Note 17 - Share Plans

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

17. Share Plans

The Company adopted an equity incentive plan (Plan) on February 10, 2010 in connection with its initial public offering. The Plan, as amended, allows for granting of up to 9.1 million share-based awards to executives, directors and employees. Awards available for grant under the Plan include stock options, stock appreciation rights, restricted stock, other share-based awards and performance-based compensation awards. Total share-based compensation expense related to the Plan, net of estimated forfeitures, was $15,738, $14,563 and $10,205 for the years ended December 31, 2019, 2018 and 2017, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

On June 13, 2019, the stockholders of Generac Holdings Inc. approved the Company’s 2019 Equity Incentive Plan (2019 Plan). The 2019 Plan allows for granting of up to 2.7 million share-based awards to executives, directors and employees. Awards available for grant under the Plan include stock options, stock appreciation rights, restricted stock, other share-based awards and performance-based compensation awards. Total share-based compensation expense related to the 2019 Plan, net of estimated forfeitures, was $956 for the year ended December 31, 2019, which is recorded in operating expenses in the consolidated statements of comprehensive income.

Stock Options - Stock options granted in 2019 have an exercise price of $52.07 per share; stock options granted in 2018 have an exercise price between $43.88 per share and $45.29 per share; and stock options granted in 2017 have an exercise price between $40.12 per share and $48.98 per share. Stock options vest in equal installments over four years, subject to the grantee’s continued employment or service and expire ten years after the date of grant.

Stock option exercises can be net-share settled such that the Company withholds shares with value equivalent to the exercise price of the stock option awards plus the employees’ minimum statutory obligation for the applicable income and other employment taxes. Total shares withheld were 32,211, 63,817 and 9,033 in 2019, 2018 and 2017, respectively, and were based on the value of the stock on the exercise dates. The net-share settlement has the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued.

Employees can also utilize a cashless for cash exercise of stock options, such that all exercised shares will be sold in the market immediately. Cash equivalent to the exercise price of the awards plus the employees’ minimum statutory tax obligations is remitted to the Company, with the remaining cash being transferred to the employee. Total net proceeds from the cashless for cash exercise of stock options were $9,395, $5,614 and $6,951 in 2019, 2018 and 2017, respectively, and are reflected as a financing activity in the consolidated statement of cash flows.

Total payments made by the Company to the taxing authorities for the employees’ tax obligations related to stock option exercises were $3,360, $3,846 and $4,301 in 2019, 2018 and 2017, respectively, and are reflected as a financing activity in the consolidated statements of cash flows.

The grant-date fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on an analysis of historic volatility of the Company’s stock price. The average expected life is based on the contractual term of the option using the simplified method. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The compensation expense recognized is net of estimated forfeitures. Forfeitures are estimated based on actual share option forfeiture history.

The weighted-average assumptions used in the Black-Scholes-Merton option pricing model for 2019, 2018 and 2017 are as follows:

	2019			2018			2017
Weighted average grant date fair value	$	19.33		$	17.86		$	16.84
Assumptions:
Expected stock price volatility		33	%		37	%		40	%
Risk free interest rate		2.52	%		2.60	%		1.92	%
Expected annual dividend per share	$	-		$	-		$	-
Expected life of options (years)		6.25			6.25			6.25

A summary of the Company’s stock option activity and related information for the years ended December 31, 2019, 2018 and 2017 is as follows:

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value ($ in thousands)
Outstanding as of December 31, 2016		1,482,964		$	27.49		7.5	$	23,840
Granted		346,421			40.13
Exercised		(287,375	)		10.58
Forfeited		(69,880	)		41.12
Outstanding as of December 31, 2017		1,472,130			33.11		7.3	$	25,281
Granted		366,231			43.88
Exercised		(267,909	)		19.90
Forfeited		(49,285	)		43.34
Outstanding as of December 31, 2018		1,521,167			37.70		7.0	$	19,212
Granted		369,779			52.07
Exercised		(263,250	)		30.75
Forfeited		(35,010	)		43.79
Outstanding as of December 31, 2019		1,592,686			42.04		6.9	$	93,242
Exercisable as of December 31, 2019		726,817			37.78		5.3	$	45,649

As of December 31, 2019, there was $10,649 of total unrecognized compensation cost, net of expected forfeitures, related to unvested options. The cost is expected to be recognized over the remaining service period, having a weighted-average period of 2.5 years. Total share-based compensation cost related to the stock options for 2019, 2018 and 2017 was $5,597, $4,998 and $4,503, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

Restricted Stock – Restricted stock awards vest in equal installments over three years, subject to the grantee’s continued employment or service. Certain restricted stock awards also include performance shares, which were awarded in the years 2014 through 2019. The number of performance shares that can be earned are contingent upon Company performance measures over a three-year period. Performance measures are based on a weighting of a number of financial metrics, from which grantees may earn from 0% to 200% of their target performance share award. The performance period for the 2017 awards covers the years 2017 through 2019, the performance period for the 2018 awards covers the years 2018 through 2020, and the performance period for the 2019 awards covers the years 2019 through 2021. The Company estimates the number of performance shares that will vest based on projected financial performance. The fair value of restricted awards is determined based on the market value of the Company's shares on the grant date. The fair market value of the restricted awards at the time of the grant is amortized to expense over the period of vesting. The compensation expense recognized for restricted share awards is net of estimated forfeitures.

Restricted stock vesting is net-share settled such that, upon vesting, the Company withholds shares with value equivalent to the employees’ minimum statutory tax obligation, and then pays the cash to the taxing authorities on behalf of the employees. In effect, the Company repurchases these shares and classifies them as treasury stock. Total shares withheld were 55,953, 38,186 and 39,500 in 2019, 2018 and 2017, respectively, and were based on the value of the stock on the vesting dates. Total payments made by the Company to the taxing authorities for the employees’ tax obligations related to restricted stock vesting were $3,078, $1,812 and $1,591 in 2019, 2018 and 2017, respectively, and are reflected as a financing activity within the consolidated statements of cash flows.

A summary of the Company's restricted stock activity for the years ended December 31, 2019, 2018 and 2017 is as follows:

	Shares			Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2016		361,403		$	38.18
Granted		211,769			39.91
Vested		(133,796	)		40.60
Forfeited		(47,100	)		42.48
Non-vested as of December 31, 2017		392,276			37.77
Granted		208,803			44.49
Vested		(128,433	)		39.03
Forfeited		(46,650	)		39.43
Non-vested as of December 31, 2018		425,996			40.50
Granted		265,255			62.38
Vested		(184,628	)		38.78
Forfeited		(14,986	)		44.23
Non-vested as of December 31, 2019		491,637			52.84

As of December 31, 2019, there was $16,165 of unrecognized compensation cost, net of expected forfeitures, related to non-vested restricted stock awards. That cost is expected to be recognized over the remaining service period, having a weighted-average period of 1.9 years. Total share-based compensation cost related to the restricted stock for 2019, 2018 and 2017, inclusive of performance shares, was $11,097, $9,565 and $5,702, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

During 2019, 2018 and 2017, 22,544, 33,419 and 34,095 shares of stock, respectively, were granted to certain members of the Company’s Board of Directors as a component of their compensation for their service on the Board, of which 22,544, 33,419 and 22,762 shares, respectively, were fully vested at time of grant. Non-employee directors can elect to receive his or her director fees in the form of deferred stock units, which voluntarily defers the issuance of the related shares granted until the director separates from the Company or a triggering event occurs. 16,604, 22,675, and 11,333 of deferred stock units are included in the shares of stock granted to certain members of the Company’s Board of Directors for the years 2019, 2018, and 2017, respectively. Total share-based compensation cost for these share grants in 2019, 2018 and 2017 was $1,391, $1,718 and $1,133, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.