Shareholders' Equity

12 Months Ended

Dec. 31, 2023

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 2023, the Company did not acquire any shares of its common stock. 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 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, 2023.

Share-Based Compensation

The Company recognized approximately $58.2 million, $22.5 million and $24.9 million in share-based compensation expense in fiscal years 2023, 2022 and 2021, respectively. In connection with the Altra Transaction, the Company incurred $15.7 million of share-based compensation expense during the first quarter of 2023 related to the accelerated vesting of awards for certain former Altra employees. The total income tax benefit recognized in the Consolidated Statements of Income (Loss) for share-based compensation expense was $10.5 million, $5.4 million and $6.0 million in fiscal years 2023, 2022 and 2021, 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 $35.4 million, $25.6 million and $26.1 million in fiscal years 2023, 2022 and 2021, respectively.

Total unrecognized compensation cost related to share-based compensation awards was approximately $37.0 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, 2023.

During 2023, the Company's shareholders approved the 2023 Equity Incentive Plan ("2023 Plan"). The 2023 Plan authorized the issuance of 5.6 million shares of common stock for equity-based awards and terminated any further grants under prior equity plans. Approximately 5.5 million shares were available for future grant or payment under the 2023 Plan as of December 31, 2023.

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, 2023, December 31, 2022 and January 1, 2022, expired and canceled shares were immaterial.

The table below presents share-based compensation activity for the fiscal years ended 2023, 2022 and 2021:

	2023	2022	2021
Total Intrinsic Value of Share-Based Incentive Awards Exercised	$6.2	$7.8	$11.3
Cash Received from Stock Option Exercises	2.5	3.5	2.6
Income Tax Benefit from the Exercise of Stock Options	5.3	6.1	2.7
Total Fair Value of Share-Based Incentive Awards Vested	10.9	8.2	4.5

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

	2023	2022	2021
Per Share Weighted Average Fair Value of Grants	$54.20	$42.21	$25.97
Risk-Free Interest Rate	4.1%	1.8%	0.7%
Expected Life (Years)	5.0	4.0	4.2
Expected Volatility	35.8%	35.3%	34.1%
Expected Dividend Yield	0.9%	0.9%	0.9%

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 2023:

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 December 31, 2022	808,140	$	92.94
Granted1	147,174	143.24
Exercised	(94,533)	80.90
Forfeited	(31,364)	140.79
Outstanding as of December 31, 2023	829,417	$	101.44	6.0	$	39.6
Exercisable as of December 31, 2023	555,236	$	84.81	5.0	$	35.2

1 Certain outstanding equity-based awards held by employees of Altra that related to shares of Altra Common Stock were replaced by equity-based awards of Company Common Stock with substantially similar terms and conditions. These awards include 32,419 options with a weighted-average grant date fair value of $57.64 issued as replacement awards for Altra unvested awards outstanding at close of the Altra Transaction on March 27, 2023.

Compensation expense recognized related to options and SARs was $7.4 million, $6.1 million and $5.6 million for fiscal years 2023, 2022 and 2021, respectively.

As of December 31, 2023, there was $5.6 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 1.6 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 2023:

	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSAs as of December 31, 2022	10,287	$	131.27	0.4
Granted1	31,756	134.71
Vested	(20,046)	134.37
Unvested RSAs as of December 31, 2023	21,997	$	133.41	0.9

1 Certain outstanding equity-based awards held by employees of Altra that related to shares of Altra Common Stock were replaced by equity-based awards of Company Common Stock with substantially similar terms and conditions. These awards include 20,265 restricted stock awards with a weighted-average grant date fair value of $138.31 issued as replacement awards for Altra unvested awards outstanding at close of the Altra Transaction on March 27, 2023.

The weighted average grant date fair value of awards granted was $134.71, $131.27 and $144.73 in fiscal years 2023, 2022 and 2021, 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 $2.3 million, $1.4 million and $1.2 million for fiscal 2023, 2022 and 2021, respectively.

As of December 31, 2023, there was $1.2 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 0.9 years.

Following is the summary of RSUs activity for fiscal 2023:

	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSUs as of December 31, 2022	156,413	$	136.95	1.9
Granted1	261,706	141.89
Vested	(113,337)	131.29
Forfeited	(41,186)	142.46
Unvested RSUs as of December 31, 2023	263,596	$	143.43	1.9

1 Certain outstanding equity-based awards held by employees of Altra that related to shares of Altra Common Stock were replaced by equity-based awards of Company Common Stock with substantially similar terms and conditions. These awards include 161,414 restricted stock units with a weighted-average grant date fair value of $135.50 issued as replacement awards for Altra unvested awards outstanding at close of the Altra Transaction on March 27, 2023.

The weighted average grant date fair value of awards granted was $141.89, $147.70 and $143.44 in fiscal years 2023, 2022 and 2021, 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 $24.7 million, $10.3 million and $9.7 million for fiscal 2023, 2022 and 2021, respectively.

As of December 31, 2023, there was $18.0 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. PSUs with a performance criteria using returns relative to the Company's peer group are valued using a Monte Carlo simulation method as of the grant date while PSUs with a performance criteria based on a return on invested capital are valued using the closing market price less net present value of dividends as of the grant date.

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

	December 31, 2023	December 31, 2022	January 1, 2022
Risk-free interest rate	4.4%	1.8%	0.2%
Expected life (years)	3.0	3.0	3.0
Expected volatility	41.0%	38.0%	37.0%
Expected dividend yield	—%	—%	0.9%

Following is the summary of PSUs activity for fiscal 2023:

	Shares	Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested PSUs as of December 31, 2022	107,665	$	131.07	1.8
Granted	59,101	235.77
Vested	(36,476)	63.20
Forfeited	(4,388)	203.28
Unvested PSUs as of December 31, 2023	125,902	$	197.36	1.9

The weighted average grant date fair value of awards granted was $235.77, $151.27 and $120.19 in fiscal years 2023, 2022 and 2021, respectively.

Compensation expense for PSUs is 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 $8.1 million, $4.7 million and $8.4 million for fiscal 2023, 2022 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, 2023 was $12.2 million and it is expected to be recognized as a charge to earnings over a weighted average period of 1.9 years.