Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

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, performance share awards 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, 2018 and December 31, 2017, 2,110,598 and 2,377,650 shares of the Company’s common stock, respectively, remained available for future issuance under the 2015 Plan.

Stock-based compensation cost amounted to $11.0 million, $8.5 million and $7.1 million for 2018, 2017 and 2016, respectively. During 2018, 2017 and 2016 there was $2.6 million, $1.6 million and $2.6 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, 2018 and changes during the year ended December 31, 2018 is presented below:



	Number of Shares		Weighted-Average Grant Date Fair Value ($)
Outstanding at December 31, 2017	266,522		50.48
Granted	185,054		46.90
Vested	(141,089	)	51.09
Forfeited	(12,690	)	50.87
Outstanding at December 31, 2018	297,797		47.95

There were 185,054 and 103,030 restricted stock shares granted during the years ended December 31, 2018 and December 31, 2017, respectively. As of December 31, 2018 and December 31, 2017, there was $9.1 million and $7.5 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock to be recognized over 2.5 years and 2.0 years, respectively.

The weighted-average fair value of restricted stock granted during the years ended December 31, 2018, 2017 and 2016 was $46.90, $51.68 and $42.91, respectively. The total fair value of restricted stock shares vested during the years ended December 31, 2018, 2017 and 2016 was $6.5 million, $4.3 million and $6.6 million respectively.

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. Compensation expense is recognized on

a straight-line basis over the requisite service period. 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, 2018		Weighted-Average at Grant Date for Twelve Months Ended December 31, 2017
Expected volatility factor	0.39		0.40
Risk free interest rate	2.11	%	1.47	%
Expected term (in years)	2.96		2.93
Expected dividend yield	—	%	—	%

For grants awarded in 2018, 2017 and 2016, 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, 2018:



	Number of Awards		Weighted-Average Fair Value at Grant Date ($)
Outstanding at December 31, 2017	120,359		52.84
Granted	52,074		52.07
Vested	(83,977	)	50.88
Forfeited	(5,549	)	59.01
Outstanding at December 31, 2018	82,907		53.92

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, 2018:



	Number of Awards		Weighted-Average Fair Value at Grant Date ($)
Outstanding at December 31, 2017	35,507		45.72
Granted	26,037		46.21
Vested	(18,717	)	39.18
Forfeited	(1,373	)	51.04
Outstanding at December 31, 2018	41,454		49.81

As of December 31, 2018 and 2017, there was $3.4 million and $3.7 million, respectively, of total unrecognized compensation cost related to performance share awards expected to be recognized over 1.80 years and 1.52 years, respectively.

Stock Appreciation Rights

During 2018, the Company issued stock appreciation awards to certain senior-level executives. These awards have a four-year service requisite period from January 1, 2018 through December 31, 2021 and a two-year performance period from January 1, 2018 through December 31, 2019. This is a market-condition performance award based on the appreciation of the Company's stock price over the two-year performance period. Issuance of the award on January 1, 2018 represents a right to receive shares of the Company's common stock upon achievement of certain performance goals. The number of shares of common stock to be granted under each award is determined at grant date of December 31, 2019.

The grant-date fair value of the stock appreciation award is derived using 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 the awards. Expense is recognized over the four-year service requisite period commencing on January 1, 2018 and ending on December 31, 2021. Since the service inception date of January 1, 2018 precedes the grant date of December 31, 2019, the Company will revalue the awards at each reporting date within the two-year period from the service inception date to the grant date and adjust the expense to reflect the valuation as of period end. Beginning on the grant date, once the number of shares are determined, and through the end of the vesting period, expense will be recognized on a straight-line basis over the remaining two-year service requisite period ending on vest date of December 31, 2021.

Based on the level of performance, between 0% and 370% of the award may vest. 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. 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. During the twelve months ended December 31, 2018, the Company recognized $1.2 million of stock-based compensation cost related to the stock appreciation awards granted during 2018.

Treasury Stock

During the year ended December 31, 2018 and 2017, the Company repurchased 28 thousand and 1.2 million shares, respectively, for $1.2 million and $46.6 million, respectively. Repurchases made during the twelve months ended December 31, 2018 include repurchases made from employees who received restricted stock. Repurchases made during the twelve months ended December 31, 2017 include open market repurchases made under our stock repurchase program as well as repurchases made from employees who received restricted stock. During the year ended December 31, 2018, the Company did not retire any treasury shares. During the year ended December 31, 2017, the Company retired 3.9 million treasury shares in a total aggregate amount of $199.4 million.