranging from 0% to 350% of the targeted number of shares. The remaining one-third of the shares had a grant date fair value of $427.61 and have vesting criteria based on reaching certain comparable restaurant sales increases during the three-year period starting on January 1, 2017, with the quantity of shares that vest ranging from 0% to 300% of the targeted number of shares. If the defined minimum targets are not met, then no shares will vest.

During the year ended December 31, 2016, we awarded 73 performance shares, net of cancellations, that are subject to both service and market vesting conditions. The quantity of shares that vest will range from 0% to 400% of a targeted number of shares, and will be determined based on the price of our common stock reaching certain targets for a consecutive number of days during the three-year period starting on the grant date. If the minimum defined stock price target is not met, then no shares will vest.

During the year ended December 31, 2015, we awarded 40 performance shares that were subject to service, performance, and market vesting conditions. The quantity of shares that vest will be determined based on our relative performance versus a restaurant industry peer group in annual average revenue growth, net income growth, and total shareholder return. The quantity of shares that vest will range from 0% to 200% based on the level of achievement of the performance and market conditions. If minimum targets are not met, then no shares will vest. Each performance and market measure will be weighted equally, and performance is calculated over a three-year period beginning January 1, 2015 through December 31, 2017.

During the year ended December 31, 2017, 20 stock awards that were subject to service and performance or market conditions were forfeited.

We adjusted our estimates of the non-vested stock awards expected to vest, which had the following reduction on our expense and earnings per share (dollars in thousands, except per share data) in each of the following years:



	Year ended December 31,
	2017		2016		2015
Cumulative change in expense	$	(1,410)	$	(6,031)	$	(12,195)
Net of tax impact from cumulative change in expense	$	(857)	$	(3,332)	$	(7,520)
Impact on basic earnings per share	$	0.03	$	0.11	$	0.25
Impact on diluted earnings per share	$	0.03	$	0.11	$	0.24

Measurement of the grant date fair value of the stock awards with market conditions included a Monte Carlo simulation model, which incorporates into the fair value determination the possibility that the market condition may not be satisfied, using the following assumptions:



	2017			2016			2015
Risk-free interest rate		1.5	%		0.9	%		1.0	%
Expected life (years)		3.0			3.0			2.9
Expected dividend yield		0.0	%		0.0	%		0.0	%
Volatility		29.9	%		31.4	%		33.7	%

The assumptions are based on the same factors as those described for SOSARs, except that the expected life is based on the contractual performance period for the stock awards.