Note 6 — Share-Based Compensation

Refer to Notes 1 and 17 of the Company’s audited financial statements for the year ended December 31, 2017, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC, for a discussion regarding the Company’s share-based compensation plans and policy.

Share-Based Compensation

Share-based compensation costs are classified as selling, general and administrative expenses on the Company’s statements of income and corporate administration and other expenses for segment reporting purposes. TSYS’ share-based compensation costs are expensed, rather than capitalized, as these awards are typically granted to individuals not involved in capitalizable activities.

Below is a summary of share-based compensation expense for the three months ended March 31, 2018 and 2017:

Nonvested Share Awards - Time-Based

The Company granted shares of TSYS common stock to certain key employees. The nonvested stock bonus awards are typically for services to be provided in the future and vest over a period of up to four years. The market value of the TSYS common stock as of the date of issuance is charged as compensation expense over the vesting periods of the awards. As of March 31, 2018, there was approximately $35.7 million of unrecognized compensation cost related to time-based nonvested share awards.



		Three months ended March 31,
	2018		2017
Number of shares granted		292,359	282,860
Market value (in millions)	$	26.1	15.4

Performance- and Market-Based Awards

The Company granted performance- and market-based shares to certain key employees. The performance- and market-based goals are established by the Compensation Committee of the Board of Directors and will vest up to a maximum of 200%. During the first three months of 2018 and 2017, the Compensation Committee establishes performance goals based primarily on various financial and market-based measures. The Company’s market-based awards are based upon the Company’s Total Shareholder Return (TSR) as compared to the TSR of the companies in the S&P 500 at the end of the performance period.

Compensation expense for performance shares is measured on the grant date based on the quoted market price of TSYS common stock. The Company estimates the probability of achieving the goals through the performance period and expenses the awards on a straight-line basis. The fair value of market-based awards is estimated on the grant date using a Monte Carlo simulation model. The Company expenses market-based awards on a straight-line basis. Compensation costs related to performance- and market-based shares are recognized through the longer of the performance period or the vesting period. As of March 31, 2018, there was approximately $28.2 million of unrecognized compensation cost related to TSYS performance-based awards that is expected to be recognized through December 2020. As of March 31, 2018, there was approximately $4.8 million of unrecognized compensation cost related to TSYS market-based awards that is expected to be recognized through December 2020.

The following table summarizes the performance-based awards granted during the first three months of 2018 and 2017:


Year Awarded	Performance Period Ending	Performance Measure	Number of Shares Granted	Period Expensed Through
2018	December 2020	Adjusted Diluted EPS1	79,218	December 2020
2018	December 2018	Net Revenue and Adjusted Diluted EPS1	84,444	December 2020
2018	December 2019	Non-financial Operational Metric	11,304	December 2020
2017	December 2019	Adjusted Diluted EPS1	99,492	December 2019
2017	December 2017	Net Revenue and Adjusted Diluted EPS1	146,094	December 2019

Adjusted Diluted EPS is adjusted earnings divided by weighted average diluted shares outstanding used for diluted EPS calculations. Adjusted earnings is net income excluding the after-tax impact of share-based compensation expenses, amortization of acquisition intangibles, merger and acquisition expenses for completed acquisitions and litigation claims, judgments or settlement expenses and related legal expenses.

The following table summarizes the market-based awards granted during the first three months of 2018 and 2017:


Year Awarded	Performance Period Ending	Performance Measure	Number of Shares Granted	Period Expensed Through
2018	December 2020	TSR	33,940	December 2020
2017	December 2019	TSR	42,644	December 2019

Stock Option Awards

The Company granted stock options to certain key executives. The grants will vest over a period of up to three years.

The weighted average fair value of the option grants was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:



		Three months ended
		March 31,
	2018			2017
Number of options granted		341,659		481,712
Weighted average exercise price	$	87.08		54.47
Risk-free interest rate		2.55	%	1.77	%
Expected volatility		21.80	%	21.72	%
Expected term (years)		4.8		4.6
Dividend yield		0.60	%	0.73	%
Weighted average fair value	$	19.34		10.73

As of March 31, 2018, there was approximately $8.1 million of unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a remaining weighted average period of 2.6 years.

Three months ended

(in thousands)

Share-based compensation