11. 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 currently participate in the 2015 TopBuild Long-Term Incentive Plan, as amended from time to time (the “2015 Plan”).  The 2015 Plan authorizes the Board of Directors 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 Plan.  As of September 30, 2016, we had 2.4 million shares available 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 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, issued under the 2015 Plan, 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 income tax expense.  The following table presents the amounts recognized in our Condensed Consolidated Statements of Operations, in thousands:

 

 

The following table presents a summary of our share-based compensation activity for the nine months ended September 30, 2016, in thousands, except per share amounts:

 

 

As of September 30, 2016, we had unrecognized share-based compensation expense relating to unvested awards as shown in the following table, dollars in thousands:

 

 

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:

 

 

The fair value of our RSAs with a market-based condition granted under the 2015 Plan was determined using a Monte Carlo simulation.  The following are key inputs in the Monte Carlo analysis for awards granted in 2016:

 

 

The fair values of stock options granted under the 2015 Plan were calculated using the Black-Scholes Options Pricing Model.  The following table presents the assumptions used to estimate the fair values of options granted in 2016 and 2015: