Stock-Based Compensation

Total stock-based compensation expense for the years ended June 30, 2017, June 30, 2016, and June 30, 2015 was $7.5 million, $6.3 million and $6.3 million, respectively. Measured but unrecognized stock-based compensation expense at June 30, 2017 was $11.9 million, all of which related to nonvested deferred shares which are expected to be recognized as expense over a weighted average period of 1.8 years. The recognized tax benefit related to the stock-based compensation expense for the years ended June 30, 2017, June 30, 2016 and June 30, 2015 totaled $0.5 million, $3.2 million and $2.5 million, respectively.

Plan Information

In November 2016, the Company's stockholders approved the Matrix Service Company 2016 Stock and Incentive Compensation Plan (the "2016 Plan"), which provides stock-based and cash-based incentives for officers, directors and other key employees. Stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and cash-based awards can be issued under this plan. Upon approval of the 2016 Plan, the 2012 Stock and Incentive Compensation Plan ("2012 Plan") was frozen with the exception of normal vesting and other activity associated with awards previously granted under the 2012 Plan. However, shares awarded under the 2012 Plan that are subsequently forfeited or net settled for tax withholding purposes are returned to the treasury share pool and become available for grant under the 2016 Plan. The 2012 Plan was preceded by the 2004 Stock Incentive Plan ("2004 Plan"), which was frozen upon approval of the 2012 Plan with the exception of normal vesting, forfeiture and other activity associated with awards previously granted under the 2004 Plan.

Awards totaling 1,800,000 shares have been authorized under the 2016 Plan. At June 30, 2017 there were 1,716,934 shares available for grant under the 2016 Plan.

Stock Options

Stock options are granted at the market value of the Company’s common stock on the grant date and expire after 10 years. The Company’s policy is to issue shares upon the exercise of stock options from its treasury shares, if available. The Company did not award any new stock options in fiscal years 2017, 2016, or 2015.

Stock option activity and related information for the year ended June 30, 2017 is as follows:



	Number of Options		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Aggregate Intrinsic Value
			(Years)			(In thousands)
Outstanding at June 30, 2016	122,063		5.3	$	10.19	$	769
Granted	—			—
Exercised	(24,813	)		$	10.19	$	268
Canceled	—			—
Outstanding at June 30, 2017	97,250		P5Y3M	$	10.19	$	—
Vested at June 30, 2017	97,250		P5Y3M	$	10.19	$	—
Exercisable at June 30, 2017	97,250		P5Y3M	$	10.19	$	—

The total intrinsic value of stock options exercised during fiscal 2017, 2016, and 2015 was $0.3 million, $0.7 million and $0.7 million, respectively.

Nonvested Deferred Shares

The Company has issued nonvested deferred shares under the following types of arrangements:


•	Time-based awards—Employee awards generally vest in four equal annual installments beginning one year after the grant date. Director awards prior to 2016 cliff vest on the earlier of three years or upon retirement from the Board. Director awards beginning in 2016 vest one year after the grant date.

•

Market-based awards—These awards are in the form of performance units which vest 3 years after the grant date only if the Company’s common stock achieves certain levels of total shareholder return when compared to the total shareholder return of a peer group of companies as selected by the Compensation Committee of the Board of Directors. The payout can range from zero to 200% of the original award depending on the Company's relative total shareholder return during the performance period. These awards are settled in stock. As of June 30, 2017, there are approximately 127,000, and 183,000 performance units that are scheduled to vest in fiscal 2019, and fiscal 2020, respectively. There were approximately 80,000 performance units that were scheduled to vest in fiscal 2018, but total shareholder return during the performance period did not meet the threshold performance and the performance units were forfeited.

All awards vest upon the death or disability of the participant or upon a change of control of the Company.

The grant date fair value of the time-based awards is determined by the market value of the Company's common stock on the grant date. The grant date fair value of the market-based awards is calculated using a Monte Carlo model. For the fiscal 2017 grant, the model estimated the fair value of the award based on approximately 100,000 simulations of the future prices of the Company's common stock compared to the future prices of the common stock of its peer companies based on historical volatilities. The model also took into account the expected dividends of the peer companies over the performance period.

Nonvested deferred share activity for the twelve months ended June 30, 2017 is as follows:



	Shares		Weighted Average Grant Date Fair Value per Share
Nonvested shares at June 30, 2016	791,995		$	21.45
Shares granted	516,969		$	19.80
Performance shares earned in excess of target	88,523		$	18.90
Shares vested and released	(396,530	)	$	18.24
Shares canceled	(5,604	)	$	19.70
Nonvested shares at June 30, 2017	995,353		$	21.65

There were 370,490 and 242,649 deferred shares granted in fiscal 2016 and 2015 with average grant date fair values of $20.77 and $29.31, respectively. There were 396,530, 631,443 and 326,763 deferred shares that vested and were released in fiscal 2017, 2016 and 2015 with weighted average fair values of $18.24, $22.34 and $23.93 per share, respectively.