XML 29 R29.htm IDEA: XBRL DOCUMENT v3.19.3
Share-Based Compensation
 12 Months Ended
Sep. 30, 2019
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation SHARE-BASED COMPENSATION
We have various share-based compensation programs, which include deferred stock units, stock options, and restricted stock. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from treasury stock upon the payout of deferred stock units, the exercise of stock options, and the issuance of restricted stock awards. Share information presented is on a total company basis. As of 30 September 2019, there were 4,581,960 shares available for future grant under our Long-Term Incentive Plan (LTIP), which is shareholder approved.
Share-based compensation cost recognized in the consolidated income statements is summarized below:
 
2019

2018

2017

Before-Tax Share-Based Compensation Cost – Total

$41.2


$38.8


$40.7

Before-Tax Share-Based Compensation Cost – Discontinued Operations
—

—

.8

Before-Tax Share-Based Compensation Cost – Continuing Operations

$41.2


$38.8


$39.9

Income tax benefit – Continuing Operations
(9.7
)
(9.1
)
(14.0
)
After-Tax Share-Based Compensation Cost – Continuing Operations

$31.5


$29.7


$25.9


Before-tax share-based compensation cost is primarily included in selling and administrative expense on our consolidated income statements. The amount of share-based compensation cost capitalized in fiscal years 2019, 2018, and 2017 was not material.
On a total company basis, before-tax share-based compensation cost by type of program was as follows:
 
2019

2018

2017

Deferred stock units

$41.1


$38.3


$34.5

Stock options
—

.2

1.4

Restricted stock
.1

.3

4.8

Before-Tax Share-Based Compensation Cost – Total

$41.2


$38.8


$40.7


Deferred Stock Units
We have granted deferred stock units to executives, selected employees, and outside directors. These deferred stock units entitle the recipient to one share of common stock upon vesting, which is conditioned, for employee recipients, on continued employment during the deferral period and may be conditioned on achieving certain performance targets. We grant deferred stock unit awards with a two- to five-year deferral period that is subject to payout upon death, disability, or retirement. Deferred stock units issued to outside directors are paid after service on the Board of Directors ends at the time elected by the director (not to exceed ten years after service ends). We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period; however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for vesting upon retirement. We have elected to account for forfeitures as they occur, rather than to estimate them. Forfeitures have not been significant historically.
Market-based deferred stock units vest as long as the employee continues to be employed by the Company and upon the achievement of the performance target. The performance target, which is approved by the Compensation Committee, is the Company’s total shareholder return (share price appreciation and dividends paid) in relation to a defined peer group over a three‑year performance period beginning 1 October of the fiscal year of grant. We granted 114,929, 105,268, and 117,692 market-based deferred stock units in fiscal years 2019, 2018, and 2017, respectively.
The fair value of market-based deferred stock units was estimated using a Monte Carlo simulation model as these equity awards are tied to a market condition. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period. The estimated grant-date fair value of market-based deferred stock units was $229.61, $202.50, and $156.87 per unit in fiscal years 2019, 2018, and 2017, respectively. The calculation of the fair value used the following assumptions:
 
 
2019
2018
2017
Expected volatility
 
17.5
%
18.7
%
20.6
%
Risk-free interest rate
 
2.8
%
1.9
%
1.4
%
Expected dividend yield
 
2.6
%
2.6
%
2.5
%

In addition, during fiscal year 2019, we granted 169,666 time-based deferred stock units at a weighted average grant-date fair value of $168.68. In fiscal years 2018 and 2017, we granted 143,379 and 165,121 time-based deferred stock units at a weighted average grant-date fair value of and $162.11 and $143.75, respectively.
Deferred Stock Units
 
Shares (000)

 
Weighted Average
Grant-Date Fair Value

Outstanding at 30 September 2018
 
940

 

$137.78

Granted
 
285

 
193.29

Paid out
 
(113
)
 
119.59

Forfeited/adjustments
 
(136
)
 
136.11

Outstanding at 30 September 2019
 
976

 

$156.31


Cash payments made for deferred stock units were $1.9, $2.2, and $2.1 in fiscal years 2019, 2018, and 2017, respectively. As of 30 September 2019, there was $49.2 of unrecognized compensation cost related to deferred stock units. The cost is expected to be recognized over a weighted average period of 1.6 years. The total fair value of deferred stock units paid out during fiscal years 2019, 2018, and 2017, including shares vested in prior periods, was $19.2, $38.5, and $36.6, respectively.
Stock Options
We have granted awards of options to purchase common stock to executives and selected employees. The exercise price of stock options equals the market price of our stock on the date of the grant. Options generally vest incrementally over three years and remain exercisable for ten years from the date of grant. The Company has not issued stock option awards since fiscal year 2015.
A summary of stock option activity is presented below:
Stock Options
 
Shares (000)

 
Weighted Average
Exercise Price

Outstanding at 30 September 2018
 
2,186

 

$89.33

Exercised
 
(842
)
 
82.27

Forfeited
 
—

 
—

Outstanding and Exercisable at 30 September 2019
 
1,344

 

$93.75

Stock Options
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value

Outstanding and Exercisable at 30 September 2019
 
3.4
 

$172


The aggregate intrinsic value represents the amount by which our closing stock price of $221.86 as of 30 September 2019 exceeds the exercise price multiplied by the number of in-the-money options outstanding or exercisable.
On a total company basis, the intrinsic value of stock options exercised during fiscal years 2019, 2018, and 2017 was $87.2, $90.4, and $57.3, respectively.
Compensation cost is generally recognized over the stated vesting period consistent with the terms of the arrangement (i.e., either on a straight-line or graded-vesting basis). Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement. As of 30 September 2019, there was no unrecognized compensation cost as all stock option awards were fully vested.
Cash received from option exercises during fiscal year 2019 was $68.1. The total tax benefit realized from stock option exercises in fiscal year 2019 was $20.4, of which $16.4 was the excess tax benefit.
Restricted Stock
The grant-date fair value of restricted stock is estimated on the date of grant based on the closing price of the stock, and compensation cost is generally amortized to expense on a straight-line basis over the vesting period during which employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement. We have elected to account for forfeitures as they occur, rather than to estimate them. Forfeitures have not been significant historically.
We have issued shares of restricted stock to certain officers. Participants are entitled to cash dividends and to vote their respective shares. Restrictions on shares lift in one to four years or upon the earlier of retirement, death, or disability. The shares are nontransferable while subject to forfeiture.
A summary of restricted stock activity is presented below:
Restricted Stock
 
Shares (000)

 
Weighted Average
Grant-Date Fair Value

Outstanding at 30 September 2018
 
42

 

$140.28

Vested
 
(16
)
 
144.09

Outstanding at 30 September 2019
 
26

 

$138.00


As of 30 September 2019, there was no unrecognized compensation cost as all restricted stock awards were fully vested. The total fair value of restricted stock vested during fiscal years 2019, 2018, and 2017 was $2.6, $2.2, and $4.1, respectively.
Versum Spin-off
As discussed in Note 4, Discontinued Operations, Air Products completed the spin-off of Versum on 1 October 2016. In connection with the spin-off, the Company adjusted the number of deferred stock units and stock options pursuant to existing anti-dilution provisions in the LTIP to preserve the intrinsic value of the awards immediately before and after the separation. The outstanding awards continue to vest over the original vesting period defined at the grant date. Outstanding awards at the time of spin-off were primarily converted into awards of the holders' employer following the separation.
Stock awards held upon separation were adjusted based upon the conversion ratio of Air Products' New York Stock Exchange (“NYSE”) volume weighted-average closing stock price on 30 September 2016 ($150.35) to the NYSE volume weighted-average opening stock price on 3 October 2016 ($140.38), or 1.071. The adjustment to the awards did not result in incremental fair value, and no incremental compensation expense was recorded related to the conversion of these awards.