Stock-Based Compensation

12 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company has stock plans under which directors, officers, key employees and consultants of the Company may be granted restricted stock awards, stock options and other equity-based instruments as a means of promoting the Company’s long-term growth and profitability. The plans are intended to encourage participants to contribute to, and participate in, the success of the Company.

On December 16, 2014, the Company's Board of Directors approved the 2015 Incentive Award Plan, or 2015 Plan, which was subsequently approved by the Company's stockholders on June 16, 2015. The number of shares reserved for issuance or transfer pursuant to awards under the 2015 Plan will be increased by the number of shares represented by awards outstanding under the Company's former equity plan, the 2011 Equity Incentive Award Plan (2011 Plan), that are forfeited or lapse unexercised and which, following the effective date of the 2015 Plan, are not issued under the Company's 2011 Plan. No further awards will be granted under the 2011 Stock Plan, and all outstanding awards will continue to be governed by their existing terms. As of December 31, 2017 and December 31, 2016, 2,377,650 and 2,358,283 shares of the Company’s common stock, respectively, remained available for future issuance under the 2015 Plan.

Stock-based compensation cost amounted to $8.5 million, $7.1 million and $9.2 million for 2017, 2016 and 2015, respectively. During 2017, there was $1.6 million tax expense recognized in income related to stock-based compensation. During 2016 and 2015, there was $2.6 million and $3.4 million tax benefit recognized in income related to stock-based compensation.

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock unit awards are valued at the fair value of the shares on the date of grant. Generally, granted shares and units vest over a three or four year graded vesting period. Each restricted stock unit represents the right to receive one share of common stock upon vesting of such restricted stock unit. Vesting of restricted stock units is based on time-based service conditions. In order to vest, the participant must still be employed by the Company, with certain contractual exclusions, at each vesting event. Generally, within 30 days after vesting, the shares underlying the award will be issued to the participant. In the event a successor corporation in a change in control situation fails to assume or substitute for the restricted stock units, the restricted stock units will automatically vest in full as of immediately prior to the consummation of such change in control. In the event of death or permanent disability of a participant, the restricted stock units will automatically vest in full. Compensation expense is recognized on a straight-line basis over the requisite service period.

A summary of the status of the Company’s restricted stock shares (restricted stock awards and restricted stock unit awards) as of December 31, 2017 and changes during the year ended December 31, 2017 is presented below:



	Number of Shares		Weighted-Average Grant Date Fair Value ($)
Outstanding at December 31, 2016	274,645		49.55
Granted	103,030		51.68
Vested	(88,580	)	47.64
Forfeited	(22,573	)	55.79
Outstanding at December 31, 2017	266,522		50.48

There were 103,030 and 237,001 restricted stock shares granted during the years ended December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017 and December 31, 2016, there was $7.5 million and $9.2 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock to be recognized over 2.0 years and 2.5 years, respectively.

The weighted-average fair value of restricted stock granted during the years ended December 31, 2017, 2016 and 2015 was $51.68, $42.91 and $75.40, respectively. The total fair value of restricted stock shares vested during the years ended December 31, 2017, 2016 and 2015 was $4.3 million, $6.6 million and $9.2 million respectively.

Stock Options

Stock option awards are granted with an exercise price equal to the fair market value of the Company’s common stock at the date of grant, vest over four years of continuous service and have ten-year contractual terms. The fair value of each stock option award is estimated on the date of grant using the Black Scholes model. There were no options granted during 2017, 2016, or 2015. The Company has not granted options since 2011, at which time the Company’s weighted average assumptions

for expected volatility, dividends, term and risk-free interest rate were 46.25%, 0%, 6.25 years and 2.03%, respectively. Expected volatilities are based on the historical volatility of a group of peer entities within the same industry. The expected term of options is based upon the simplified method, which represents the average of the vesting term and the contractual term. The risk-free interest rate is based on U.S. Treasury yields for securities with terms approximating the expected term of the option.

Prior to the Company's IPO, to the extent a market price was not available, the fair value of the Company’s common stock was estimated using a discounted cash flow analysis and market multiples, based on management’s estimates of revenue, driven by assumed market growth rates, and estimated costs as well as appropriate discount rates. These estimates were consistent with the plans and estimates management used to manage the Company’s business.

A summary of share option activity as of December 31, 2017 and changes during the year ended December 31, 2017 is presented below:



	Number of Options		Weighted- Average Exercise Price ($)	Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2016	16,250		8.37	3.7	804
Exercised	(5,750	)	7.80
Forfeited or expired	—		—
Outstanding at December 31, 2017	10,500		8.68	2.7	380
Exercisable at December 31, 2017	10,500		8.68	2.7	380
Vested at December 31, 2017	10,500		8.68	2.7	380

The total intrinsic value of share options exercised during the years ended December 31, 2017, 2016 and 2015 was $0.2 million, $0.4 million and $0.2 million, respectively. There were no options that vested during the year ended December 31, 2017 and 2016. The total fair value of options vested during the year ended December 31, 2015 was $4 thousand.

As of December 31, 2017, 2016 and 2015, there was no unrecognized compensation cost related to options as all option awards were fully vested.

Performance Share Awards

The Company grants certain senior-level executives performance stock units that vest based on either market and time-based service conditions or performance and time-based service conditions as part of a long-term incentive plan, which are referred to herein as performance share awards. The number of shares of common stock underlying each award is determined at the end of a three-year performance period. In order to vest, the senior level executive must still be employed by the Company, with certain contractual exclusions, at the end of the performance period. Depending on the type of performance stock unit, at the end of the performance period, the percentage of the stock units that will vest will be determined by ranking the Company’s total shareholder return compared to the total shareholder return of the peer companies identified in the plan or by ranking the Company's adjusted operating margin percentage compared to the adjusted operating margin percentage of the peer company's identified in the plan. Based on the level of performance, between 0% and 200% of the award may vest. Within 60 days after vesting, the shares underlying the award will be issued to the participant. In the event of a change in control of the Company or the death or permanent disability of a participant, the payout of any award is limited to a pro-rated portion of such award based upon a performance assessment prior to the change-in-control date or date of death or permanent disability.

The grant date fair value of the performance share awards based on total shareholder return (market condition) is determined through the use of a Monte Carlo simulation model. The market condition requirements are reflected in the grant date fair value of the award, and the compensation expense, net of forfeitures, for the award is recognized assuming that the requisite service is rendered regardless of whether the market conditions are achieved. The Monte Carlo simulation model used for valuation of these awards utilizes multiple input variables that determine the probability of satisfying the market condition requirements applicable to each award. The inputs utilized for the performance share awards based on total shareholder return are as follows:



	Weighted-Average at Grant Date for Twelve Months Ended December 31, 2017		Weighted-Average at Grant Date for Twelve Months Ended December 31, 2016
Expected volatility factor	0.40		0.39
Risk free interest rate	1.47	%	1.12	%
Expected term (in years)	2.93		2.94
Expected dividend yield	—	%	—	%

For grants awarded in 2017, 2016 and 2015, the volatility was based upon a weighted average historical volatility for the Company. The Company chose to use historical volatility to value these awards because historical prices were used to develop the correlation coefficients between the Company and each of the peer companies within the peer group in order to model stock price movements. The volatilities used were calculated as the remaining term of the performance period at the date of grant. The risk-free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the remaining performance period. The Company does not intend to pay dividends on its common stock in the foreseeable future. Accordingly, the Company used a dividend yield of zero in its model.

The following table summarizes the Company’s market condition performance share awards for the year ended December 31, 2017:



	Number of Awards		Weighted-Average Fair Value at Grant Date ($)
Outstanding at December 31, 2016	133,907		50.54
Granted	89,338		48.86
Vested	(17,592	)	50.07
Forfeited	(85,294	)	45.64
Outstanding at December 31, 2017	120,359		52.84

The grant date fair value of the performance share awards based on operating margin (performance condition) is based on grant date stock price, in accordance with the valuation of performance conditions applicable to this award type. The probability of payout for these awards is evaluated at each report date and adjustments are made to stock-based compensation expense based on the number of shares deemed probable of issuance upon vesting.

The following table summarizes the Company’s performance condition performance share awards for the year ended December 31, 2017:



	Number of Awards		Weighted-Average Fair Value at Grant Date ($)
Outstanding at December 31, 2016	—		—
Granted	37,649		46.28
Vested	—		—
Forfeited	(2,142	)	55.50
Outstanding at December 31, 2017	35,507		45.72

As of December 31, 2017 and 2016, there was $3.7 million and $4.3 million, respectively, of total unrecognized compensation cost related to performance share awards expected to be recognized over 1.52 years and 1.90 years, respectively.

Treasury Stock

During the year ended December 31, 2017 and 2016, the Company repurchased 1.2 million and 2.4 million shares, respectively, for $46.6 million and $102.5 million, respectively. Repurchases of equity securities for these periods include open market repurchases made under our stock repurchase programs as well as repurchases made from employees who r

eceived restricted stock or performance share awards. During the year ended December 31, 2017, the Company retired 3.9 million treasury shares in a total aggregate amount of $199.4 million.