Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

13.STOCK-BASED COMPENSATION

The Company has an equity participation plan (the 2010 Performance and Equity Incentive Plan, the “2010 Plan”) whereby options (both non-qualified and incentive stock options), restricted stock units, stock appreciation rights, and other equity and performance based instruments may be granted to directors, employees, and consultants. The options and restricted stock units generally vest from the date of grant on a straight-line basis over the vesting term and generally have a seven year or a 10 year contractual life.

The 2010 Plan was adopted by the Company’s shareholders on May 6, 2010 and provides for the issuance of a maximum of 15.0 million shares of the Company’s Class A common stock, of which 5.4 million shares remain available for future issuance as of December 31, 2019. However, the aggregate number of shares that may be issued pursuant to restricted stock awards, restricted stock unit awards, stock bonus awards, performance awards, other stock-based awards, or other awards granted under the 2010 Plan will not exceed 7.5 million shares, of which 6.4 million shares remain available for future issuance as of December 31, 2019.

Stock Options

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses a combination of historical data and historical volatility to establish the expected volatility, as well as to estimate the expected option life. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following assumptions were used to estimate the fair value of options granted using the Black-Scholes option-pricing model:



	For the year ended December 31,
	2019	2018	2017

Risk free interest rate	1.37% - 2.47%	2.57% - 2.92%	1.70% - 1.97%
Dividend yield	1.3%	0.7%	0.0%
Expected volatility	20.4%	21.6%	20.0%
Expected lives	4.6 years	4.6 years	4.6 years

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The following table summarizes the Company’s activities with respect to its stock option plans for the years ended December 31, 2019, 2018 and 2017 as follows (dollars and shares in thousands, except for per share data):



		Weighted-		Weighted-Average
		Average		Remaining
	Number	Exercise Price		Contractual	Aggregate
	of Shares	Per Share		Life (in years)	Intrinsic Value
Outstanding at December 31, 2016	4,447	$	93.09
Granted	1,171	$	115.41
Exercised	(709)	$	80.73
Forfeited/canceled	(67)	$	105.81
Outstanding at December 31, 2017	4,842	$	100.12
Granted	941	$	156.55
Exercised	(926)	$	81.73
Forfeited/canceled	(41)	$	123.98
Outstanding at December 31, 2018	4,816	$	114.48
Granted	1,068	$	183.42
Exercised	(1,315)	$	103.47
Forfeited/canceled	(62)	$	140.85
Outstanding at December 31, 2019	4,507	$	133.68	4.1	$	483,811
Exercisable at December 31, 2019	1,917	$	109.42	2.8	$	252,093
Unvested at December 31, 2019	2,590	$	151.61	5.1	$	231,718

The weighted-average per share fair value of options granted during the years ended December 31, 2019, 2018 and 2017 was $33.99, $33.01, and $23.88, respectively.

The total intrinsic value for options exercised during the years ended December 31, 2019, 2018 and 2017 was $132.8 million, $78.0 million and $37.2 million, respectively. Cash received from option exercises under all plans for the years ended December 31, 2019, 2018 and 2017 was approximately $136.0 million, $74.7 million, and $56.5 million, respectively. The tax benefit realized for the tax deductions from option exercises under all plans was $10.2 million for the year ended December 31, 2019 and no tax benefit was realized for the years ended December 31, 2018 and 2017.

The aggregate intrinsic value for stock options in the preceding table represents the total intrinsic value based on the Company’s closing stock price of $240.99 as of December 31, 2019. The amount represents the total intrinsic value that would have been received by the holders of the stock-based awards had these awards been exercised and sold as of that date.

Additional information regarding options outstanding and exercisable at December 31, 2019 is as follows:



	Options Outstanding				Options Exercisable
		Weighted Average	Weighted			Weighted
		Remaining	Average			Average
Range	Outstanding	Contractual Life	Exercise Price		Exercisable	Exercise Price
	(in thousands)	(in years)			(in thousands)
$0.00 - $100.00	1,307	2.4	$	94.50	1,002	$	93.87
$100.01 - $125.00	1,300	3.6	$	118.03	749	$	120.12
$125.01 - $175.00	845	5.2	$	156.18	166	$	155.36
$175.01 - $275.00	1,055	6.2	$	183.44	—	$	—
	4,507				1,917

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The following table summarizes the activity of options outstanding that had not yet vested:



		Weighted-
		Average
	Number	Fair Value
	of Shares	Per Share
	(in thousands)
Unvested as of December 31, 2018	2,654	$	26.05
Options granted	1,068	$	33.99
Vested	(1,072)	$	24.68
Forfeited	(60)	$	28.65
Unvested as of December 31, 2019	2,590	$	29.82

As of December 31, 2019, the total unrecognized compensation expense related to unvested stock options outstanding under the Plans is $32.7 million. That cost is expected to be recognized over a weighted average period of 2.3 years.

The total fair value of options vested during 2019, 2018, and 2017 was $26.5 million, $24.0 million, and $21.4 million, respectively.

Restricted Stock Units

The following table summarizes the Company’s restricted stock unit activity for the year ended December 31, 2019:



		Weighted-Average
	Number of	Grant Date Fair
	Shares	Value per Share
	(in thousands)
Outstanding at December 31, 2018	324	$	128.69
Granted	134	$	185.32
Vested	(130)	$	125.75
Forfeited/canceled	(15)	$	155.40
Outstanding at December 31, 2019	313	$	152.98

As of December 31, 2019, total unrecognized compensation expense related to unvested restricted stock units granted under the 2010 Plan was $23.4 million and is expected to be recognized over a weighted-average period of 2.4 years.

Employee Stock Purchase Plan

In 2008, the Board of Directors of the Company adopted the 2008 Employee Stock Purchase Plan (“2008 Purchase Plan”) which reserved 500,000 shares of Class A common stock for purchase. The 2008 Purchase Plan permits eligible employee participants to purchase Class A common stock at a price per share which is equal to 85% of the fair market value of Class A common stock on the last day of an offering period. For the year ended December 31, 2018, 16,798 shares of Class A common stock were issued under the 2008 Purchase Plan, which resulted in cash proceeds to the Company of approximately $2.3 million.

On May 23, 2018, the Board of Directors of the Company adopted the 2018 Employee Stock Purchase Plan (“2018 Purchase Plan”) which replaced the 2008 Purchase Plan and reserved 300,000 shares of Class A common stock for purchase. The 2018 Purchase Plan permits eligible employee participants to purchase Class A common stock at a price per share which is equal to 85% of the fair market value of Class A common stock on the last day of an offering period. For the years ended December 31, 2019 and 2018, 30,128 shares and 10,052 shares, respectively, of Class A common stock were issued under the 2018 Purchase Plan, which resulted in cash proceeds to the Company of approximately $5.5 million and $1.4 million, respectively. At December 31, 2019, 259,820 shares remained available for issuance under the 2018 Purchase Plan.

In addition, the Company recorded $1.0 million, $0.6 million, and $0.6 million of non-cash compensation expense relating to the shares issued under the 2008 Purchase Plan and 2018 Purchase Plan for each of the years ended December 31, 2019, 2018, and 2017, respectively.

Non-Cash Compensation Expense

The table below reflects a break out by category of the non-cash compensation expense amounts recognized on the Company’s Statements of Operations for the years ended December 31, 2019, 2018, and 2017, respectively:



		For the year ended December 31,
	2019		2018		2017
	(in thousands)
Cost of revenues	$	2,034	$	1,182	$	1,013
Selling, general and administrative		71,180		41,145		37,236
Total cost of non-cash compensation included
in income before provision for income taxes	$	73,214	$	42,327	$	38,249

During 2018, the Board of Directors adopted a retirement policy applicable to all employees receiving equity as part of their compensation plan. This policy was effective January 1, 2019. Historically, all unvested equity awards were forfeited upon termination of employment and any options that were vested but unexercised would be forfeited 90 days after the termination of employment. The new retirement policy allows employees that meet certain conditions to vest or continue vesting in outstanding equity awards following retirement and extends the time the employee has to exercise vested and outstanding awards. As a result of this policy, stock compensation expense related to the adoption of the policy resulted in an acceleration of unrecognized stock compensation expense of approximately $11.2 million and $7.3 million in the first and second quarter of 2019, respectively.

In addition, the Company capitalized $1.1 million, $0.8 million and $0.6 million of non-cash compensation for the years ended December 31, 2019, 2018 and 2017, respectively, to fixed assets.