Shareholders' Equity

12 Months Ended

Dec. 31, 2022

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders' Equity

Common Stock

At a meeting of the Board of Directors on October 26, 2021, the Company's Board of Directors approved the authorization to purchase up to $500.0 million of shares under the Company's share repurchase program. The authorization has no expiration date. In fiscal 2022, the Company acquired and retired 1,698,227 shares of its common stock at an average cost of $140.89 per share for a total cost of $239.2 million. In fiscal 2021, the Company acquired and retired 156,184 shares of its common stock at an average cost of $165.05 per share for a total cost of $25.8 million. In fiscal 2020, the Company acquired and retired 315,072 shares of its common stock at an average cost of $79.38 per share for a total cost of $25.0 million under its previous share repurchase program.

The existing share repurchase program remains authorized by the Company's Board of Directors. There is approximately $195.0 million in common stock available for repurchase under the October 26, 2021 repurchase authorization as of December 31, 2022.

Share-Based Compensation

The Company recognized approximately $22.5 million, $24.9 million and $9.2 million in share-based compensation expense in fiscal years 2022, 2021 and 2020, respectively. The total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation expense was $5.4 million, $6.0 million and $2.2 million in fiscal years 2022, 2021 and 2020, respectively. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award. The total fair value of shares and options vested was $25.6 million, $26.1 million and $7.7 million in fiscal years 2022, 2021 and 2020, respectively.

Total unrecognized compensation cost related to share-based compensation awards was approximately $27.4 million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.8 years as of December 31, 2022.

During 2018, the Company's shareholders approved the 2018 Equity Incentive Plan ("2018 Plan"). The 2018 Plan authorized the issuance of 2.1 million shares of common stock, plus 1.5 million of shares reserved under the prior 2013 Equity Incentive Plan that were not the subject of outstanding awards for equity-based awards and terminated any further grants under prior equity plans. Approximately 2.3 million shares were available for future grant or payment under the 2018 Plans as of December 31, 2022.

Options and Stock Appreciation Rights

The Company uses several forms of share-based incentive awards including non-qualified stock options and stock settled stock appreciation rights (“SARs”). SARs are the right to receive stock in an amount equal to the appreciation in value of a share of stock over the base price per share. Shares granted prior to fiscal 2020 generally vest over five years on the anniversary date while shares granted in fiscal 2020 and after generally vest over three years on the anniversary date of the grant date. Generally all grants expire 10 years from the grant date. All grants are made at prices equal to the fair market value of the stock on the grant date. For fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021, expired and canceled shares were immaterial.

The table below presents share-based compensation activity for the fiscal years ended 2022, 2021 and 2020:

	2022	2021	2020
Total Intrinsic Value of Share-Based Incentive Awards Exercised	$7.8	$11.3	$6.7
Cash Received from Stock Option Exercises	3.5	2.6	0.2
Income Tax Benefit from the Exercise of Stock Options	6.1	2.7	—
Total Fair Value of Share-Based Incentive Awards Vested	8.2	4.5	2.1

The weighted average assumptions used in the Company's Black-Scholes valuation related to grants for options and SARs were as follows:

	2022	2021	2020
Per Share Weighted Average Fair Value of Grants	$42.21	$25.97	$21.23
Risk-Free Interest Rate	1.8%	0.7%	1.5%
Expected Life (Years)	4.0	4.2	7.0
Expected Volatility	35.3%	34.1%	25.2%
Expected Dividend Yield	0.9%	0.9%	1.4%

The average risk-free interest rate is based on US Treasury security rates in effect as of the grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the Company's stock price over the expected term of the award. The Company estimated the expected term using historical data.

Following is a summary of share-based incentive plan activity (options and SARs) for fiscal 2022:

Number of Shares Under Options and SARs	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in millions)
Outstanding as of January 1, 2022	811,906	$	81.50
Granted	135,634	150.23
Exercised	(108,609)	64.98
Forfeited	(27,797)	149.24
Expired	(2,994)	76.86
Outstanding as of December 31, 2022	808,140	$	92.94	6.3	$	27.1
Exercisable as of December 31, 2022	475,123	$	74.93	5.1	$	22.0

Compensation expense recognized related to options and SARs was $6.1 million, $5.6 million and $2.8 million for fiscal years 2022, 2021 and 2020, respectively.

As of December 31, 2022, there was $6.9 million of unrecognized compensation cost related to non-vested options and SARs that is expected to be recognized as a charge to earnings over a weighted average period of 1.7 years.

The amount of options and SARs expected to vest is materially consistent with those outstanding and not yet exercisable.

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards ("RSAs") and restricted stock units ("RSUs") consist of shares or the rights to shares of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death, disability or normal retirement of the grantee.

Following is the summary of RSAs activity for fiscal 2022:

	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSAs as of January 1, 2022	9,018	$	144.73	0.5
Granted	10,287	131.27
Vested	(9,018)	144.73
Unvested RSAs as of December 31, 2022	10,287	$	131.27	0.4

The weighted average grant date fair value of awards granted was $131.27, $144.73 and $70.05 in fiscal years 2022, 2021 and 2020, respectively.

RSAs vest on the one year anniversary of the grant date, provided the holder of the shares is continuously employed by or in the service of the Company until the vesting date. Compensation expense recognized related to the RSAs was $1.4 million for fiscal 2022 and $1.2 million for fiscal 2021 and 2020, respectively.

As of December 31, 2022, there was $0.5 million of unrecognized compensation cost related to non-vested RSAs that is expected to be recognized as a charge to earnings over a weighted average period of 0.4 years.

Following is the summary of RSUs activity for fiscal 2022:

	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSUs as of January 1, 2022	220,898	$	119.59	1.8
Granted	94,791	147.70
Vested	(128,166)	114.90
Forfeited	(31,110)	137.27
Unvested RSUs as of December 31, 2022	156,413	$	136.95	1.9

The weighted average grant date fair value of awards granted was $147.70, $143.44 and $86.70 in fiscal years 2022, 2021 and 2020, respectively.

RSUs granted prior to fiscal 2020 vest on the third anniversary of the grant date while RSUs granted in fiscal 2020 vest one third each year on the anniversary of the grant date, provided the holder of the shares is continuously employed by the Company until the vesting date. Compensation expense recognized related to the RSUs was $10.3 million, $9.7 million and $3.8 million for fiscal 2022, 2021 and 2020, respectively.

As of December 31, 2022, there was $13.3 million of unrecognized compensation cost related to non-vested RSUs that is expected to be recognized as a charge to earnings over a weighted average period of 1.9 years.

Performance Share Units

Performance share unit awards ("PSUs") consist of shares or the rights to shares of the Company's stock which are awarded to associates of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. PSUs have a performance period of 3 years, vest three years from the grant date and are issued at a performance target of 100%. The PSUs have performance criteria based on a return on invested capital metric or they have performance criteria using returns relative to the Company's peer group. As set forth in the individual grant agreements, acceleration of vesting may occur under a change in control, death or disability. There are no voting rights with these instruments until vesting occurs and a share of stock is issued. Some of the PSU awards are valued using a Monte Carlo simulation method as of the grant date while others are valued using the closing market price less net present value of dividends as of the grant date depending on the performance criteria for the award.

The assumptions used in the Company's Monte Carlo simulation related to grants for performance share units were as follows:

	December 31, 2022	January 1, 2022	January 2, 2021
Risk-free interest rate	1.8%	0.2%	1.4%
Expected life (years)	3.0	3.0	3.0
Expected volatility	38.0%	37.0%	24.0%
Expected dividend yield	—%	0.9%	1.4%

Following is the summary of PSUs activity for fiscal 2022:

	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested PSUs as of January 1, 2022	99,867	$	108.28	1.6
Granted	41,078	151.27
Vested	(28,653)	78.09
Forfeited	(4,627)	146.61
Unvested PSUs as of December 31, 2022	107,665	$	131.07	1.8

The weighted average grant date fair value of awards granted was $151.27, $120.19 and $117.63 in fiscal years 2022, 2021 and 2020, respectively.

Compensation expense for awards granted are recognized based on the Monte Carlo simulation value or the expected payout ratio depending upon the performance criterion for the award, net of estimated forfeitures. Compensation expense recognized related to PSUs was $4.7 million, $8.4 million and $1.4 million for fiscal 2022, 2021 and 2021, respectively. $4.3 million of compensation expense recognized in fiscal 2021 related to PSUs vesting upon consummation of the Rexnord Transaction. Total unrecognized compensation expense for all PSUs granted as of December 31, 2022 was $6.7 million and it is expected to be recognized as a charge to earnings over a weighted average period of 1.8 years.