EQUITY-BASED COMPENSATION

The Company awards equity-based compensation to employees and directors, which is recognized in the statements of operations based on the grant-date fair value of the award. The Company uses the straight-line method for recording compensation expense over a vesting period generally up to four years with either graded or cliff vesting. Stock compensation expense recognized during the period is based on the value of the portion of equity-based awards that is ultimately expected to vest during the period reduced by the unvested expense on awards forfeited during the period.

On May 4, 2018, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan provides for the issuance of up to 1,000,000 shares of common stock and supplements the remaining shares available for issuance under the existing Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "2015 Plan"). The Company's 2005 Equity Incentive Plan (the "Prior Plan") was amended in 2015 to terminate issuance of further awards from the Prior Plan.

Both the 2018 Plan and the 2015 Plan allow the Company to grant equity-based incentive compensation awards, in the form of non-qualified options, restricted shares, restricted stock units, performance shares, performance stock units, and stock rights to eligible participants.

In 2016, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which allows the Company to grant awards of shares of the Company's common stock to non-employee Directors of the Company and permits the Directors to defer receipt of such shares pursuant to the terms of the Non-Employee Directors Plan.

At December 31, 2018, 946,000 and 73,000 shares were available for issuance under the 2018 Plan and 2015 Plan, respectively, as incentive stock options or other stock awards, and 60,000 shares were available for issuance under the Non-Employee Directors Plan as awards of shares of the Company's common stock.

The Company recognized the following compensation expense in connection with awards that vested under the 2018 Plan, the 2015 Plan, the Prior Plan, and the Non-Employee Directors Plan along with the related tax benefits recognized during the years ended December 31 (in thousands):



	2018		2017		2016
Expense recognized under the Prior Plan	$	569	$	1,059	$	1,937
Expense recognized under the 2015 Plan	7,988		5,643		3,993
Expense recognized under the 2018 Plan	188		—		—
Expense recognized under the Non-Employee Directors Plan	444		420		443
Total stock compensation expense	$	9,189	$	7,122	$	6,373
Tax benefits recognized related to stock compensation expense	$	2,509	$	2,133	$	2,485

Equity Based Awards - Settled in Stock

The following table provides the number of stock options, stock units, and unrestricted shares granted during the years ended December 31, along with the weighted-average grant-date fair value of each award:



	2018			2017			2016
Awards	Number of Awards	Weighted Average Grant Date Fair Value		Number of Awards	Weighted Average Grant Date Fair Value		Number of Awards	Weighted Average Grant Date Fair Value
Options	—	$	—	25,000	$	12.85	—	$	—
Deferred stock units	10,255	$	35.96	10,170	$	34.42	11,945	$	29.30
Common shares	2,113	$	35.50	2,034	$	34.42	3,185	$	29.30
Restricted stock units	116,174	$	36.61	133,548	$	36.56	141,982	$	25.44
Performance stock units	135,929	$	33.63	108,748	$	42.72	—	$	—

Stock Options

The fair value of stock options granted during the year ended December 31, 2017 was estimated on the date of grant using the Black-Scholes option pricing model. No options were granted in 2018 and 2016. Expected stock volatility was based on volatility of the Company’s stock price using a historical period commensurate with the expected life of the options. The following table provides the weighted average assumptions used to value stock options issued during the year ended December 31:



Year of Grant	Fair Value		Expected Life (in years)	Expected Stock Volatility		Risk-free Interest Rate		Expected Dividend Yield
2017	$	12.85	4.00	35.7	%	1.7	%	—	%

The following table summarizes the ranges of outstanding and exercisable options at December 31, 2018:



Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$8.90 – $9.32	18,938	1.70	$	8.90	18,938	$	8.90
$9.33 – $11.73	70,721	2.70	$	9.74	70,721	$	9.74
$11.74 – $19.58	20,100	0.70	$	13.72	20,100	$	13.72
$19.59 - $32.49	25,000	7.00	$	25.44	25,000	$	25.44
$32.50 - $43.05	25,000	8.14	$	42.35	—	$	—
	159,759				134,759

The following table summarizes information about stock option transactions:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Balance at January 1, 2016	458,349		$	16.57
Exercised	(175,125	)	19.08
Forfeited	(6,000	)	18.22
Balance at December 31, 2016	277,224		$	14.95
Granted	25,000		42.35
Exercised	(42,058	)	16.02
Forfeited	(12,500	)	25.44
Balance at December 31, 2017	247,666		$	17.01
Exercised	(87,907	)	15.75
Balance at December 31, 2018	159,759		$	17.70	6.13	$	3,026,930

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the $35.59 per share market price of the Company’s common stock as of December 31, 2018, which would have been received by the option holders had all option holders with an exercise price below the per share market price on December 31, 2018, exercised their options as of that date.

Stock units and Restricted Shares

The following table summarizes information about non-vested restricted stock units, performance stock units (that will convert to shares upon vesting) and common and restricted shares:



	Restricted Stock Units		Weighted Average Grant Date Fair Value		Common and Restricted Shares		Weighted Average Grant Date Fair Value		Performance Stock Units (1)		Weighted Average Grant Date Fair Value		Deferred Stock Units (2)		Weighted Average Grant Date Fair Value
Balance at December 31, 2017	441,816		$	23.96	4,258		$	17.30	480,462		$	24.68	22,115		$	31.65
Granted	116,174		36.61		2,113		35.50		135,929		33.63		10,255		35.96
Vested	(137,020	)	22.72		(6,371	)	23.34		(323,118	)	18.57		(5,127	)	32.18
Forfeited	(25,617	)	31.70		—		—		(57,788	)	41.59		—		—
Balance at December 31, 2018	395,353		$	27.61	—		$	—	235,485		$	33.78	27,243		$	33.18

(1) The Company’s performance stock units (“PSUs”) represent shares granted for which the final number of shares earned depends on financial performance or market conditions. The number of shares to be issued may vary between 0% and 200% of the number of performance stock units granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance condition are based on either the Company’s return on invested capital (“ROIC”) over a one-year period performance period or gross profit thresholds over a two-year performance period. The Company's PSUs with a market condition are based on the ranking of the Company’s total shareholder return (“TSR”) performance, on a percentile basis, over a three year performance period compared to the S&P Small Cap Industrial sector, over the same three year performance period.

(2) Vested and issued upon retirement.

The fair value of the common shares, restricted stock units, and deferred stock units, as well as, the performance stock units with a financial performance condition granted during the three years ended December 31, 2018 was based on the Company stock price at grant date of the award. The fair value of the performance stock units with a market condition granted during the three years ended December 31, 2018 were determined using a Monte Carlo simulation as of the grant date of the award, however no such awards were granted in 2018.

The following table sets forth the aggregate intrinsic value of options exercised and aggregate fair value of restricted stock units and restricted shares that vested during the years ended December 31 (in thousands):



	2018		2017		2016
Aggregate intrinsic value of options exercised	$	2,128	$	628	$	2,439
Aggregate fair value of vested restricted stock units	$	5,307	$	6,756	$	4,368
Aggregate fair value of vested common and restricted shares	$	149	$	70	$	247
Aggregate fair value of vested deferred stock units	$	369	$	350	$	443

As of December 31, 2018, there was $8.3 million of total unrecognized compensation cost related to non-vested options, restricted shares, and restricted stock units. That cost is expected to be recognized over a weighted average period of 1.9 years.

Equity Based Awards - Settled in Cash

As of December 31, 2018, the Company's total share-based liabilities recorded on the consolidated balance sheet was $38.4 million, of which $23.6 million was included in non-current liabilities. Total share-based liabilities as of December 31, 2017 were $48.0 million, of which $29.3 million was included in non-current liabilities. The Company's equity based awards that are settled in cash include performance stock units settled in cash and a management stock purchase plan.

Performance Stock Units - Settled in Cash

The Company also has PSUs that will convert to cash after three years based upon a one year performance period. The cost of these awards is recognized over the requisite vesting period. The PSUs earned over the performance period were determined based on the Company's actual ROIC relative to the ROIC targeted for the performance period.

The following table provides the number of PSUs which will convert to cash for the years ending December 31:

(1) There were no performance stock units that convert to cash granted to participants in 2018 and 2017.

(2) The participants earned 200% of target aggregating 256,000 PSUs earned. This award will be converted to cash and will be paid to participants in the first quarter of 2019 at the trailing 90-day closing price of the Company's common stock as of December 31, 2018.

The following table summarizes the compensation expense recognized from the change in fair value and vesting of cash settled performance stock units awarded for the years ended December 31 (in thousands):



	2018		2017		2016
Performance stock unit compensation expense	$	2,846	$	3,591	$	10,377

Management Stock Purchase Plan

The Management Stock Purchase Plan ("MSPP") provides certain employees and Directors the ability to defer a portion of their compensation or Directors’ fees, which deferral is converted to restricted stock units, and credited to an account. Employees eligible to defer a portion of their compensation also receive a company-matching award in restricted stock units equal to a percentage of their compensation. The account represents a share-based liability that is converted to and settled in cash payable to participants upon retirement or a termination of their service to the Company.

The following table provides the number of restricted stock units credited to active participant accounts, balance of vested and unvested restricted stock units within active participant accounts, payments made with respect to restricted stock units issued under the MSPP, and MSPP expense during years ended December 31:



	2018		2017		2016
Restricted stock units credited	66,843		84,299		198,155
Restricted stock units balance, vested and unvested	387,870		389,189		646,669
Share-based liabilities paid, in thousands	$	5,232	$	6,058	$	3,137
MSPP expense, in thousands	$	4,809	$	2,432	$	8,565

Number of
Units (2)

Grant Date Fair Value
(in $000s)

Performance stock units (1)