STOCK-BASED COMPENSATION

The AutoNation, Inc. 2008 Equity and Incentive Plan (the “2008 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards to employees. A maximum of 12.0 million shares may be issued under the 2008 Plan, provided that no more than 2.0 million shares may be issued pursuant to the grant of awards, other than options or stock appreciation rights, that are settled in shares. The exercise price of all stock options granted in 2015 under the 2008 Plan, is equal to the closing price of our common stock on the date such awards were granted.

The AutoNation, Inc. 2014 Non-Employee Director Equity Plan (the “2014 Director Plan”) provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards to our non-employee directors. A maximum of 1.0 million shares may be issued under the 2014 Director Plan. Additionally, no director may be granted awards in any calendar year with an aggregate grant date fair market value (determined, with respect to options and stock appreciation rights, based on a Black-Scholes or other option valuation methodology approved by the Compensation Committee) in excess of $750,000 per director.

Stock Options

In 2015, the Compensation Committee of our Board of Directors approved the grant of 1.0 million employee stock options. Generally, employee stock option awards are granted quarterly on the first trading day of each of March, June, September, and December. The options granted in 2015 have an exercise price equal to the closing price per share on the grant date ($62.60 on March 2, $62.93 on June 1, $58.08 on September 1, and $64.48 on December 1, 2015).

Stock options granted under all plans are non-qualified. Upon exercise, shares of common stock are issued from our treasury stock. Employee stock options generally have a term of 10 years from the first date of grant (i.e., employee stock options granted in 2015 will expire on March 2, 2025) and vest in equal installments over four years commencing on June 1 of the year following the grant date (e.g., 25% of each option grant made in 2015 will vest on June 1, 2016).

We use the Black-Scholes valuation model to determine compensation expense and amortize compensation expense on a straight-line basis, net of estimated forfeitures, over the requisite service period of the grants. Certain of our equity-based compensation plans contain provisions that provide for vesting of awards upon retirement. Accordingly, compensation cost is recognized over the shorter of the stated vesting period or the period until employees become retirement-eligible.

The following table summarizes the assumptions used related to the valuation of our stock options during 2015, 2014, and 2013:



	Grant Year
	2015	2014	2013
Risk-free interest rate	0.76% - 1.86%	1.11% - 2.04%	0.58% - 2.24%
Expected dividend yield	—	—	—
Expected term	2 - 7 years	4 - 7 years	4 - 7 years
Expected volatility	24% - 34%	25% - 36%	29% - 44%

The risk-free interest rate is based on the U.S. Treasury yield curve at the time of the grant with a remaining term equal to the expected term used for stock options granted. The expected term of stock options granted is derived from historical data and represents the period of time that stock options are expected to be outstanding. The expected volatility is based on historical volatility, implied volatility, and other factors.

The following table summarizes stock option activity during 2015:



	Stock Options
	Shares (in millions)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Options outstanding at January 1	5.0		$	36.43
Granted ⁽¹⁾	1.0		$	62.06
Exercised	(1.3	)	$	23.33
Forfeited	(0.1	)	$	51.50
Expired	—		$	—
Options outstanding as of December 31	4.6		$	45.07	6.89	$	70.1
Options exercisable at December 31	2.3		$	35.09	5.55	$	57.1
Options exercisable at December 31 and expected to vest thereafter	4.6		$	44.76	6.80	$	70.4
Options available for future grants at December 31	4.3


⁽¹⁾	The options granted during 2015, are primarily related to our employee quarterly stock option award grants in March, June, September, and December 2015.

The weighted average grant-date fair value of stock options granted and total intrinsic value of stock options exercised are summarized in the following table:



	2015		2014		2013
Weighted average grant-date fair value of stock options granted	$	19.38	$	20.56	$	17.93
Total intrinsic value of stock options exercised (in millions)	$	51.9	$	56.2	$	31.3

Restricted Stock

In 2015, the Compensation Committee of our Board of Directors approved the grant of 0.2 million shares of restricted stock. Restricted stock awards are granted to restricted stock-eligible employees generally on the first trading day of March.

Restricted stock awards are considered nonvested share awards as defined under generally accepted accounting principles and are issued from our treasury stock. Restricted stock awards vest in equal installments over four years commencing on June 1 of the year following the grant date. Compensation cost for restricted stock awards is based on the closing price of our common stock on the date of grant and is recognized on a straight-line basis, net of estimated forfeitures, over the shorter of the stated vesting period or the period until employees become retirement-eligible.

The following table summarizes information about vested and unvested restricted stock for 2015:



	Restricted Stock
	Shares (in actual number of shares)		Weighted-Average Grant Date Fair Value
Nonvested at January 1	306,442		$	42.52
Granted ⁽¹⁾	159,442		$	62.54
Vested	(140,019	)	$	41.44
Forfeited	(41,581	)	$	48.02
Nonvested at December 31	284,284		$	53.11


⁽¹⁾	The restricted stock awards granted during 2015 are primarily related to our employee annual restricted stock award grant in March 2015.

The weighted average grant-date fair value of restricted stock awards granted and total fair value of restricted stock awards vested are summarized in the following table:



	2015		2014		2013
Weighted average grant-date fair value of restricted stock awards granted	$	62.54	$	52.87	$	43.45
Total fair value of restricted stock awards vested (in millions)	$	8.8	$	8.1	$	6.8

Restricted Stock Units

We began granting restricted stock units (“RSUs”) under our 2014 Director Plan in 2014. On January 2, 2015, each of our non-employee directors received a grant of 5,000 RSUs under the 2014 Director Plan. RSUs granted to our non-employee directors are fully vested on the grant date and are settled in shares of the Company’s common stock on the first trading day of February in the third year following the grant date, unless the non-employee director elects to defer delivery in accordance with the terms of the award and the 2014 Director Plan. Settlement of the RSUs will be accelerated in certain circumstances as provided in the terms of the award and the 2014 Director Plan, including in the event the non-employee director ceases to serve as a non-employee director of the Company. Compensation cost is recognized on the grant date and is based on the closing price of our common stock on the grant date.

The weighted average grant-date fair value and total grant-date fair value of RSUs granted (and vested) are summarized in the following table:



	2015		2014		2013
Weighted average grant-date fair value of RSUs granted	$	60.04	$	53.57	$	—
Total fair value of RSUs granted (in millions)	$	2.7	$	2.1	$	—

Compensation Expense

The following table summarizes the total stock-based compensation expense recognized in Selling, General, and Administrative Expenses in the Consolidated Statements of Income and the total recognized tax benefit related thereto:



	2015		2014		2013
Stock options	$	14.8	$	18.4	$	16.6
Restricted stock	6.5		5.8		4.7
RSUs	2.7		2.1		—
Total stock-based compensation expense	$	24.0	$	26.3	$	21.3

Tax benefit related to stock-based compensation expense	$	9.2	$	10.0	$	8.1

As of December 31, 2015, there was $24.0 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, of which $14.4 million relates to stock options and $9.6 million relates to restricted stock. These amounts are expected to be recognized over a weighted average period of 1.77 years.

We realized tax benefits related to stock options exercised and vesting of restricted stock of $23.3 million in 2015, $24.1 million in 2014, and $14.3 million in 2013.