STOCK-BASED COMPENSATION

3 Months Ended

Sep. 30, 2019

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

(9) STOCK-BASED COMPENSATION

The following tables summarize the Company’s stock-based compensation expense for liability and equity classified awards included in the condensed consolidated statements of operations.

	Three Months Ended September 30,
	2019		2018
	(in millions)
Included in:
Operating costs	$	3.2	$	2.7
Selling, general and administrative expenses		24.0		24.0
Total stock-based compensation expense	$	27.2	$	26.7
Part A restricted stock units	$	22.7	$	23.3
Part B restricted stock units		3.8		2.9
Part C restricted stock units		0.7		0.5
Total stock-based compensation expense	$	27.2	$	26.7

Performance Compensation Incentive Program

During October 2014, the Company adopted the 2014 Performance Compensation Incentive Program (“PCIP”).  The PCIP includes incentive cash compensation and equity (in the form of restricted stock units or “RSUs”).  Grants under the PCIP RSU plans are made quarterly for all participants. The PCIP was effective on October

16, 2014 and will remain in effect for a period of 10 years (or through October 16, 2024) unless it is earlier terminated by the Company’s Board of Directors.

The PCIP has the following components:

Part A

Under Part A of the PCIP, certain full-time employees, including the Company’s executives, are eligible to earn quarterly awards of RSUs. Each participant in Part A of the PCIP will have an RSU annual award target value, which will be allocated to each fiscal quarter. The final Part A value awarded to a participant for any fiscal quarter is determined by the Compensation Committee of the Board of Directors subsequent to the end of the respective performance period taking into account the Company’s measured value creation for the quarter, as well as such other subjective factors that it deems relevant (including group and individual level performance factors). The number of Part A RSUs granted will be calculated based on the final award value determined by the Compensation Committee divided by the average closing price of the Company’s common stock over the last ten trading days of the respective performance period. Part A RSUs will vest assuming continuous employment fifteen months subsequent to the end of the performance period (for awards relating to quarterly periods through June 30, 2017) or twelve months subsequent to the end of the performance period (for awards relating to quarterly periods subsequent to June 30, 2017). Upon vesting, the RSUs convert to an equal number of shares of the Company’s common stock. Additionally, Part A RSU awards may be granted to certain employees upon commencement of their employment with the Company.

The September 2019 and June 2019 quarterly awards were recorded as liabilities totaling $6.7 million and $6.2 million, as of September 30, 2019 and June 30, 2019, respectively, as the awards represent an obligation denominated in a fixed dollar amount to be settled in a variable number of shares during the subsequent quarter. The quarterly stock-based compensation liability is included in accrued liabilities in the accompanying condensed consolidated balance sheets. Upon the issuance of the RSUs, the liability is re-measured and then reclassified to additional paid-in capital, with a corresponding charge (or credit) to stock based compensation expense. The value of the remaining unvested RSUs is expensed ratably through the vesting date. At September 30, 2019, the remaining unrecognized compensation cost to be expensed over the remaining vesting period for Part A awards is $29.2 million.

The following table summarizes the Company’s Part A RSU activity for the three months ended September 30, 2019:

	Number of Part A RSUs	Weighted average grant-date fair value per share		Weighted average remaining contractual term in months
Outstanding at July 1, 2019	2,324,396	$	28.49	6.6
Granted	640,191		33.73
Vested	(552,064)		25.93
Forfeited	(74,448)		n/a
Outstanding at September 30, 2019	2,338,075	$	30.39	5.8

Part B

Under Part B of the PCIP, participants, including the Company’s executives, are awarded quarterly grants of RSUs. The number of the RSUs earned by the participants is based on the Company’s stock price performance over a performance period of one year with the starting price being the average closing price over the last ten trading days of the quarter immediately prior to the grant and the ending price being the average closing price over the last ten trading days of the quarter immediately prior to vesting. The RSUs vest on the last day of the twelve month period after the beginning of the performance period (for awards vesting on or prior to June 30, 2018) or the fifteen month period after the beginning of the performance period (for awards vesting after June 30, 2018), subject to continued employment through such date. The existence of a vesting provision that is associated with the performance of the Company’s stock price is a market condition, which affects the determination of the grant date fair value.  Upon vesting, RSUs earned convert to an equal number of shares of the Company’s common stock.

The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are also awarded quarterly grants of RSUs under the same provisions as other Part B participants outlined above.  However, beginning with the grant during the three months ended December 31, 2018, in the case of the CEO, and beginning with the grant during the three months ended March 31, 2019, in the case of the CFO, awards are subject to additional vesting criteria that are based on the Company’s stock performance subsequent to the end of the measurement period.  In order for the CEO and CFO to receive the maximum award, the Company’s stock price must remain at or above the ending measurement period price for the six months subsequent to the end of the performance period. 

The following table summarizes the Company’s Part B RSU activity for the three months ended September 30, 2019:

	Number of Part B RSUs	Weighted average grant-date fair value per unit		Weighted average remaining contractual term in months
Outstanding at July 1, 2019	289,254	$	49.73	8.0
Granted	64,705		69.86
Vested	(57,336)		64.41
Forfeited	—		n/a
Outstanding at September 30, 2019	296,623	$	51.28	7.5

The table below reflects the total Part B RSUs granted during each period presented, the maximum eligible shares of the Company’s common stock that the respective Part B RSU grant could be converted into shares of the Company’s common stock, and the grant date fair value per Part B RSU during the period indicated. The table below also reflects the units converted to the Company’s common stock at a vesting date that is subsequent to the period indicated for those RSUs granted during the period indicated:

	During the Three Months Ended
	September 30, 2019
Part B RSUs granted		64,705
Maximum eligible shares of the Company's common stock		446,465
Grant date fair value per Part B RSU	$	69.86
Units converted to the Company's common stock at vesting date		n/a

	During the Three Months Ended
	June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Part B RSUs granted		75,370		98,342		61,123		58,418
Maximum eligible shares of the Company's common stock		520,053		678,560		421,749		403,084
Grant date fair value per Part B RSU	$	63.67	$	52.81	$	22.43	$	64.41
Units converted to the Company's common stock at vesting date		n/a		n/a		n/a		—

The grant date fair value of Part B RSU grants is estimated utilizing a Monte Carlo simulation.  This simulation estimates the ten-day average closing stock price ending on the vesting date, the stock price performance over the performance period, and the number of common shares to be issued at the vesting date. Various assumptions are utilized in the valuation method, including the target stock price performance ranges and respective share payout percentages, the Company’s historical stock price performance and volatility, peer companies’ historical volatility and an appropriate risk-free rate. The aggregate future value of the grant under each simulation is calculated using the estimated per share value of the common stock at the end of the vesting period multiplied by the number of common shares projected to be granted at the vesting date. The present value of the aggregate grant is then calculated under each of the simulations, resulting in a distribution of potential present values. The fair value of the grant is then calculated based on the average of the potential present values. The remaining unrecognized compensation cost associated with Part B RSU grants is $8.8 million at September 30, 2019.

Part C

Under Part C of the PCIP, independent directors of the Company are eligible to receive quarterly awards of RSUs. Independent directors electing to receive a portion of their annual director fees in the form of RSUs are granted a set dollar amount of Part C RSUs each quarter. The quantity of Part C RSUs granted is based on the average closing price of the Company’s common stock over the last ten trading days of the quarter ended immediately prior to the grant date and vest at the end of each quarter for which the grant was made. During the three months ended September 30, 2019 and 2018, the Company’s independent directors were granted 19,347 and 14,137 Part C RSUs, respectively.