Equity and Cash Incentive Program

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Equity and Cash Incentive Program

EQUITY AND CASH INCENTIVE PROGRAMS

Prior to the Separation, Dover granted share-based awards to its officers and other key employees, including certain Apergy individuals. The principal awards issued under Dover’s stock-based compensation plans included stock options, stock-settled stock appreciation rights, restricted stock units and performance share awards. All awards granted under the program consisted of Dover common shares and are not necessarily indicative of the results that Apergy would have experienced as a stand-alone public company for the periods presented prior to the Separation. Effective with the Separation, outstanding Dover share-based awards were converted to Apergy share-based awards, with the exception of outstanding Dover performance share awards that relate to performance periods ending after the Separation. Such performance share awards were cancelled effective with the Separation.

In connection with the Separation, the Board of Directors of Apergy adopted the Apergy Corporation 2018 Equity and Cash Incentive Plan (“2018 Plan”). The 2018 Plan was also approved by Dover in its capacity as the sole stockholder of Apergy at the time of adoption. A total of 6.5 million shares of common stock are reserved for issuance under the 2018 Plan, subject to customary adjustments arising from stock splits and other similar changes.

The 2018 Plan authorized the grant of stock options, stock-settled stock appreciation rights (“SARs”), restricted stock awards, restricted stock units, performance share awards, cash performance awards, directors’ shares and deferred stock units. The Apergy Compensation Committee determines the exercise price for options and the base price of SARs, which may not be less than the fair market value of Apergy common stock on the date of grant. Generally, stock options or SARs vest after three years of service and expire at the end of ten years. Performance share awards vest if Apergy achieves certain pre-established performance targets based on specified performance criteria over a performance period of not less than three years.

Stock-based compensation expense is reported within “selling, general and administrative expense” in the consolidated statements of income. Stock-based compensation expense relating to all stock-based incentive plans was as follows:

	Years Ended December 31,
	2019			2018			2017
Stock-based compensation expense	$	10,250		$	5,375		$	2,236
Tax benefit	(2,153		)	(1,141		)	(774		)
Stock-based compensation expense, net of tax	$	8,097		$	4,234		$	1,462

SARs

We did not issue SARs during 2019 and 2018. In 2017, SARs were granted by Dover and the fair value of each SAR granted was estimated on the grant date using a Black-Scholes option-pricing model utilizing the following assumptions:

	2017
Risk-free interest rate	1.80		%
Dividend yield	2.27		%
Expected life (years)	4.6
Volatility	21.90		%
Grant price	$	79.28
Fair value at date of grant	$	12.63

A summary of activity relating to SARs outstanding for the year ended December 31, 2019, is as follows:

	SARs
	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2019	477,950		$	29.43
Forfeited / expired	(7,030	)	34.13
Exercised	(48,559	)	25.95
Outstanding at December 31, 2019	422,361		29.75		6.1	$	1,799
Exercisable at December 31, 2019	253,901		$	26.84	5.4	$	1,799

Unrecognized compensation expense related to SARs not yet exercisable was not material to our consolidated financial statements as of December 31, 2019.  

Other information regarding the exercise of SARs is presented below:

(in thousands)	2019		2018		2017
SARs:
Fair value of SARs that became exercisable	$	662	$	310	$	1,239
Aggregate intrinsic value of SARs exercised	629		40		2,787

Performance Share Awards - Dover

Performance shares granted by Dover were cancelled effective with the Separation. Performance share awards granted prior to the Separation were considered performance condition awards as attainment was based on Dover’s performance relative to established internal metrics. The fair value of these awards was determined using Dover’s closing stock price on the date of grant. The expected attainment of the internal metrics for these awards was analyzed each reporting period, and the related expense was adjusted based on expected attainment. The cumulative effect on current and prior periods of a change in expected attainment is recognized in stock-based compensation expense in the period of change.

The fair value and average attainment used in determining stock-based compensation expense of the performance shares issued in 2017 are as follows:

Performance shares:	2017
Fair value per share at date of grant	$	79.28
Average attainment rate reflected in expense	0.0		%

Performance Share Awards - Apergy

Market Vesting Conditions

We granted 46,459 and 86,817 performance share awards subject to market vesting conditions during 2019 and 2018, respectively, under the 2018 Plan. These awards vest if Apergy achieves certain pre-established performance targets based on specified performance criteria over a performance period of not less than three years. The performance targets for these awards are classified as a market vesting condition, therefore the compensation cost was calculated using the grant date fair market value, as estimated using a Monte Carlo simulation, and is not subject to change based on future events. The fair value used in determining stock-based compensation expense of the performance share awards issued in 2019 and 2018 is as follows:

Performance shares:	2019		2018
Fair value per share at date of grant	$	57.43	$	56.32

Performance Vesting Conditions

We granted 46,460 performance share awards subject to performance vesting conditions during 2019 under the 2018 Plan. These awards are considered performance condition awards as attainment is based on Apergy’s performance relative to established internal metrics. The fair value of these awards was determined using Apergy’s closing stock price on the date of grant. The expected attainment of the internal metrics for these awards is analyzed each reporting period, and the related expense is adjusted based on expected attainment. The cumulative effect on current and prior periods of a change in expected attainment is recognized in stock-based compensation expense in the period of change.

The fair value and average attainment used in determining stock-based compensation expense of the performance shares issued in 2019 are as follows:

Performance shares:	2019
Fair value per share at date of grant	$	40.22
Average attainment rate reflected in expense	100.0		%

A summary of activity for Apergy’s performance share awards for the year ended December 31, 2019, is as follows:

	Shares		Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2019	86,817		$	56.32
Granted	92,919		48.83
Forfeited	(5,010	)	52.60
Vested	—		—
Unvested at December 31, 2019	174,726		$	52.44

Unrecognized compensation expense related to unvested performance share awards as of December 31, 2019, was $5.3 million, which will be recognized over a weighted average period of 1.8 years.

Restricted Stock Units

Restricted stock units may be granted at no cost to certain officers and key employees. Restricted stock units generally vest over a three-or-four-year period. 

A summary of activity for restricted stock units for the year ended December 31, 2019, is as follows:

	Shares		Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2019	414,840		$	41.91
Granted	183,143		37.82
Forfeited	(16,498	)	40.74
Vested	(141,437	)	39.35
Unvested at December 31, 2019	440,048		$	41.07

Unrecognized compensation expense relating to unvested restricted stock as of December 31, 2019, was $12.6 million, which will be recognized over a weighted average period of 1.5 years.