Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (as amended by the First Amendment, dated April 27, 2021, “2017 Plan”) as described in Note 18, “Stock-Based Compensation Plans” to the consolidated financial statements in its 2022 Annual Report.

The Company’s stock-based compensation awards are generally granted in the first quarter of the year and consist of stock options, restricted stock units and performance share units. Eligible employees were also granted restricted stock units, during the three month period ended September 30, 2020, that vest ratably over two years, subject to the passage of time and the employee’s continued employment during such period. In some instances, such as death, awards may vest concurrently with or following an employee’s termination.

Stock-Based Compensation

For the three month periods ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $11.2 million and $20.1 million, respectively, and $35.2 million and $62.3 million for the nine month period then ended, respectively. These costs are included in “Cost of sales” and “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations.

In the nine month period ended September 30, 2023, the $35.2 million of stock-based compensation expense included expense for equity awards granted under the 2013 and 2017 Plan of $34.6 million and an increase in the liability for stock appreciation rights (“SAR”) of $0.6 million.

As of September 30, 2023, there was $123.7 million of total unrecognized compensation expense related to outstanding stock options, restricted stock unit awards and performance stock unit awards granted to employees and non-employee directors, as well as 400,000 conditional stock options awarded during the third quarter of 2022 to our Chairman and CEO in which the service date precedes the grant date, and will be granted upon achievement of certain performance targets. These 400,000 stock options have not been included in the Stock Option Awards section below since the grant date has not occurred.

Stock Option Awards

Stock options are granted to employees with an exercise price equal to the fair value of the Company’s per share common stock on the date of grant. Stock option awards typically vest over four years or five years and expire ten years from the date of grant.

A summary of the Company’s stock option (including SARs) activity for the nine month period ended September 30, 2023 is presented in the following table (underlying shares in thousands).


	Shares	Weighted-Average Exercise Price (per share)
Stock options outstanding as of December 31, 2022	6,383	$	25.22

Granted	756	58.04
Exercised or settled	(1,245)	17.96
Forfeited	(160)	49.91
Expired	(3)	34.77
Stock options outstanding as of September 30, 2023	5,731	30.43

Vested as of September 30, 2023	4,025	22.09

The following assumptions were used to estimate the fair value of options granted during the nine month periods ended September 30, 2023 and 2022 using the Black-Scholes option-pricing model.


	For the Nine Month Period Ended September 30,
Assumptions	2023		2022
Expected life of options (in years)	6.3 - 7.5		6.3
Risk-free interest rate	3.8% - 4.4%		1.9% - 3.1%
Assumed volatility	36.0% - 36.6%		37.1% - 38.3%
Expected dividend rate	0.1	%	0.2	%

Restricted Stock Unit Awards

Restricted stock units are granted to employees and non-employee directors based on the market price of the Company’s common stock on the grant date and recognized in compensation expense over the vesting period. A summary of the Company’s restricted stock unit activity for the nine month period ended September 30, 2023 is presented in the following table (underlying shares in thousands).


	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2022	1,005	$	43.50

Granted	446	59.15
Vested	(353)	37.52
Forfeited	(94)	51.31
Non-vested as of September 30, 2023	1,004	51.82

Performance Share Unit (“PSUs”) Awards

Annually, during the first quarter, the Company grants TSR PSUs to certain officers in which the number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index

for the three year performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period.

During the third quarter of 2022, the Company granted Special TSR PSUs to its Chairman and CEO that will become earned (but not vested) on the first date during the five year performance period on which the sum of (i) the 60-day volume-weighted average closing price of the Company’s common stock, plus (ii) the cumulative value of any dividends paid during the five year performance period equals or exceeds $81.85. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a five year period. The Company also granted its Chairman and CEO Special EPS PSUs that are eligible to vest based on the level of compounded annual growth rate of the Company’s Adjusted EPS during the five year performance period. The grant date fair value of these awards is based on the market price of the Company’s common stock on the grant date and recognized as a compensation expense over a 4.3 year period.

A summary of the Company’s performance stock unit activity for the nine month period ended September 30, 2023 is presented in the following table (underlying shares in thousands).


	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2022	1,539	$	44.99
Granted	149	75.52
Change in units based on performance	222	29.72
Vested	(444)	29.72
Forfeited	(86)	64.42
Non-vested as of September 30, 2023	1,380	49.53

The following assumptions were used to estimate the fair value of performance share units granted during the nine month periods ended September 30, 2023 and 2022 using the Monte Carlo simulation pricing model.


	For the Nine Month Period Ended September 30,
Assumptions	2023		2022
Expected term (in years)	2.9		2.9
Risk-free interest rate	4.4%		1.7	%
Assumed volatility	31.8%		36.4	%
Expected dividend rate	0.1	%	0.2	%