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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2017
Share-Based Compensation. |
Share-Based Compensation | 14. SHARE-BASED COMPENSATION Prior to the Separation, our eligible employees participated in the Masco share-based compensation program and received RSAs and Options. Effective July 1, 2015, our eligible employees commenced participation in the 2015 LTIP. The 2015 LTIP authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents. All grants are made by issuing new shares and no more than 4.0 million shares of common stock may be issued under the 2015 LTIP. As of December 31, 2017, we had 2.7 million shares available under the 2015 LTIP. Prior to the Separation, share-based compensation expense was allocated to TopBuild based on the awards and options previously granted by Masco to TopBuild employees. Outstanding, unvested Masco RSAs and Options held by employees of TopBuild as of June 30, 2015, were forfeited upon Separation and replaced with TopBuild long-term incentive awards immediately subsequent to the Separation. The replacement awards are subject to the same terms and conditions in effect prior to the Separation and are of generally equivalent value. Share-based compensation expense is included in selling, general, and administrative expense. The income tax effect associated with award vestings is included in income tax expense effective July 1, 2016, upon the early adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The following table presents share-based compensation amounts recognized in our Consolidated Statements of Operations, in thousands:
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015
Share-based compensation expense |  | $ | 9,889 |  | $ | 7,669 |  | $ | 4,651
Income tax benefit realized from award vestings |  | $ | 2,882 |  | $ | 588 |  | $ | —
The following table presents a summary of our share-based compensation activity for the year ended December 31, 2017, in thousands, except per share amounts:
|  | RSAs |  | Options
|  | Number of Shares |  | Weighted Average Grant Date Fair Value Per Share |  | Number of Shares |  | Weighted Average Grant Date Fair Value Per Share |  | Weighted Average Exercise Price Per Share |  | Aggregate Intrinsic Value
Balance December 31, 2016 |  | 653.1 |  | $ | 25.71 |  | 712.0 |  | $ | 9.73 |  | $ | 25.03 |  | $ | 7,525.8
Granted |  | 158.9 |  | $ | 44.28 |  | 153.0 |  | $ | 14.62 |  | $ | 38.89 |  |  |
Converted/Exercised |  | (187.7) |  | $ | 24.06 |  | (181.5) |  | $ | 8.56 |  | $ | 21.88 |  | $ | 6,267.5
Forfeited |  | (33.1) |  | $ | 31.08 |  | — |  | $ | — |  | $ | — |  |  |
Balance December 31, 2017 |  | 591.2 |  | $ | 30.92 |  | 683.5 |  | $ | 11.13 |  | $ | 28.97 |  | $ | 31,969.7
Exercisable December 31, 2017 (a) |  |  |  |  | 141.4 |  | $ | 10.22 |  | $ | 26.45 |  | $ | 6,970.0
| (a) |  | The weighted average remaining contractual term for vested options is 7.8 years.
We had unrecognized share-based compensation expense relating to unvested awards as shown in the following table, dollars in thousands:
|  | As of December 31, 2017
|  | Unrecognized Compensation Expense on Unvested Awards |  | Weighted Average Remaining Vesting Period
Unrecognized compensation expense related to unvested awards: |  |  |  |  |  |
RSAs |  | $ | 10,531 |  |  | 1.3 years
Options |  |  | 4,122 |  |  | 1.2 years
Total unrecognized compensation expense related to unvested awards |  | $ | 14,653 |  |  |
Our RSAs with performance-based conditions are evaluated on a quarterly basis with adjustments to compensation expense based on the likelihood of the performance target being achieved or exceeded. The following table shows the range of payouts and the related expense for our outstanding RSAs with performance-based conditions, in thousands:
|  |  |  |  | Payout Ranges and related expense
RSAs with performance-based conditions |  | Grant Date Fair Value |  | 0% |  | 25% |  | 100% |  | 200%
February 22, 2016 |  | $ | 1,942 |  | $ | — |  | $ | 486 |  | $ | 1,942 |  | $ | 3,884
February 21, 2017 |  | $ | 2,143 |  | $ | — |  | $ | 536 |  | $ | 2,143 |  | $ | 4,286
The fair value of our RSAs with a market-based condition granted under the 2015 LTIP was determined using a Monte Carlo simulation. The following are key inputs in the Monte Carlo analysis for awards granted in 2017 and 2016:
|  | 2017 |  |  | 2016 |
Measurement period (years) |  |  | 2.86 |  |  |  | 2.86 |
Risk free interest rate |  |  | 1.46 | % |  |  | 0.90 | %
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Estimated fair value of market-based RSAs granted |  | $ | 50.06 |  |  | $ | 33.77 |
The fair value of Options granted under the 2015 LTIP was calculated using the Black-Scholes Options Pricing Model. The following table presents the assumptions used to estimate the fair values of the options granted in 2017 and 2016:
|  | 2017 |  |  | 2016 |
Risk free interest rate |  |  | 2.18 | % |  |  | 1.51 | %
Expected volatility, using historical return volatility and implied volatility |  |  | 35.00 | % |  |  | 38.00 | %
Expected life (in years) |  |  | 6.0 |  |  |  | 6.0 |
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Estimated fair value of options granted |  | $ | 14.44 |  |  | $ | 10.20 |

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