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Stock-Based Compensation
12 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation

In February 2017, the Company’s shareholders approved the 2017 Incentive Stock and Awards Plan (the “2017 Stock Plan”). The 2017 Stock Plan replaced the 2009 Incentive Stock and Awards Plan (as amended, the “2009 Stock Plan”). While no new awards will be granted under the 2009 Stock Plan or its predecessor, the 2004 Incentive Stock and Awards Plan, awards previously made under these two plans that were outstanding as of the approval date of the 2017 Stock Plan will remain outstanding and continue to be governed by the provisions of the respective stock plan under which they were issued. At September 30, 2018, the Company had reserved 7,919,214 shares of Common Stock available for issuance to provide for the exercise of outstanding stock options and the issuance of Common Stock under incentive compensation awards, including awards issued prior to the effective date of the 2017 Stock Plan.

Under the 2017 Stock Plan, officers, directors, including non-employee directors, and employees of the Company may be granted stock options, stock appreciation rights (SAR), performance shares, performance units, shares of Common Stock, restricted stock, restricted stock units (RSU) or other stock-based awards. The 2017 Stock Plan provides for the granting of options to purchase shares of the Company’s Common Stock at not less than the fair market value of such shares on the date of grant. Stock options granted under the 2017 Stock Plan generally become exercisable in equal installments over a three-year period, beginning with the first anniversary of the date of grant of the option, unless a shorter or longer duration is established by the Human Resources Committee of the Board of Directors at the time of the option grant. Stock options terminate not more than ten years from the date of grant. The exercise price of stock options and the market value of restricted stock unit awards are determined based on the closing market price of the Company’s Common Stock on the date of grant. Except to the extent vesting is accelerated upon early retirement and except for performance shares and performance units, vesting is based solely on continued service as an employee of the Company. The Company recognizes stock-based compensation expense over the requisite service period for vesting of an award, or to an employee’s eligible retirement date, if earlier and applicable.

Information related to the Company’s equity-based compensation plans in effect as of September 30, 2018 was as follows:
Plan Category 
 
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options or Vesting of
Share Awards
 
Weighted-Average
Exercise Price of
Outstanding
Options
 
Number of
Securities Remaining
Available for Future
Issuance Under Equity
Compensation Plans
Equity compensation plans approved by security holders
 
1,915,157

 
$
57.03

 
6,004,057

Equity compensation plans not approved by security holders
 

 

 

 
 
1,915,157

 
$
57.03

 
6,004,057



Total stock-based compensation expense (income) was as follows (in millions):
 
Fiscal Year Ended September 30,
 
2018
 
2017
 
2016
Stock options
$
6.6

 
$
7.5

 
$
6.7

Stock awards (shares and units)
13.7

 
11.6

 
9.7

Performance share awards
6.4

 
3.3

 
2.3

Cash-settled stock appreciation rights
(0.2
)
 
3.3

 
3.4

Cash-settled restricted stock unit awards
0.4

 
0.5

 
0.9

Total stock-based compensation cost
26.9

 
26.2

 
23.0

Income tax benefit recognized for stock-based compensation
(5.8
)
 
(9.6
)
 
(8.4
)
 
$
21.1

 
$
16.6

 
$
14.6



Stock Options — A summary of the Company’s stock option activity is as follows:
 
Fiscal Year Ended September 30,
 
2018
 
2017
 
2016
 
Options
 
Weighted-
Average
Exercise
Price
 
Options
 
Weighted-
Average
Exercise
Price
 
Options
 
Weighted-
Average
Exercise
Price
Outstanding, beginning of year
1,531,691

 
$
45.14

 
2,104,929

 
$
39.55

 
2,369,872

 
$
36.57

Granted
261,900

 
86.59

 
393,975

 
66.89

 
567,550

 
41.52

Forfeited
(43,270
)
 
66.49

 
(11,145
)
 
52.54

 
(70,177
)
 
44.31

Expired
(1
)
 
41.52

 

 

 
(43,392
)
 
49.19

Exercised
(481,336
)
 
34.41

 
(956,068
)
 
41.70

 
(718,924
)
 
30.25

Outstanding, end of year
1,268,984

 
57.03

 
1,531,691

 
45.14

 
2,104,929

 
39.55

Exercisable, end of year
650,143

 
45.92

 
819,906

 
36.47

 
1,473,761

 
38.28



Stock options outstanding and exercisable as of September 30, 2018 were as follows (in millions, except share and per share amounts):
 
 
 
 
Outstanding
 
Exercisable
Exercise Prices
 
Options
 
Weighted Average
Remaining
Contractual
Life (in years)
 
Weighted Average
Exercise Price
 
Aggregate
Intrinsic
Value
 
Options
 
Weighted Average
Remaining
Contractual
Life (in years)
 
Weighted Average
Exercise Price
 
Aggregate
Intrinsic
Value
$
7.95

-
$
28.96

 
93,784

 
0.9
 
$
28.38

 
$
4.0

 
93,784

 
0.9
 
$
28.38

 
$
4.0

$
40.67

-
$
50.27

 
596,394

 
3.5
 
43.77

 
16.4

 
450,937

 
3.3
 
44.50

 
12.1

$
66.89

-
$
86.59

 
578,806

 
6.9
 
75.34

 
1.4

 
105,422

 
5.3
 
67.61

 
0.4

 
 
 
 
1,268,984

 
4.8
 
57.03

 
$
21.8

 
650,143

 
3.3
 
45.92

 
$
16.5



The aggregate intrinsic values in the tables above represent the total pre-tax intrinsic value (difference between the Company’s closing stock price on the last trading day of fiscal 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2018. This amount changes based on the fair market value of the Company’s Common Stock.

The total intrinsic value of options exercised for fiscal 2018, 2017 and 2016 was $23.2 million, $24.0 million and $12.6 million, respectively. The actual income tax benefit realized totaled $6.3 million, $8.8 million and $4.6 million for those same periods.

As of September 30, 2018, total unrecognized compensation cost related to outstanding stock options was $2.6 million, net of estimated forfeitures, which the Company expects to be recognized over a weighted-average period of 1.9 years.

The Company uses the Black-Scholes valuation model to value stock options utilizing the following weighted-average assumptions:
 
 
Fiscal Year Ended September 30,
Options Granted During
 
2018
 
2017
 
2016
Assumptions:
 
 
 
 
 
 
Expected term (in years)
 
5.4

 
5.1

 
5.1

Expected volatility
 
34.50
%
 
37.30
%
 
40.40
%
Risk-free interest rate
 
2.09
%
 
1.79
%
 
1.73
%
Expected dividend yield
 
1.15
%
 
1.52
%
 
1.65
%


The expected option term represents the period of time that the options granted are expected to be outstanding and was based on historical experience. The Company used its historical stock prices over the expected term as the basis for the Company’s volatility assumption. The assumed risk-free interest rates were based on five-year U.S. Treasury rates in effect at the time of grant. The expected dividend yield was based on average actual yield on the ex-dividend date. The weighted-average per share grant date fair values for stock option grants during fiscal 2018, 2017 and 2016 were $26.84, $20.43 and $13.44, respectively.

Stock Awards — A summary of the Company’s stock award activity is as follows:
 
Fiscal Year Ended September 30,
 
2018
 
2017
 
2016
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Nonvested, beginning of year
352,159

 
$
55.22

 
313,806

 
$
42.93

 
273,992

 
$
46.84

Granted
163,225

 
86.07

 
214,325

 
66.84

 
323,800

 
40.33

Forfeited
(26,915
)
 
65.66

 
(16,381
)
 
51.67

 
(53,928
)
 
45.71

Vested
(155,996
)
 
56.02

 
(159,591
)
 
47.01

 
(230,058
)
 
43.28

Nonvested, end of year
332,473

 
69.15

 
352,159

 
55.22

 
313,806

 
42.93



The total fair value of shares vested during fiscal 2018, 2017 and 2016 was $13.2 million, $11.2 million and $10.7 million, respectively. The actual income tax benefit realized totaled $3.0 million, $4.1 million and $3.9 million for those same periods.

As of September 30, 2018, total unrecognized compensation cost related to stock awards was $6.7 million, net of estimated forfeitures, which the Company expects to be recognized over a weighted-average period of 1.9 years.

Performance Share Awards — A summary of the Company’s performance share awards activity is as follows:
 
Fiscal Year Ended September 30,
 
2018
 
2017
 
2016
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Nonvested, beginning of year
116,600

 
$
60.71

 
103,550

 
$
49.83

 
129,475

 
$
54.94

Granted
57,625

 
97.79

 
49,800

 
79.01

 
78,175

 
47.07

Forfeited
(13,977
)
 
71.75

 

 

 
(31,326
)
 
52.90

Performance adjustments
57,914

 
47.50

 
36,750

 
54.84

 
(27,874
)
 
54.71

Vested
(119,787
)
 
47.55

 
(73,500
)
 
54.84

 
(44,900
)
 
54.59

Nonvested, end of year
98,375

 
89.11

 
116,600

 
60.71

 
103,550

 
49.83



Performance share awards generally vest over a three-year service period following the grant date. Performance shares vest under two separate measurement criteria. The first type vest only if the Company’s total shareholder return (TSR) over the three year term of the awards compares favorably to that of a comparator group of companies. The second type vest only if the Company’s return on invested capital (ROIC) over the vesting period compares favorably to that of a comparator group of companies. Potential payouts range from zero to 200% of the target awards and changes from target amounts are reflected as performance adjustments. Actual payouts for TSR performance share awards vesting in the fiscal years ending September 30, 2018, 2017 and 2016 were 200%, 200% and 80% of target levels, respectively. Awards based on ROIC were not granted until fiscal 2016; therefore, September 2018 was the first time this type of award vested. Actual payout for the ROIC performance share award vesting in the fiscal year ended September 30, 2018 was 191% of target level. In October 2018, 118,286 shares of Common Stock were issued from treasury for unpaid performance shares that vested in fiscal 2018.

The total fair value of performance shares vested during fiscal 2018, 2017 and 2016 was $7.6 million, $6.5 million and $2.4 million, respectively. The actual income tax benefit realized totaled $2.1 million, $2.4 million and $0.9 million for the same periods.

As of September 30, 2018, the Company had $7.2 million of unrecognized compensation expense related to performance share awards, which will be recognized over a weighted-average period of 1.9 years.

The grant date fair values of the TSR performance share awards were estimated using a Monte Carlo simulation model utilizing the following weighted-average assumptions:
 
 
Fiscal Year Ended September 30,
Total Shareholder Return Performance Shares Granted During
 
2018
 
2017
 
2016
Assumptions:
 
 
 
 
 
 
Expected term (in years)
 
2.86

 
2.86

 
2.88

Expected volatility
 
32.27
%
 
34.09
%
 
33.28
%
Risk-free interest rate
 
1.84
%
 
1.32
%
 
1.20
%


The Company used its historical stock prices as the basis for the Company’s volatility assumption. The assumed risk-free interest rates were based on U.S. Treasury rates in effect at the time of grant. The expected term was based on the vesting period. The weighted-average fair value used to record compensation expense for TSR performance share awards granted during fiscal 2018, 2017 and 2016 was $112.30, $96.47 and $54.33 per award, respectively.

ROIC performance shares are granted as target awards. The grant date fair value of the awards is determined based on the Company’s stock price at the time of the grant and the anticipated awards expected to vest. A payout factor has been established ranging from zero to 200% of the target award based on the Company’s actual performance compared to performance of a peer group over the vesting period. Compensation expense is recorded ratably over the vesting period based on the amount of award that is expected to be earned under the plan formula, adjusted each reporting period based on current information.

Cash-Settled Stock Appreciation Rights — In fiscal 2018, 2017 and 2016, the Company granted employees 11,650, 11,750 and 27,900 cash-settled SARs, respectively. Each SAR award represents the right to receive cash equal to the excess of the per share price of the Company’s Common Stock on the date that a participant exercises such right over the grant date price of the Company’s Common Stock. Compensation cost for SARs is remeasured at each reporting period based on the estimated fair value on the date of grant using the Black Scholes option-pricing model, utilizing assumptions similar to stock option awards and is recognized as an expense over the requisite service period. The total value of SARs exercised during fiscal 2018, 2017 and 2016 was $3.8 million, $2.9 million and $1.2 million, respectively.

As of September 30, 2018, the Company had $0.1 million of unrecognized compensation expense related to SAR awards, which will be recognized over a weighted-average period of 1.2 years.

Cash-Settled Restricted Stock Units — In fiscal 2018, 2017 and 2016 the Company granted employees 8,125, 7,125 and 13,700 cash-settled RSUs, respectively. Each RSU award provides recipients the right to receive cash equal to the value of a share of the Company’s Common Stock at predetermined vesting dates. Compensation cost for RSUs is remeasured at each reporting period and is recognized as an expense over the requisite service period. The total value of RSUs vested during fiscal 2018, 2017 and 2016 was $0.4 million, $0.5 million and $0.6 million, respectively.

As of September 30, 2018, the Company had $0.5 million of unrecognized compensation expense related to RSUs, which will be recognized over a weighted-average period of 1.4 years.