STOCK-BASED COMPENSATION

As of March 31, 2016, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a 10-year term through March 27, 2021 and provides a maximum of 3,800,000 shares for grants or awards. The 2011 Plan was approved by stockholders of Wabtec on May 11, 2011. The Company also maintains a Non-Employee Directors’ Fee and Stock Option Plan (“the Directors Plan”). No awards may be made under the Directors Plan subsequent to October 31, 2016.

Stock-based compensation expense was $5.5 million and $8.8 million for the three months ended March 31, 2016 and 2015, respectively. Included in stock-based compensation expense for the three months ended March 31, 2016 is $0.4 million of expense related to stock options, $1.4 million related to non-vested restricted stock, $0.9 million related to restricted stock units, $2.5 million related to incentive stock units and $0.3 million related to units issued for Directors’ fees. At March 31, 2016, unamortized compensation expense related to those stock options, non-vested restricted shares units and incentive stock units expected to vest totaled $38.1 million and will be recognized over a weighted average period of 1.8 years.

Stock Options Stock options are granted to eligible employees and directors at the fair market value, which is the average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options become exercisable over a four-year vesting period and expire 10 years from the date of grant.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the three months ended March 31, 2016:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic value (in thousands)
Outstanding at December 31, 2015	1,097,323		$	32.70	4.8	$	42,154
Granted	93,765		61.33			1,779
Exercised	(21,565	)	23.90			1,216
Canceled	(4,471	)	68.03			55
Outstanding at March 31, 2016	1,165,052		35.04		5.0	52,735
Exercisable at March 31, 2016	942,015		27.17		4.2	50,051

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Three Months Ended March 31,
	2016		2015
Dividend yield	0.26	%	0.14	%
Risk-free interest rate	1.47	%	1.82	%
Stock price volatility	26.9	%	27.3	%
Expected life (years)	5.0		5.0

The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury bond rates for the expected life of the option.

Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006 the Company adopted a restricted stock program. As provided for under the 2011 and 2000 Plans, eligible employees are granted restricted stock that generally vests over four years from the date of grant. Under the Directors Plan, restricted stock units vest one year from the date of grant.

In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three year performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest and be awarded ranging from 0% to 200% of the initial incentive stock units granted. The incentive stock units included in the table below represent the number of shares that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of March 31, 2016, the Company estimates that it will achieve 121%, 101% and 100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2016, 2017, and 2018, respectively, and has recorded incentive compensation expense accordingly. If our estimate of the number of these stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

Compensation expense for the non-vested restricted stock and incentive stock units is based on the average of the high and low Wabtec stock price on the date of grant and recognized over the applicable vesting period.

The following table summarizes the restricted stock activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan, and incentive stock units activity for the 2011 Plan and the 2000 Plan with related information for the three months ended March 31, 2016:



	Restricted Stock and Units		Incentive Stock Awards		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2015	356,885		541,638		$	65.89
Granted	128,565		167,350		61.33
Vested	(130,083	)	(236,951	)	50.89
Adjustment for incentive stock awards expected to vest	—		(622	)	75.66
Canceled	(6,158	)	(3,733	)	69.66
Outstanding at March 31, 2016	349,209		467,682		70.90