Stock Compensation Plans

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK COMPENSATION PLANS

We have two compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors. The 2009 Equity Incentive Plan (“2009 Plan”), and the 2014 Equity Incentive Plan (“2014 Plan”) provide for granting options, restricted stock, restricted stock units or stock appreciation rights to employees and non-employee directors.

We were authorized to grant awards for up to 1,781,546 shares of common stock under the 2009 Plan, as well as any shares underlying awards outstanding under our 2004 Equity Incentive Plan (the “2004 Plan”) as of the effective date of the 2009 Plan that thereafter terminated or expired unexercised or were canceled, forfeited or lapsed for any reason. There were 122,943 options outstanding at December 31, 2018 under the 2009 Plan at exercise prices between $43.33 and $57.54. The options outstanding under the 2009 Plan have a 10-year term (7 years on grants beginning in 2010) and vest over a 3-year period.

In May 2014, our shareholders approved the 2014 Plan authorizing us to grant awards for up to 1,974,543 shares of common stock, as well as any shares underlying awards outstanding under the 2004 Plan and 2009 Plan as of the effective date of the 2014 Plan that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. In May 2018, our shareholders approved an amendment to the 2014 Plan, which increased the number of shares available for issuance under the 2014 Plan by 1,000,000 shares. A maximum of 2,974,543 shares are available for issuance under the 2014 Plan, as amended, plus the number of shares (not to exceed 891,960) underlying awards outstanding under the 2004 Plan and the 2009 Plan as of May 29, 2014 that thereafter terminate or expire unexercised or are canceled, forfeited or lapse for any reason. There were 670,047 options outstanding at December 31, 2018 under the 2014 Plan at exercise prices between $29.98 and $61.30. The options outstanding under the 2014 Plan have a 7-year term and generally vest over a 3-year period. No awards were outstanding under the 2004 Plan as of December 31, 2018, and we will not make any further grants under the 2004 Plan or the 2009 Plan.

Upon election to the Board, each non-employee director receives an initial equity grant of shares of restricted common stock with a value equal to $100,000, calculated using the closing share price on the date of the non-employee director’s election to the Board. The initial restricted stock grant vests on the third anniversary of the grant date, subject to the non-employee director’s continued membership on the Board. Annually, the non-employee directors are granted restricted shares equal to 50% of their compensation on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. In addition, the Lead Director is annually granted restricted shares with a value equal to $40,000 on the first business day following the annual meeting of shareholders, calculated using the closing price of our common stock on that day. The shares of restricted stock granted annually to our non-employee directors and our Lead Director vest on the day prior to the following year’s annual meeting date, subject to a non-employee director’s continued membership on the Board. We record compensation cost associated with our restricted stock grants on a straight-line basis over the vesting term. Also, beginning in October 2018, our non-employee directors may elect to have their annual cash retainers and annual equity retainers paid in the form of deferred stock units pursuant to the 2014 Plan and the 2018 Non-Employee Director Deferred Compensation Plan. Each deferred stock unit represents the right to receive one share of our common stock upon the non-employee director's separation of service from the Company. We record compensation cost associated with our deferred stock units over the period of service.

Annually, upon approval by our Compensation Committee, we grant stock options and restricted stock units to certain employees. We also grant stock options and restricted stock units to certain new employees throughout the year. Prior to 2016, these awards vested in three equal annual installments beginning one year after the grant date. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options.

In 2015, we granted performance-based stock options and restricted stock units to certain executives. These awards vested in three annual installments beginning one year after the grant date if the applicable performance measures or strategic objectives were achieved. The related stock-based compensation expense was recognized over the requisite service period, taking into account the probability that we would satisfy the performance measures or strategic objectives. In addition to certain strategic objectives, the performance-based stock options and restricted stock units granted in 2015 were earned and vested based on (1) our achievement of specified revenue and EPS targets, and (2) our total shareholder return (“TSR”) relative to the TSR attained by companies within our defined peer group.

Due to the TSR presence in certain performance-based grants, the fair value of these awards was determined using the Monte Carlo Simulation valuation model. We expensed these market condition awards over the three-year vesting period regardless of the value that the award recipients ultimately receive. In March 2018, our Compensation Committee determined that 7,743 performance-based stock options and 266 restricted stock units were earned and vested for the 2017 performance period and 17,160 stock options and 640 restricted stock units were determined to be unearned, as the required metrics were not achieved. As of December 31, 2018, all performance-based stock options and restricted stock units granted in 2015 were either vested or were forfeited because they were not earned.

We did not grant performance-based stock options and restricted stock units to our employees during 2018. Instead, our annual grant in March 2018 consisted of stock options and restricted stock units that are subject to only time-based vesting. The number of stock options and restricted stock units granted was based on the employee’s individual objectives, performance against operational metrics assigned to the employee, and overall contribution to the Company over the last year. The restricted stock unit awards vest in full on the three-year anniversary of the grant date. The stock options vest in three equal annual installments beginning one year after the grant date. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options.

The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted-average grant-date fair value of the stock options that were granted during the years ended December 31, 2018, 2017, and 2016 and valued using the Black-Scholes option valuation model was $23.43, $14.51 and $12.90 per option, respectively. For stock options granted during the years ended December 31, 2018, 2017, and 2016 valued using the Black-Scholes option valuation model, we used the following assumptions:



	Years ended December 31,
	2018		2017		2016
Risk-free interest rate	2.65	%	1.88% - 2.02%		1.06% - 1.57%
Expected dividend yield	—	%	—	%	—	%
Expected option life	4 years		5 years		4 years
Expected volatility	45	%	45.2	%	45.0% - 47.0%
Weighted-average expected volatility	45.0	%	45.2	%	46.1	%

Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the expected lives of the options. The risk-free interest rate was based on the yields of U.S. zero coupon issues and U.S. Treasury issues, with a term equal to the expected life of the option being valued.

There were no market condition awards granted during the years ended December 31, 2018, 2017 and 2016 and, as such, the Monte Carlo Simulation valuation model was not used to determine the fair value of the stock options and restricted stock units granted during 2018.

A summary of stock option activity and weighted average exercise prices follows:



	Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of December 31, 2018
Outstanding at January 1, 2018	1,156,763		$	45.93
Granted	174,439		61.30
Forfeited	(81,222	)	51.66
Exercised	(439,877	)	47.21
Unearned performance-based options	(17,160	)	59.97
Outstanding at December 31, 2018	792,943		$	47.59	4.4	$	2,160
Options exercisable at December 31, 2018	427,006		$	48.84	2.1	$	862

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2018, 2017, and 2016 was $7.5 million, $1.2 million and $1.7 million, respectively. The total fair value of stock options vested during the years ended December 31, 2018, 2017, and 2016 was $3.7 million, $4.1 million and $3.8 million, respectively.

The following table summarizes the restricted stock and restricted stock unit activity and weighted average grant-date fair values for the year ended December 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2018	257,492		$	34.75
Granted	102,458		60.26
Forfeited	(29,692	)	39.36
Vested	(18,618	)	35.03
Unearned performance-based awards	(640	)	51.15
Non-vested at December 31, 2018	311,000		$	42.66

We recorded total stock-based compensation expense associated with our stock incentive plans of $7.6 million, $6.5 million and $5.4 million in 2018, 2017 and 2016, respectively.

As of December 31, 2018, there was $10.3 million in total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements. The expense is expected to be recognized over a weighted average period of 1.8 years.