Share-Based Compensation

6 Months Ended

Jun. 30, 2019

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

Our non-employee directors and key employees are granted share-based awards through our SICP. We record these share-based awards as compensation costs over the respective service period for which services are received in exchange for an award of equity or equity-based compensation. The compensation cost is based primarily on the fair value of the shares awarded, using the estimated fair value of each share on the date it was granted and the number of shares to be issued at the end of the service period.

The table below presents the amounts included in net income related to share-based compensation expense for the three and six months ended June 30, 2019 and 2018:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
(in thousands)
Awards to non-employee directors	$	157		$	135		$	305		$	269
Awards to key employees	452			1,190			790			2,575
Total compensation expense	609			1,325			1,095			2,844
Less: tax benefit	(158		)	(363		)	(285		)	(779		)
Share-based compensation amounts included in net income	$	451		$	962		$	810		$	2,065

Non-employee Directors

Shares granted to non-employee directors are issued in advance of the directors’ service periods and are fully vested as of the date of the grant. We record a deferred expense equal to the fair value of the shares issued and amortize the expense equally over a service period of one year. In May 2019, after the most recent election of directors, each of our continuing non-employee directors received an annual retainer of 751 shares of common stock under the SICP for service as a director through the 2020 Annual Meeting of Stockholders.



	Number of Shares		Weighted Average Fair Value
Outstanding—December 31, 2018	—		$	—
Granted	6,759		$	93.14
Vested	(6,759	)	$	93.14
Outstanding—June 30, 2019	—		$	—

At June 30, 2019, there was approximately $0.5 million of unrecognized compensation expense related to shares granted to non-employee directors. This expense will be recognized over the remaining service period ending April 30, 2020. See Note 1, Summary of Accounting Policies, for additional information regarding ASU 2018-07 and its impact on the accounting for non-employee share-based payments.

Our former President and Chief Executive Officer, Michael P. McMasters, retired as an executive officer on December 31, 2018 but continued as a member of the Board of Directors until the 2019 Annual Meeting of Stockholders. Mr. McMasters received a pro-rated grant of 276 shares of common stock under the SICP for service as a non-employee director from January 1, 2019 through May 8, 2019. These shares awarded to Mr. McMasters immediately vested upon issuance in January 2019, had a weighted average fair value of $75.70 per share, and were fully expensed as of April 30, 2019.

Key Employees

The table below presents the summary of the stock activity for awards to key employees for the six months ended June 30, 2019:



	Number of Shares		Weighted Average Fair Value
Outstanding—December 31, 2018	131,741		$	67.24
Granted	45,016		$	91.19
Vested	(25,831	)	$	67.08
Expired	(15,086	)	$	69.28
Outstanding—June 30, 2019	135,840		$	74.05

In June 2018, the Company and a former executive officer entered into a separation agreement and release (the "Separation Agreement"). Pursuant to the Separation Agreement, three awards, representing a total of 14,107 shares of common stock

previously granted to the executive officer under the SICP, immediately vested at the time of separation; 2,569 shares were forfeited, and we recognized $1.1 million as share-based compensation expense.

In February 2019, our Board of Directors granted awards of 45,016 shares of common stock to key employees under the SICP. The shares granted are multi-year awards that will vest at the end of the three-year service period ending December 31, 2021. All of these stock awards are earned based upon the successful achievement of long-term financial results, which comprise market-based and performance-based conditions or targets. The fair value of each performance-based condition or target is equal to the market price of our common stock on the grant date of each award. For the market-based conditions, we used the Black-Scholes pricing model to estimate the fair value of each market-based award granted.

In March 2019, upon the election of certain of our executive officers, we withheld shares with a value at least equivalent to each such executive officer’s minimum statutory obligation for applicable income and other employment taxes related to shares that we awarded in February 2019 for the performance period ended December 31, 2018, remitted the cash to the appropriate taxing authorities, and paid the balance of such awarded shares to each such executive officer. We withheld 7,635 shares, based on the value of the shares on their award date, determined by the average of the high and low prices of our common stock. Total combined payments for the employees’ tax obligations to the taxing authorities were approximately $0.7 million.

At June 30, 2019, the aggregate intrinsic value of the SICP awards granted to key employees was approximately $12.9 million. At June 30, 2019, there was approximately $3.8 million of unrecognized compensation cost related to these awards, which is expected to be recognized as expense from July 1, 2019 through December 31, 2021.

Stock Options

We did not have any stock options outstanding at June 30, 2019 or 2018, nor were any stock options issued during these periods.