Equity Incentive Plan

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Equity Incentive Disclosure

EQUITY INCENTIVE PLAN

The Company’s equity incentive plan provides employees and directors of the Company additional incentives to join and/or remain in the service of the Company as well as to maintain and enhance the long-term performance and profitability of the Company. The Company’s 2013 equity incentive plan was approved by shareholders on May 2, 2013 and provides that 2 million shares of common stock, plus any shares that remained available for grant under the Company’s prior equity incentive plan as well as options outstanding that terminate without being exercised, may be the subject of awards. The plan provides for the grant of options, restricted stock units, and other equity-based awards. The exercise price of options granted shall not be less than the fair market value of the common stock on the date of the award. Options primarily vest equally over a five-year period from the date of grant and have a maximum term of up to 10 years. Restricted units primarily vest equally over a five-year period from the date of grant. Performance share units generally vest after a three-year period from the date of the grant based upon satisfaction of the performance condition. The compensation committee of the Board of Directors has generally granted restricted share units to participating managers and non-qualified stock options and performance share units to executive officers.

All share-based compensation arrangements granted to employees, including stock option grants, are recognized in the consolidated statement of operations based on the grant-date fair value of the award over the period during which an employee is required to provide service in exchange for the award. Share-based compensation expense is recorded within selling, general, and administrative in the consolidated statement of operations with a corresponding offset to additional paid-in capital in the consolidated balance sheet.

The fair values of stock options granted were calculated using the Black-Scholes pricing model. The aggregate intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The following table summarizes all stock option activity from December 31, 2019 through December 31, 2020:

	Number of Options	Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2019	608,715	$	334.20	$	279.5
Granted	16,273	1,103.74
Exercised	(141,139)	319.84
Forfeited	(9,746)	505.95
Outstanding at December 31, 2020	474,103	400.21		350.6
Options exercisable at December 31, 2020	367,451	$	319.84	$	301.3

The following table details the weighted average remaining contractual life of options outstanding at December 31, 2020 by range of exercise prices:

Number of Options Outstanding	Weighted Average Exercise Price	Remaining Contractual Life of Options Outstanding	Options Exercisable
78,288	$168.98	1.8	78,288
131,501	$253.87	3.3	131,501
128,642	$357.51	5.4	105,179
135,672	$715.98	8.1	52,483
474,103		5.0	367,451

As of the date granted, the weighted average grant-date fair value of the options granted during the years ended December 31, 2020, 2019, and 2018 was $284.25, $196.40, and $189.78, respectively.

Such weighted average grant-date fair value was determined using the following assumptions:

	2020		2019		2018
Risk-free interest rate	0.34	%	1.74	%	3.09	%
Expected life in years	6.0		6.0		5.9
Expected volatility	26	%	24	%	26	%
Expected dividend yield	—		—		—

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019, and 2018 was approximately $84.5 million, $146.6 million, and $74.3 million, respectively.

The compensation expense for options recognized during the years ended December 31, 2020, 2019, and 2018 was $7.7 million, $8.0 million, and $8.4 million, respectively.

During the fourth quarter of 2016, the Company granted 12,678 performance-based options, with a grant-date fair value of $1.5 million. Compensation expense is recognized over the five-year vesting provisions based upon the probability of the performance condition being met.

The following table summarizes all restricted stock unit and performance share unit activity from December 31, 2019 through December 31, 2020:

	Number of Restricted Stock Units	Aggregate Intrinsic Value (in millions)	Number of Performance Share Units	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2019	40,985	$32.5	17,183	$13.6
Granted	8,285		2,690
Adjustment for performance results achieved(1)	—		1,838
Vested	(14,667)		(6,370)
Forfeited	(1,507)		—
Outstanding at December 31, 2020	33,096	$37.7	15,341	$17.5

(1) 2016 performance share units vested in the first quarter 2020.

The weighted average grant-date fair value of the restricted stock units granted during years ended 2020, 2019, and 2018 was $1,104.02, $720.81, and $595.31 per unit, respectively, which primarily vest ratably over a five-year period. The total fair value of the restricted stock units on the date of grant was $9.1 million for 2020, $8.9 million for 2019, and $9.6 million for 2018 and will be recorded as compensation expense on a straight-line basis over the vesting period. The total fair value of restricted stock units vested during the years ended December 31, 2020, 2019, and 2018 was approximately $7.7 million, $7.0 million, and $7.2 million, respectively. Approximately $7.9 million, $7.1 million, and $6.8 million of compensation expense was recognized during the years ended December 31, 2020, 2019, and 2018, respectively.

The Company granted performance share units with a market condition during 2020, 2019, and 2018, respectively. Grantees of performance share units will be eligible to receive shares of the Company’s common stock depending upon the Company’s total shareholder return relative to the performance of companies in the S&P 500 Healthcare and S&P 500 Industrials over a three-year period. The awards actually earned will range from zero to 200% of the targeted number of performance share units for the three-year performance period and will be paid, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period. During 2020, the market conditions for the 2017 performance share units were met and will vest in the first quarter 2021 with a payout of 132%. Performance share unit awards were valued using a Monte Carlo simulation based on the following assumptions:

	2020		2019		2018
Risk-free interest rate	0.18	%	1.69	%	3.03	%
Expected life in years	3		3		3
Expected volatility	26	%	24	%	26	%
Expected dividend yield	—		—		—

As of the date granted, the fair value of the performance share units granted was $1,345.03 for 2020, $803.26 for 2019, and $733.35 for 2018. The total fair value of the performance share units on the date of the grant was $3.6 million for 2020, 2019, and 2018, and will be recorded as compensation expense on a straight-line basis over the three-year performance period.

At December 31, 2020, a total of 2,080,274 shares of common stock were available for grant in the form of stock options, restricted stock units, or performance share units.

As of December 31, 2020, the unrecorded deferred share-based compensation balance related to stock options, restricted stock units, and performance share units was $48.2 million and will be recognized using a straight-line method over an estimated weighted average amortization period of 2.2 years.