Stock Incentive Plans

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

The Stock Incentive Plans are administered by the Compensation Committee of the Board of Directors. Pursuant to the Stock Incentive Plans, the Company maintains Long-term Incentive Plans (the “LTIP”) under which it issues RSUs, PBUs, and stock options.

The Company has granted nonstatutory stock options to certain key employees under the Stock Incentive Plans. Stock options are generally non-qualified and are at exercise prices not less than 100% of the average per share fair market value on the date of grant. Stock-based compensation awards granted under the Company’s stock incentive plans are generally subject to a vesting period from the date of the grant ranging from 1 - 3 years. Currently outstanding options expire on various dates through July 2029.

On May 9, 2018, the Company’s stockholders approved the W. R. Grace & Co. 2018 Stock Incentive Plan. Under this new plan, stock options have a 10-year life. The Company began issuing stock-based compensation awards from this plan in the second half of 2018. The Company’s prior grants were issued under the previous plan in which options have a 5-year life.

The following table sets forth information relating to such options during 2019, 2018, and 2017.



	Number of Shares		Average Exercise Price		Weighted- Average Grant Date Fair Value
Balance, December 31, 2016	1,940,785		$	66.83
Options exercised	(386,300	)	45.21
Options forfeited	(34,545	)	72.97
Options terminated	(23,320	)	75.60
Options granted	316,830		71.37		$	13.00
Balance, December 31, 2017	1,813,450		72.04
Options exercised	(243,502	)	61.92
Options forfeited	(90,862	)	69.82
Options terminated	(33,481	)	75.07
Options granted	428,190		67.36		$	12.30
Balance, December 31, 2018	1,873,795		72.34
Options exercised	(388,174	)	74.33
Options forfeited	(35,216	)	71.21
Options terminated	(74,583	)	77.30
Options granted	189,787		78.11		$	17.94
Balance, December 31, 2019	1,565,609		72.30

The following is a summary of nonvested option activity for the year ended December 31, 2019.



	Number Of Shares		Weighted- Average Grant Date Fair Value
Nonvested options outstanding at beginning of year	664,363		$	12.88
Granted	189,787		17.94
Vested	(237,758	)	16.98
Forfeited	(109,799	)	19.25
Nonvested options outstanding at end of year	506,593		14.81

As of December 31, 2019, the intrinsic value (the difference between the exercise price and the market price) for options outstanding was $1.2 million and for options exercisable was $0.7 million. The total intrinsic value of all options exercised during the years ended December 31, 2019, 2018, and 2017 was $0.8 million, $1.6 million and $10.3 million, respectively. A summary of our stock options outstanding and exercisable at December 31, 2019, follows:



Exercise Price Range	Number Outstanding	Number Exercisable	Outstanding Weighted- Average Remaining Contractual Life (Years)	Exercisable Weighted- Average Exercise Price
$60 - $70	668,479	428,259	2.23	67.98
$70 - $80	897,130	630,757	2.66	75.59
	1,565,609	1,059,016

At December 31, 2019, the weighted-average remaining contractual term of all options outstanding and exercisable was 2.48 years.

Options Granted For the years ended December 31, 2019, 2018, and 2017, the Company recognized non-cash stock-based compensation expense with respect to stock option grants of $3.1 million, $5.8 million, and $4.3 million, respectively, which is included in “selling, general and administrative expenses” in the Consolidated Statements of Operations. The actual tax benefit realized from stock options exercised totaled $1.9 million, $2.2 million, and $7.4 million for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company values options using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of traded options. The risk-free rate is based on the U.S. Treasury yield curve published as of the grant date, with maturities approximating the expected term of the options. The expected term of the options is estimated using the simplified method as allowed by ASC 718-20, whereby the average between the vesting period and contractual term is used. For options granted prior to 2018, the expected volatility was estimated using both actual stock volatility and the volatility of an industry peer group. The Company believes its actual stock volatility was not representative of future volatility during the time it was in Chapter 11. For options granted in 2018 and 2019, Grace actual stock volatility was used. The following summarizes the weighted average assumptions used for estimating the fair value of stock options granted during 2019, 2018, and 2017, respectively.



	2019	2018	2017
Expected volatility	22.7% - 23.1%	22.9% - 24.4%	23.8% - 25.1%
Weighted average expected volatility	23.0%	23.7%	24.8%
Expected term	5.5 - 6.5 years	3.0 - 6.5 years	3.0 - 4.0 years
Risk-free rate	2.58%	2.55%	1.66%
Dividend yield	1.4%	1.4%	1.2%

Total unrecognized stock-based compensation expense at December 31, 2019, was $2.0 million, and the weighted-average period over which this expense will be recognized is 0.8 of a year.

Restricted Stock and Performance Based Units In 2019, the Company modified a majority of its 2017 and 2018 cash-settled LTIP awards to be stock-settled. The following is a summary of RSUs and PBUs awarded under the LTIP.



	2019		2018		2017
PBUs granted under the LTIP	88,174		93,216		115,158
RSUs granted under the LTIP	57,900		86,698		57,600
Shares covered by awards forfeited under the LTIP	17,323		44,279		16,395
Weighted average grant date fair value of PBUs	$78.11		$67.39		$71.37
Weighted average grant date fair value of RSUs	$76.91		$67.54		$71.37
Approximate percentage of awards expected to settle in common stock(1)	96	%	94	%	93	%
Approximate percentage of awards expected to settle in cash(1)	4	%	6	%	7	%

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(1) Assumes full vesting.

The PBUs cliff vest after the completion of the performance periods ending December 31, 2021, 2020, and 2019. The RSUs vest in three equal annual installments. Vesting for all awards is subject to continued employment through the payment date (subject to certain exceptions for retirement, death or disability, change in control scenarios, and in the discretion of the Compensation Committee).

PBUs and RSUs are recorded at fair value at the date of grant. The common stock settled portion is considered an equity award with the payout being valued based on the Company’s stock price on the grant date.

The cash settled portion of the award is considered a liability award with payout being remeasured each reporting period based on the Company’s current stock price. PBU equity and cash awards are remeasured each reporting period based on the expected payout of the award, which may range from 0% to 200% of the targets for such awards; therefore, these portions of the awards are subject to volatility until the payout is finally determined at the end of the performance period. During 2019, 2018, and 2017, the Company recognized $9.2 million, $13.2 million, and $10.3 million in compensation expense for these awards. As of December 31, 2019, $10.4 million of total unrecognized compensation expense related to the awards is expected to be recognized over the remaining weighted-average service period of 1.4 years.