Stock-Based Compensation

Stock Incentive Compensation Plans

We currently have two stock incentive plans: i) the 2013 Stock Incentive Plan, as amended (the “2013 Plan”), which expires on May 2, 2028, provided that Incentive Stock Options may not be granted after February 21, 2028, and ii) the 2018 Employee Stock Purchase Plan (“ESPP”). The 2013 Plan permit awards of stock options, restricted stock units, performance stock units and other stock-based awards to our officers, key employees and non-employee directors on terms determined by the Compensation Committee of the Board of Directors (the “Compensation Committee”). The aggregate number of shares available for issuance under the 2013 Plan is 1,690,000. Under the 2013 Plan, no more than an aggregate of 337,693 shares are available for issue of stock-based awards other than stock options and stock appreciation rights after December 31, 2017. As of December 31, 2019, shares available for future grant under the 2013 Plan are 222,132. Prior to the adoption of the 2013 Plan, we granted stock-based awards to purchase shares of our common stock under certain predecessor plans. No further awards can be granted under these predecessor plans.

Employee Stock Purchase Plan

The ESPP was adopted by the Board of Directors and approved by the shareholders in 2018, including 750,000 shares that can be awarded. The first offering period closed on July 31, 2019. Under the ESPP, our employees who elect to participate have the right to purchase common stock at a 15% discount from the lower of the market value of the common stock at the beginning or the end of each six month offering period and the discount will be treated as compensation to those employees. Employees purchase common stock using payroll deductions, which may not exceed 10% of their eligible compensation and other limitations. The Compensation Committee administers the ESPP. As of December 31, 2019, there are 723,479 shares available for future award grants.

Stock Options

In the years ended December 31, 2019, 2018, and 2017, we granted stock options to our officers and key employees of 189,170, 176,940, and 129,400, respectively, with weighted-average grant date fair values of $15.95, $12.87, and $11.88, respectively. Stock options have been granted with an exercise price equal to the fair market value of our stock on the date of grant and expire not more than ten years from the date of grant. The stock options typically vest over a period of three or four years from the date of grant. The option price and number of shares are subject to adjustment under certain dilutive circumstances. If an employee terminates employment, the non-vested portion of the stock options will not vest and all rights to the non-vested portion will terminate completely.

Stock option activity for the year ended December 31, 2019 were as follows:



	Number of Stock Options		Weighted- Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2019	363,225		$	28.33
Granted	189,170		$	41.97
Exercised	(80,693	)	$	24.97
Expired	(2,857	)	$	20.09
Forfeited	(22,027	)	$	29.99
Outstanding at December 31, 2019	446,818		$	34.68	7.7	$	7,319
Exerciseable at December 31, 2019	96,947		$	27.70	5.3	$	2,265

Changes in nonvested stock options for the year ended December 31, 2019 were as follows:



	Number of Stock Options		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2019	292,013		$	12.20
Granted	189,170		$	15.95
Vested	(109,285	)	$	11.95
Forfeited	(22,027	)	$	10.24
Nonvested at December 31, 2019	349,871		$	14.33

The aggregate intrinsic value of stock options represents the amount by which the market price of our common stock exceeds the exercise price of the stock option. The aggregate intrinsic value of stock options exercised for the years ended December 31, 2019, 2018 and 2017 was $1.8 million, $1.3 million, and $2.5 million, respectively. Cash received from stock options exercised for the years ended December 31, 2019, 2018 and 2017 was $2.6 million, $1.8 million, and $4.3 million, respectively, with related tax benefits of $0.6 million, $0.3 million, and $0.9 million, respectively. The total amount of stock options vested and expected to vest in the future is 446,818 shares with a weighted-average exercise price of $34.68 and an aggregate intrinsic value of $7.3 million. These stock options have a weighted-average remaining contractual term of 7.7 years.

The share-based compensation cost expensed for stock options for the years ended December 31, 2019, 2018, and 2017 (before tax benefits) was $1.6 million, $0.9 million, and $0.7 million, respectively, and is included in selling, general and administrative expenses on the consolidated income statements. At December 31, 2019, total unrecognized compensation cost (before tax benefits) related to stock options of $3.7 million is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of stock options vested during the years ended December 31, 2019, 2018, and 2017 was $1.3 million, $0.8 million, and $0.8 million, respectively.

We apply fair value accounting for stock-based compensation based on the grant date fair value estimated using a Black-Scholes-Merton (“Black-Scholes”) valuation model. The assumptions used to compute the fair value of stock option grants under the Stock Incentive Plans for years ended December 31, 2019, 2018, and 2017 were as follows:



	Years Ended December 31,
	2019		2018		2017
Risk-free interest rate	1.92	%	2.65	%	1.75	%
Expected volatility	40.44	%	53.66	%	50.37	%
Expected dividends	—		—		—
Expected term (in months)	60		36		48

We recognize compensation expense, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period of the award. We have award populations with option vesting terms of three and four years. We estimate the forfeiture rate based on our historic experience, attempting to determine any discernible activity patterns. The expected life computation is based on historic exercise patterns and post-vesting termination behavior. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is derived from historical volatility of our common stock. We suspended payments of dividends after the first quarter of 2011.

Restricted Stock Units

We granted restricted stock units (“RSUs”) to certain officers, key employees and non-employee directors of 62,520, 81,230, and 135,350 RSUs during the years ended December 31, 2019, 2018, and 2017, respectively, with weighted-average grant date fair values (equal to the fair market value of our stock on the date of grant) of $41.04, $32.36, and $28.97 per share, respectively. RSUs represent a right to receive a share of stock at future vesting dates with no cash payment required from the holder. The RSUs typically have a three year vesting term of 33%, 33% and 34% on the first, second and third anniversaries of the date of grant, respectively. If an employee terminates employment, their non-vested portion of the RSUs will not vest and all rights to the non-vested portion will terminate.

Restricted stock unit activity for the year ended December 31, 2019 was as follows:



	Number of Restricted Stock Units		Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2019	157,937		$	28.96
Granted	62,520		$	41.04
Vested	(85,279	)	$	27.94
Forfeited	(7,755	)	$	30.80
Outstanding at December 31, 2019	127,423		$	36.22

The share-based compensation cost expensed for RSUs for the years ended December 31, 2019, 2018, and 2017 (before tax benefits) was $2.4 million, $2.1 million, and $2.0 million respectively, and is included in selling, general and administrative expenses on the consolidated income statements. At December 31, 2019, total unrecognized compensation cost (before tax benefits) related to RSUs of $2.9 million is expected to be recognized over a weighted average period of 1.4 years. The total fair value of RSUs vested for the years ended December 31, 2019, 2018, and 2017 was $2.4 million, $2.7 million, and $3 million, respectively. The tax benefit realized from vested RSUs for the years ended December 31, 2019, 2018, and 2017 was $0.6 million, $0.6 million, and $1.1 million, respectively.

Performance Stock Units

We granted performance stock awards (“PSUs”) to certain key employees of 58,178, 64,700, and 126,000 PSUs during the years ended December 31, 2019, 2018, and 2017, respectively, with weighted-average grant date fair values of $43.80, $35.16, and $26.31 per share, respectively. PSU awards are subject to the attainment of performance goals established by the Compensation Committee, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded shares. Performance goals are based on a pre-established objective formula that specifies the manner of determining the number of performance stock awards that will be granted if performance goals are attained. If an employee terminates employment, their non-vested portion of the PSUs will not vest and all rights to the non-vested portion will terminate.

Performance stock activity for the year ended December 31, 2019 was as follows:



	Number of Performance Stock Units		Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2019	236,700		$	26.21
Granted	58,178		$	43.80
Vested	(85,504	)	$	19.05
Forfeited	(11,800	)	$	33.21
Outstanding at December 31, 2019	197,574		$	33.98

The share-based compensation cost expensed for PSUs for the years ended December 31, 2019, 2018, and 2017 (before tax benefits) was $3.2 million, $1.9 million and $2.0 million, respectively, and is included in selling, general and administrative expenses on the consolidated income statements. At December 31, 2019, total unrecognized compensation cost (before tax benefits) related to PSUs of $3.2 million is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of PSUs vested during the years ended December 31, 2019, 2018, and 2017, was $3.8 million, $0.3 million, and $1.2 million, respectively. The tax benefit realized from PSUs for the years ended December 31, 2019, 2018, and 2017 were $0.9 million, $0.1 million, and $0.5 million, respectively.