Share-Based Payments

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

SHARE-BASED PAYMENTS

The Company had a stock and incentive plan ("1995 Plan") which provided for the grant of any or all of the following types of awards to eligible employees: (1) stock options, including incentive stock options and nonqualified stock options; (2) stock appreciation rights ("SARs"), in tandem with stock options or freestanding; (3) restricted stock or restricted stock units; and, (4) performance awards. The 1995 Plan began on April 21, 1995, and was amended on June 25, 2004 to extend the termination date to April 20, 2010. The number of shares of Class A, $1.00 par value, common stock which were allowed to be issued under the 1995 Plan, or as to which SARs or other awards were allowed to be granted, could not exceed 300,000. Effective June 20, 2008, the Company's shareholders approved a 2008 Incentive Plan (“2008 Plan”). The 2008 Plan was substantially similar to the 1995 Plan and authorized an additional number of Class A common stock shares eligible for issue not to exceed 300,000. These plans were assumed by NWLGI from National Western pursuant to the terms of the holding company reorganization in 2015. On June 15, 2016, stockholders of NWLGI approved an amended and restated 2008 Plan ("Incentive Plan"), which extended the term of the 2008 Plan for ten years from the date of stockholder approval. The Incentive Plan includes additional provisions, most notably regarding the definition of performance objectives which could be used in the issuance of the fourth type of award noted above (performance awards).

All of the employees of the Company and its subsidiaries are eligible to participate in the current Incentive Plan. In addition, directors of the Company are eligible to receive the same types of awards as employees except that they are not eligible to receive incentive stock options. Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options. At the end of 2018, all stock options granted under the 1995 Plan and 2008 Plan had been exercised, forfeited, or expired. SARs granted prior to 2016 vest 20% annually following three years of service following the grant date. Employee SARs granted 2016 forward vest 33.3% annually following one year of service from the date of the grant. Directors' stock option and SARs grants vest 20% annually following one year of service from the date of grant.

Effective during March 2006, the Company adopted and implemented a limited stock buy-back program with respect to the 1995 Plan which provided stock option holders the additional alternative of selling shares acquired through the exercise of options directly back to the Company. Option holders could elect to sell such acquired shares back to the Company at any time within ninety (90) days after the exercise of options at the prevailing market price as of the date of notice of election. The buy-back program did not alter the terms and conditions of the 1995 Plan; however, the program necessitated a change in accounting from the equity classification to the liability classification. In August 2008, the Company implemented another limited stock buy-back program, substantially similar to the 2006 program, for shares issued under the 2008 Plan. These plans were assumed as well by NWLGI from National Western pursuant to the terms of the holding company reorganization. There are currently no stock options issued and outstanding.

The Incentive Plan allows for certain other share or unit awards which are solely paid out in cash based on the value of the Company's shares, or changes therein, as well as the financial performance of the Company under pre-determined target performance metrics. Certain awards, such as restricted stock units ("RSUs") provide solely for cash settlement based upon the market price of the Company's Class A common shares, often referred to as "phantom stock-based awards" in equity compensation plans. Unlike share-settled awards, which have a fixed grant-date fair value, the fair value of unsettled or unvested liability awards is remeasured at the end of each reporting period based on the change in fair value of a share. The liability and corresponding expense are adjusted accordingly until the award is settled. For employees, the vesting period for RSUs is 100% at the end of three years from the grant date. The RSUs are payable in cash at the vesting date equal to the closing price of the Company's Class A common shares at that time.

Other awards may involve performance share units ("PSUs") which are units granted at a specified dollar amount per unit, typically linked to the Company's Class A common share price, that are subsequently multiplied by an attained performance factor to derive the number of PSUs to be paid as cash compensation at the vesting date. PSUs also vest three years from the date of grant. For PSUs, the performance period begins the first day of the calendar year in which the PSUs are granted and runs three calendar years. At that time, the three-year performance outcome will be measured against the pre-defined target amounts to determine the number of PSUs earned as compensation which are paid at the closing price of the Company's Class A common shares on the vesting date.

PSU awards covering the three year measurement period ended December 31, 2018 were paid out in the first quarter of 2019. The performance factor during the measurement period used to determine compensation payouts was 93.86% of the pre-defined metric target.

Directors of the Company are eligible to receive RSUs under the Incentive Plan. Unlike RSUs granted to officers, the RSUs granted to directors vest one year from the date of grant. They are payable in cash at the vesting date equal to the closing price of the Company's Class A common shares at that time.

No awards were granted to officers and directors during the nine months ended September 30, 2019 and 2018.

The Company uses the current fair value method to measure compensation costs for awards granted under the share-based plans.

As of September 30, 2019 and December 31, 2018, the liability balance was $9.5 million and $11.9 million, respectively. A summary of awards by type and related activity is detailed below.



		Options Outstanding
	Shares Available For Grant	Shares	Weighted- Average Exercise Price

Stock Options:
Balance at January 1, 2019	291,000	—	$	—
Exercised	—	—	$	—
Forfeited	—	—	$	—
Expired	—	—	$	—
Stock options granted	—	—	$	—

Balance at September 30, 2019	291,000	—	$	—



	Liability Awards
	SAR		RSU		PSU

Other Share/Unit Awards:
Balance at January 1, 2019	89,443		13,170		19,122
Exercised	—		(3,051	)	(5,426	)
Forfeited	(1,230	)	(307	)	(616	)
Granted	—		—		—

Balance at September 30, 2019	88,213		9,812		13,080

Stock options, SARs, RSUs, and PSUs shown as forfeited in the above tables represent vested and unvested awards not exercised by plan participants upon their termination from the Company in accordance with the expiration provisions of the awards.

The total intrinsic value of share-based compensation exercised was $2.5 million and $2.2 million for the nine months ended September 30, 2019 and 2018, respectively. The total share-based compensation paid was $2.5 million and $2.2 million for the nine months ended September 30, 2019 and 2018, respectively. The total fair value of stock options, SARs, RSUs, and PSUs vested during the nine months ended September 30, 2019 and 2018 was $3.0 million and $0.8 million, respectively. No cash amounts were received from the exercise of stock options under the Plans during the periods reported on.

The following table summarizes information about SARs outstanding at September 30, 2019. There were no options outstanding as of September 30, 2019.



	SARs Outstanding
	Number Outstanding		Weighted- Average Remaining Contractual Life	Number Exercisable

Exercise prices:
$132.56	19,568		2.2 years	19,568
$210.22	25,000		4.2 years	16,400
$216.48	11,649		6.4 years	11,649
$311.16	10,162		7.4 years	6,753
$310.55	203		7.6 years	135
$334.34	9,557		8.2 years	3,180
$303.77	12,074		9.2 years	—

Totals	88,213			57,685

Aggregate intrinsic value (in thousands)	$	4,716		$	4,216

The aggregate intrinsic value in the table above is based on the closing Class A stock price of $268.37 per share on September 30, 2019.

In estimating the fair value of the share-based awards outstanding at September 30, 2019 and December 31, 2018, the Company employed the Black-Scholes option pricing model with assumptions detailed below.



	September 30, 2019		December 31, 2018

Expected term	2.2 to 9.2 years		3.0 to 10.0 years
Expected volatility weighted-average	21.93	%	22.14	%
Expected dividend yield	0.13	%	0.12	%
Risk-free rate weighted-average	1.70	%	2.58	%

The Company reviewed the contractual term relative to the SARs as well as perceived future behavior patterns of exercise. Volatility is based on the Company’s historical volatility over the expected term of the option/SARs expected exercise date.

The pre-tax compensation cost/(benefit) recognized in the financial statements related to these plans was $1.5 million and $0.1 million for the three and nine months ended September 30, 2019 and $1.7 million and $2.4 million for the three and nine months ended September 30, 2018, respectively. The related tax expense/(benefit) recognized was $(0.3) million and $0.0 million for the three and nine months ended September 30, 2019 and $(0.4) million and $(0.5) million for the three and nine months ended September 30, 2018, respectively.

As of September 30, 2019, the total compensation cost related to non-vested share-based awards not yet recognized was $3.2 million. This amount is expected to be recognized over a weighted-average period of 1.3 years. The Company recognizes compensation cost over the graded vesting periods.