Note 13 - Share-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(13) Share-Based Compensation

The Company issues share-based awards through several plans that are described in detail below.

Incentive Plan

In June 2003, the Company formally adopted the 2003 Incentive Plan (the “Plan”). As amended and restated to date, the Plan is intended to benefit the Company by offering equity-based and other incentives to certain of the Company’s executives and employees who are in a position to contribute to the long-term success and growth of the Company, thereby encouraging the continuance of their involvement with the Company and/or its subsidiaries.

Two types of equity awards may be granted to participants under the Plan: restricted shares or other stock awards. Restricted shares are shares of common stock awarded subject to restrictions and to possible forfeiture upon the occurrence of specified events. Other stock awards are awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of common stock. Such awards may include Restricted Stock Unit Awards (“RSUs”), incentive and non-qualified stock options, performance shares, or stock appreciation rights. The Company determines the form, terms, and conditions, if any, of any awards made under the Plan.

Through December 31, 2023, 1,355,430 shares of common stock were issued under the 2003 Incentive Plan, none of which have been restricted. An additional 93,905 shares are being reserved for outstanding grants of RSUs and other share-based compensation that are subject to various performance and time-vesting contingencies. The Company has also granted awards in the form of stock options under this Plan. Through December 31, 2023, 192,935 options were granted and 7,935 options are outstanding. At December 31, 2023, 707,011 shares or options are available for future issuance in the 2003 Incentive Plan.

Director Plan

Effective July 15, 1998, the Company adopted the 1998 Director Plan, which was amended and renamed on June 3, 2009 as the 2009 Non-Employee Director Stock Incentive Plan (the “Director Plan”). The Director Plan was amended on March 7, 2013, to (i) prohibit the repricing of stock options or other equity awards without the consent of the Company’s shareholders, and (ii) prohibit the Company from buying out underwater stock options. The Director Plan was amended on June 8, 2022, to increase the maximum number of shares issuable under the Director Plan from 975,000 to 1,075,000. The Director Plan, as amended, provides for the issuance of stock options and other equity-based securities to non-employee members of the Company’s board of directors.

Through December 31, 2023, 405,022 options were granted, and 70,553 options are outstanding. For the year ended December 31, 2023, 1,788 RSUs are being reserved for outstanding grants of RSUs and 124,025 shares remain available to be issued under the Director Plan.

Share-based compensation

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). Share-based compensation is included in selling, general & administrative expenses as follows (in thousands):

	Years Ended December 31,
Share-based compensation related to:	2023		2022		2021
Common stock grants	$	400	$	400	$	400
Stock option grants		432		263		210
RSUs		3,809		2,545		1,818
Total share-based compensation	$	4,641	$	3,208	$	2,428

The total income tax benefit recognized in the consolidated statements of income for share-based compensa‐tion arrangements was approximately $2.2 million, $1.3 million, and $0.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Common stock grants

The compensation expense for common stock granted during the three-year period ended December 31, 2023, was determined based on the market price of the shares on the date of grant.

Stock option grants

The compensation expense for stock options granted during the three-year period ended Decem‐ber 31, 2023, was determined as the fair value of the options using the Black Scholes valuation model. The range of assumptions are noted as follows:

	Years Ended December 31,
	2023	2022	2021
Expected volatility	36.6% - 40.6%	34.7%	33.7%
Expected dividends	None	None	None
Risk-free interest rate	3.6% - 3.9%	2.9%	0.8%
Exercise price	$111.54 - $167.98	$77.28	$57.34
Expected term (years)	6.2 - 6.8	6.2	6.2
Weighted-average grant date fair value	$37.81 - $71.17	$30.37	$19.60

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. The expected term is estimated based on historical option exercise activity.

The following is a summary of stock option activity for the year ended December 31, 2023:

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding December 31, 2022		92,075		$	39.98
Granted		12,153			131.13
Exercised		(25,740	)		30.67
Outstanding December 31, 2023		78,488		$	57.14		5.56	$	9,018
Exercisable at December 31, 2023		66,335		$	43.59		5.48	$	8,521
Vested and expected to vest at December 31, 2023		78,488		$	57.14		5.56	$	9,018

During the years ended December 31, 2023, 2022, and 2021, the total intrinsic value of all options exercised (i.e., the difference between the market price and the price paid by the employees to exercise the options) was approximately $3.0 million, $1.2 million, and $0.2 million, respectively, and the total amount of consideration received from the exercise of these options was approximately $0.8 million, $0.4 million, and $0.2 million, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During the years ended December 31, 2023 and 2022, 861 shares and 1,876 shares were redeemed for this purpose at an average market price of $127.05 and $95.82, respectively. During the year ended December 31, 2021, no shares were redeemed for this purpose.

RSUs

The Company grants RSUs to its directors, executive officers and employees. The stock unit awards are subject to various time-based vesting requirements, and certain portions of these awards are subject to performance criteria of the Company. Compensation expense on these awards is recorded based on the fair value of the award at the date of grant, which is equal to the Company’s closing stock price, and is charged, to expense ratably during the service period. No compensation expense is taken on awards that do not become vested, and the amount of compensation expense recorded is adjusted based on management’s determination of the probability that these awards will become vested.

The following table summarizes informa‐tion about stock unit award activity during the year ended December 31, 2023:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2022		102,048		$	56.02
Awarded		46,050			113.91
Shares vested		(52,126	)		55.17
Forfeitures		(279	)		106.60
Outstanding at December 31, 2023		95,693		$	64.82

At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, and the remaining amount is converted into the equivalent number of common shares. During the year ended December 31, 2023, 20,457 shares were redeemed for this purpose at an average market price of $117.95. During the years ended December 31, 2022 and 2021, 19,425 and 14,190 shares were redeemed for this purpose at an average market price of $67.05 and $52.55, respectively.

The following summarizes the future share-based compensation expense the Company will record as the equity securities granted through December 31, 2023, vest (in thousands):

	Options		Restricted Stock Units		Total
2024	$	280	$	3,048	$	3,328
2025		19		1,787		1,806
2026		-		206		206
Total	$	299	$	5,041	$	5,340