Stockholders' Equity and Stock Awards

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

(Share and per share amounts not in millions)

2012 Plan

In October 2012, the former Parent’s Board of Directors adopted the 2012 Stock Incentive Plan (the “ 2012 Plan”) under which an aggregate of 7,154,711 shares of the former Parent’s common stock was reserved for issuance. The 2012 Plan provided for employees of the Company to participate in the plan and provided that the options or stock purchase rights have a term of ten years and vest equally over four years at a rate of 20% with 20% of the options being vested at the date of grant for all options except the Strategic grants which vest 100% after five years.

During fiscal 2016, the Board of Directors of the former Parent amended the 2012 Plan to allow for the grant of performance shares, restricted shares, restricted share units, and other equity awards in addition to stock options and stock purchase rights as originally provided for under the 2012 Plan. Upon completion of the Company's initial public offering during the fourth quarter of fiscal 2016, no further awards will be issued under the 2012 Plan.

2016 Plan

The Company's Board of Directors adopted the Advanced Disposal Services, Inc. 2016 Omnibus Equity Plan (the "2016 Plan") on January 29, 2016 under which an aggregate of 5,030,000 shares of common stock was reserved for issuance. The 2016 Plan became effective on October 4, 2016 and will terminate on the tenth anniversary of the 2016 Plan effective date, unless sooner terminated by the Company's board of directors. Awards under the 2016 Plan may consist of stock options, restricted shares, restricted share units, stock appreciation rights, performance stock, PSUs, cash performance units and other awards. The Compensation Committee shall set the vesting criteria applicable to each award, which will determine the extent to which the award becomes exercisable. The terms and conditions of each award shall be set forth in an award document in a form approved by the Compensation Committee for such Award.

Stock Option Grants

The fair value of the options granted is estimated using the Black-Scholes option pricing model using the following assumptions:



	2019	2018	2017
Average expected term (years)	6.3	6.3	6.2
Risk-free interest rate	2.52% - 2.53%	2.69% - 2.71%	1.93% - 2.16%
Expected volatility	20.0%	18.0%	18.0% - 19.0%

Since the Company does not have enough historical exercise data that is indicative of expected future exercise performance, it has elected to use the “simplified method” to estimate the options expected term by taking the average of each vesting-tranche and the contractual term. The Company used the average ten day historical volatility for the Company to estimate volatility used in the Black-Scholes model. The risk-free rate used was based on the US Treasury security rate estimated for the expected term of the option at the date of grant. No dividends are expected to be issued. The company estimates stock option forfeitures based on historical experience. The Company issues new shares when stock options are exercised.

Stock Option Grants

During fiscal 2019, there were 546,057 annual options granted under the 2016 Plan for employees other than the Named Executive Officers ("NEOs"). Each option had an estimated fair value of $7.06 per option on the date of grant and each option had an exercise price of $26.69. The options will vest 20% on date of grant and 20% in four equal installments over each of the first four anniversaries of the date of the grant, provided that upon closing of the Merger, vesting of options will accelerate. For a discussion of how options will vest and be treated in connection with the Merger, see “Compensation Discussion and Analysis-Effect of the Merger Agreement”. The contractual term of each option is 10 years.

During fiscal 2019, there were 170,298 NEO options granted under the 2016 Plan. Each option had an estimated fair value of $7.23 per option on the date of grant and each option had an exercise price of $26.69. The options will vest in full on the third anniversary of the date of the grant, provided that upon closing of the Merger, vesting of options will accelerate. For a discussion of how options will vest and be treated in connection with the Merger, see “Compensation Discussion and Analysis-Effect of the Merger Agreement on NEO Compensation.” The contractual term of each option is 10 years.

Stock Options Outstanding

A summary of the stock options outstanding for the year ended December 31, 2019 (in millions, except share and per share amounts) is as follows:



	Number of Shares		Weighted - Average Exercise Price		Weighted - Average Remaining Contractual Term
Outstanding at January 1, 2019	4,150,112		$	20.48
Granted	716,355		26.69
Exercised	(788,868	)	20.24
Expired or forfeited	(61,152	)	23.99
Outstanding at December 31, 2019	4,016,447		21.57		6.69
Exercisable at December 31, 2019	2,274,524		$	19.86	5.65

The weighted-average grant-date fair value of options granted per share was $7.10, $5.64 and $5.35 during 2019, 2018, and 2017, respectively. The total fair value of options vested was $5.0, $5.1 and $5.1 during fiscal 2019, 2018, and 2017, respectively. The intrinsic value of the options outstanding at December 31, 2019 was approximately $45.4. The intrinsic value of options exercised during fiscal 2019 was $10.0. The intrinsic value of exercisable options at December 31, 2019 was approximately $29.6.

Restricted Stock Grants

During fiscal 2019, there were 18,735 restricted stock awards granted under the 2016 Plan to non-employee directors with a weighted average grant date fair value $26.69 per share. The restricted stock awards will vest in full on the third anniversary of the date of the grant, provided that upon closing of the Merger, vesting of the restricted stock awards will accelerate. For a discussion of how restricted stock will vest and be treated in connection with the Merger, see “Non-Employee Director Compensation”.

A summary of the status of non-vested restricted stock awards as of December 31, 2019, including changes during fiscal 2019 is presented below:



	Number of Shares		Weighted - Average Grant Price
Nonvested at January 1, 2019	75,698		$	22.96
Granted	18,735		26.69
Vested	(35,940	)	23.31
Forfeited	—		—
Nonvested at December 31, 2019	58,493		$	23.93

Restricted Stock Unit Grants

During fiscal 2019, there were 46,130 NEO restricted stock units ("RSUs") granted under the 2016 Plan with a fair value of $26.69 per share. The RSUs will vest in full on the third anniversary of the date of the grant, provided that upon closing of the Merger, vesting of the RSUs will accelerate. For a discussion of how RSUs will vest and be treated in connection with the Merger, see “Compensation Discussion and Analysis-Effect of the Merger Agreement on NEO Compensation.”

A summary of the status of non-vested RSUs as of December 31, 2019, including changes during fiscal 2019 is presented below:



	Number of Units		Weighted - Average Grant Price
Nonvested at January 1, 2019	443,818		$	19.33
Granted	46,130		26.69
Vested	(300,001	)	18.00
Forfeited	—		—
Nonvested at December 31, 2019	189,947		$	23.22

Performance Share Unit Grants

During fiscal 2019, there were 92,264 NEO performance stock units (PSUs) granted under the 2016 Plan with a fair value of $26.69 per share. The PSUs will vest in full on the third anniversary of the date of the grant, provided that upon closing of the Merger, vesting of the PSUs will accelerate. For a discussion of how PSUs will vest and be treated in connection with the Merger, see “Compensation Discussion and Analysis-Effect of the Merger Agreement on NEO Compensation”. Prior to the Merger, the PSUs shall be measured based on the Company's budget and are weighted as follows: Adjusted EBITDA: 50%; Adjusted EBITDA less capital expenditures: 30%; and Revenue: 20%. The measurement criteria begins with an attainment of 90% of the budget which results in vesting of 25% of the shares underlying the PSUs granted and ends with an attainment of 110% of the budget which results in vesting of 175% of the shares underlying the PSUs granted. Performance is ordinarily measured separately for each of the three years in the performance period and the total number of PSUs earned at the conclusion of the three-year performance period would be the sum of the PSUs earned with respect to each individual year.

A summary of the status of non-vested PSUs as of December 31, 2019, including changes during fiscal 2019 is presented below:



	Number of Units		Weighted - Average Grant Price
Nonvested at January 1, 2019	213,383		$	22.53
Granted	92,264		26.69
Vested	(41,927	)	24.28
Forfeited	(14,314	)	23.61
Nonvested at December 31, 2019	249,406		$	23.71

Compensation Expense

Compensation expense is recognized ratably over the vesting period for those awards that vest. For fiscal 2019, 2018 and 2017, the Company recognized share-based compensation expense as a component of selling, general and administrative expenses of $10.0, $11.2 and $9.7, respectively. As of December 31, 2019, the Company estimates that a total of approximately $8.8 of currently unrecognized compensation expense will be recognized over a weighted average period of approximately 1.97 years for unvested awards issued and outstanding.

Payment to Former Director

During fiscal 2017, the Company made the final payment to a former director under an equity compensation arrangement in the amount of $6.2.