Stock-Based Compensation

3 Months Ended

Mar. 31, 2016

Note 3 – Stock-Based Compensation

The Company’s 2010 Omnibus Incentive Compensation Plan (the 2010 Plan) authorizes, the Company, upon approval of the compensation committee of the Board of Directors, to grant a variety of awards, including stock options, restricted shares, restricted stock units, stock appreciation rights, performance compensation awards, phantom stock awards and deferred share units, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options are granted to employees with an exercise price equal to the market price of the Company’s common shares on the date of grant, generally vest over a four-year period from the date of grant and have a term of ten years. Restricted shares and restricted stock units granted to employees generally vest over a four-year period from the date of grant, subject to the continued employment of the employee by the Company. Awards under the 2010 Plan to non-employee directors have been in the form of restricted stock units, which vest in equal quarterly installments over a one-year period, starting on the grant date.

As of March 31, 2016, 3.1 million additional common shares were available for issuance under the 2010 Plan.

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. The total compensation cost recognized for stock-based awards was $2.1 million and $1.9 million for the three months ended March 31, 2016 and 2015, respectively. The total income tax benefit recognized in the condensed consolidated income statement for stock-based awards was $0.6 million and $0.6 million for the three months ended March 31, 2016 and 2015, respectively. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the vesting period of the awards using the straight-line method. Cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as cash flows from financing activities. Awards of restricted shares, restricted stock units, and performance-based restricted stock units are valued at the closing market price of the Company’s common shares on the date of grant. For performance-based restricted stock units, compensation expense is based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on the Company’s expectation of performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a change in accounting estimate.

As of March 31, 2016, the unrecognized compensation cost and remaining weighted-average amortization period related to stock-based awards were as follows:

							Performance-
							based
					Restricted		Restricted
		Stock	Restricted		Stock		Stock
(in thousands)		Options	Shares		Units		Units⁽¹⁾
Unrecognized compensation cost		$ 3,616		$ 1		$ 11,627		$ 5,852
Remaining weighted-average
amortization period	1.8 years		0.1 years			2.9 years		2.2 years

⁽¹⁾ Based on the probable achievement of the performance goals identified in each award.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average fair value per option granted during the three months ended March 31, 2015 was $8.76, respectively. No options were granted during the three months ended March 31, 2016. The weighted-average assumptions used to value the options granted during the three months ended March 31, 2015 were as follows (in thousands):

Options granted			289
Expected term of options			6.4 years
Expected volatility			35%
Risk-free interest rate			1.886%
Dividend yield			zero

The expected term of the options represents the estimated period of time until exercise and is based on historical experience, giving consideration to the contractual terms, vesting schedules and expectations of future plan participant behavior. Separate groups of plan participants that have similar historical exercise behavior are considered separately for valuation purposes. Expected stock price volatility is based on the historical volatility of the Company’s common shares. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates in effect at the time of grant with an equivalent remaining term. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.

The total cash received by the Company as a result of stock option exercises for the three months ended March 31, 2016 and 2015 was approximately $0.8 million and $0.8 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the three months ended March 31, 2016 and 2015 was $1.5 million and $1.6 million, respectively. For the three months ended March 31, 2016 and 2015, the total intrinsic value of stock options exercised was $0.3 million and $0.3 million, respectively.

The Company awarded performance-based restricted stock units to employees during the three months ended March 31, 2016 and 2015. The number of performance-based restricted stock units that will ultimately be earned will not be determined until the end of the corresponding performance periods, and may vary from as low as zero to as high as three times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the audited financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue growth, operating margin expansion, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for issuance under the 2010 Plan.

The following table summarizes activities relating to the Company’s stock options:

			Weighted-
		Weighted-	Average
		Average	Remaining	Aggregate
	Number of	Exercise	Contractual	Intrinsic
(in thousands, except per share data)	Options	Price	Term (Years)	Value
Outstanding as of December 31, 2015	2,580	$20.49
Exercised	(47)	15.97
Forfeited or expired	(270)	23.20
Outstanding as of March 31, 2016	2,263	$20.27	4.91	$ 7,738
Exercisable as of March 31, 2016	1,789	$19.79	3.43	$ 7,256

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company’s closing stock price as of the last business day of the period ended March 31, 2016 for options that had exercise prices that were below the closing price.

The following table summarizes activities related to the Company’s restricted shares:

		Weighted-
		Average
	Number of	Grant Date
(in thousands, except per share data)	Shares	Fair Value
Non-vested shares outstanding as of December 31, 2015	38	$15.38
Vested	(37)	15.38
Non-vested shares outstanding as of March 31, 2016	1	$14.78

The following table summarizes the activities related to the Company’s time-based restricted stock units:

		Weighted-
		Average
	Number of	Grant Date
(in thousands, except per share data)	Units	Fair Value
Non-vested awards outstanding as of December 31, 2015	467	$21.59
Granted	266	21.64
Vested	(149)	20.69
Forfeited	(8)	22.61
Non-vested awards outstanding as of March 31, 2016	576	$21.83

The following table summarizes the activities related to the Company’s performance-based restricted stock units:

		Weighted-
		Average
	Number of	Grant Date
(in thousands, except per share data)	Units	Fair Value
Non-vested units outstanding as of December 31, 2015	306	$19.77
Granted ⁽¹⁾	183	21.64
Forfeited or expired	(98)	16.91
Non-vested units outstanding as of March 31, 2016	391	$21.36

⁽¹⁾Represents target number of units that can vest based on the achievement of the performance goals.