K. SHARE-BASED COMPENSATION

 

Prior to the Separation, our employees participated in the Masco share-based compensation program and received restricted stock awards and stock options. Effective July 1, 2015, our employees participate in the 2015 TopBuild Long-Term Incentive Plan (the “2015 Plan”).  The 2015 Plan authorizes the Board of Directors to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, and dividend equivalents.  No more than 4.0 million shares of common stock may be issued under the 2015 Plan. 

 

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 stock options and restricted stock awards 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.

 

Included in selling, general and administrative expenses is share-based compensation expense of $1.5 million and $0.9 million for the three months ended September 30, 2015 and 2014, respectively.  For the nine months ended September 30, 2015 and 2014, share-based compensation was $3.2 million and $2.9 million, respectively.  We measure share-based compensation expense using the fair value of the awards at grant date.

 

The following table presents a summary of our share-based compensation activity for the three months ended September 30, 2015 (in thousands, except per share amounts):

 

 

As of September 30, 2015, there was $9.8 million of unrecognized compensation expense related to unvested restricted stock awards; such awards had a weighted average remaining vesting period of 1.7 years.

 

As of September 30, 2015, there was $3.2 million of unrecognized compensation expense related to unvested stock options; such options had a weighted average remaining vesting period of 2.2 years and a weighted average remaining contractual life of 8.8 years.

 

The fair value of stock options granted under the 2015 Plan 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: