Equity Incentive Plans

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we may grant qualified and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and performance units under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 69.9 million shares, subject to antidilution and other adjustment provisions. We have granted RSUs, stock options, and restricted stock under the Equity Incentive Plan. Of the shares approved by our stockholders for issuance under the Equity Incentive Plan, 12.5 million shares remained available for issuance as of December 31, 2015. We expect to issue new shares of common stock to cover past and future equity grants.

RSUs

RSUs vest over periods of up to five years, subject to a continued service condition. Each RSU converts into one share of LKQ common stock on the applicable vesting date. RSUs may not be sold, pledged or otherwise transferred until they vest. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date.

We also grant RSUs to our executive officers that include both a performance-based vesting condition and a time-based vesting condition. The performance-based vesting condition is the report by the Company of positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date. The time-based vesting condition is the vesting of the number of RSUs subject to the grant in each of the six months following the grant date over a total of three years. The Compensation Committee approved the grant of 215,076; 175,800; and 946,800 RSUs to our executive officers that include both a performance-based vesting condition and a time-based vesting condition in 2015, 2014, and 2013, respectively. Of the amounts approved in 2013, 671,400 represented a replacement for the cancellation of an equal number of then unvested RSUs that had only a time-based vesting condition. The performance-based vesting condition for the 2015, 2014, and 2013 grants to our executive officers has been satisfied.

The fair value of RSUs that vested during the years ended December 31, 2015, 2014 and 2013 was $28.2 million, $27.7 million and $14.4 million, respectively.

In January 2016, our Board of Directors granted 746,558 RSUs to employees (including executive officers).

The following table summarizes activity related to our RSUs under the Equity Incentive Plan:



	Number Outstanding		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Unvested as of January 1, 2013	2,351,362		$	14.02
Granted	924,312		$	22.18
Vested	(594,961	)	$	15.05
Forfeited / Canceled	(122,500	)	$	16.25
Unvested as of December 31, 2013	2,558,213		$	16.63
Granted	664,897		$	31.82
Vested	(975,462	)	$	17.01
Forfeited / Canceled	(96,416	)	$	20.73
Unvested as of December 31, 2014	2,151,232		$	20.97
Granted	926,051		$	27.08
Vested	(994,130	)	$	19.87
Forfeited / Canceled	(101,861	)	$	24.66
Unvested as of December 31, 2015	1,981,292		$	24.19
Expected to vest after December 31, 2015	1,940,820		$	24.13	2.3	$	57,506

⁽¹⁾The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.

The RSUs containing a performance-based vesting condition that were granted in replacement of canceled RSUs were accounted for as a modification of the original awards, and therefore are not reflected as grants or cancellations in the table above.

Stock Options

Stock options vest over periods of up to five years, subject to a continued service condition. Stock options expire either six or ten years from the date they are granted. During 2015, we granted no stock options to employees.

The total grant-date fair value of options that vested during the years ended December 31, 2015, 2014 and 2013 was $1.2 million, $3.3 million and $5.1 million, respectively.

The following table summarizes activity related to our stock options under the Equity Incentive Plan:



	Number Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Balance as of January 1, 2013	9,355,070		$	6.90
Exercised	(2,399,419	)	$	6.41		$	46,899
Forfeited / Canceled	(123,320	)	$	8.89
Balance as of December 31, 2013	6,832,331		$	7.04
Granted	126,755		$	32.31
Exercised	(1,687,700	)	$	5.52		$	38,373
Forfeited / Canceled	(63,614	)	$	16.10
Balance as of December 31, 2014	5,207,772		$	8.04
Exercised	(1,425,075	)	$	6.22		$	32,375
Forfeited / Canceled	(16,745	)	$	28.12
Balance as of December 31, 2015	3,765,952		$	8.63	2.9	$	79,317
Exercisable as of December 31, 2015	3,673,816		$	8.04	2.9	$	79,317
Exercisable as of December 31, 2015 and expected to vest thereafter	3,756,738		$	8.58	2.9	$	79,317

⁽¹⁾ The aggregate intrinsic value of outstanding, exercisable and expected to vest options represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of the last day of the period indicated. This amount changes based on the market price of the Company’s common stock.

Restricted Stock

Restricted stock vested over a five year period, subject to a continued service condition. Shares of restricted stock may not be sold, pledged or otherwise transferred until they vest. During the year ended December 31, 2014, all remaining unvested restricted stock became fully vested.

The fair value of restricted stock that vested during the years ended December 31, 2014 and 2013 was $0.5 million and $2.3 million, respectively.

The following table summarizes activity related to our restricted stock under the Equity Incentive Plan:



	Number Outstanding		Weighted Average Grant Date Fair Value
Unvested as of January 1, 2013	116,000		$	9.47
Vested	(96,000	)	$	9.51
Unvested as of December 31, 2013	20,000		$	9.30
Vested	(20,000	)	$	9.30
Unvested as of December 31, 2014	—		$	—

Stock-Based Compensation Expense

For the RSUs that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the requisite service period for each separate vesting tranche of the award. For the RSUs that were canceled and replaced, the fair values of the RSUs immediately before and after the modification were the same. As a result, there was no charge recorded in 2013 and the expense for these RSUs was continued at the grant date fair value. During the years ended December 31, 2015, 2014, and 2013, we recognized $8.2 million, $8.2 million, and $8.3 million, respectively, of stock based compensation expense related to the RSUs containing a performance-based vesting condition. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award.

In all cases, compensation expense is adjusted to reflect estimated forfeitures. When estimating forfeitures, we consider voluntary and involuntary termination behavior as well as analysis of historical forfeitures.

The components of pre-tax stock-based compensation expense are as follows (in thousands):



	Year Ended December 31,
	2015		2014		2013
RSUs	$	21,058	$	18,965	$	17,299
Stock options	278		2,917		4,529
Restricted stock	—		139		208
Total stock-based compensation expense	$	21,336	$	22,021	$	22,036

The following table sets forth the classification of total stock-based compensation expense included in our Consolidated Statements of Income (in thousands):



	Year Ended December 31,
	2015			2014			2013
Cost of goods sold	$	358		$	410		$	392
Facility and warehouse expenses	2,271			2,195			2,745
Selling, general and administrative expenses	18,707			19,416			18,899
	21,336			22,021			22,036
Income tax benefit	(8,221		)	(8,478		)	(8,594		)
Total stock-based compensation expense, net of tax	$	13,115		$	13,543		$	13,442

We have not capitalized any stock-based compensation costs during the years ended December 31, 2015, 2014 or 2013.

As of December 31, 2015, unrecognized compensation expense related to unvested RSUs and stock options is expected to be recognized as follows (in thousands):



	RSUs		Stock Options		Total
2016	$	13,997	$	267	$	14,264
2017	8,760		7		8,767
2018	5,334		—		5,334
2019	2,754		—		2,754
2020	30		—		30
Total unrecognized compensation expense	$	30,875	$	274	$	31,149