Stock-Based Compensation

6 Months Ended

Jun. 30, 2023

Note 9 – Stock-based Compensation

Under the Company’s Amended and Restated Equity Compensation Plan (the “Plan”) approved by the Company’s shareholders on May 2, 2019, to replace the 2004 Equity Compensation Plan, stock options, stock units, stock awards, stock appreciation rights, dividend equivalents, and other stock-based awards may be granted to employees, non-employee directors, and consultants and advisors. The Plan authorizes 6,250,000 shares for issuance under the Plan. A maximum of 3,125,000 shares under the Plan may be issued pursuant to stock awards, stock units and other stock-based awards, subject to adjustment as provided in the Plan. During any calendar year, no individual may be granted (i) stock options and stock appreciation rights under the Plan for more than 500,000 shares of Company stock in the aggregate or (ii) stock awards, stock units or other stock-based awards under the Plan for more than 500,000 shares of Company stock in the aggregate, subject to adjustment as provided in the Plan. Awards to employees and consultants under the Plan are made by a committee of the Board of Directors of the Company, except that with respect to awards to the Chief Executive Officer, the committee recommends those awards for approval by the non-employee directors of the Board of Directors. In the case of awards to non-employee directors, the Board of Directors makes such awards. At June 30, 2023, 1,506,793 shares were still available for issuance under the Plan. No further grants may be made under the Company’s 2004 Equity Compensation Plan.

Performance Share Units – A performance share unit (“PSU”) represents the right to receive a share of the Company’s common stock if specified performance goals are met over the three year performance period specified in the grant, subject to exceptions through the respective vesting period, which is generally three years. Each grantee is granted a target award of PSUs and may earn between 0% and 200% of the target amount depending on the Company’s performance against the performance goals. The following table provides compensation expense for PSUs:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock-based compensation within operations and maintenance expenses	$	1,962	$	1,692	$	4,405	$	3,342
Income tax benefit		492		485		1,104		952

The following table summarizes the PSU transactions for the six months ended June 30, 2023:



	Number	Weighted
	of	Average
	Share Units	Fair Value
Nonvested share units at beginning of period	556,462	$	42.77
Granted	161,981		45.06
Performance criteria adjustment	9,521		42.60
Actual vested	(168,549)		53.77
Forfeited	(9,837)		43.94
Nonvested share units at end of period	549,578		40.05

A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based conditions using the Monte Carlo valuation method, which assesses probabilities of various outcomes of market conditions. The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied. The per unit weighted-average fair value at the date of grant for PSUs granted during the six months ended June 30, 2023 and 2022 was $45.06 and $42.31, respectively. The fair value of each PSU grant is amortized monthly into compensation expense on a straight-line basis over their respective vesting periods, generally 36 months. The accrual of compensation costs is based on the Company’s estimate of the final expected value of the award and is adjusted as required for the portion based on the performance-based condition. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of the PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs. The recording of compensation expense for PSUs has no impact on net cash flows.

Restricted Stock Units – A restricted stock unit (“RSU”) represents the right to receive a share of the Company’s common stock. RSUs are eligible to be earned at the end of a specified restricted period, which is generally three years, beginning on the date of grant. The Company assumes that forfeitures will be minimal and recognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of the RSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the RSUs. The following table provides the compensation expense and income tax benefit for RSUs:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock-based compensation within operations and maintenance expenses	$	759	$	727	$	1,440	$	1,504
Income tax benefit		190		209		361		428

The following table summarizes the RSU transactions for the six months ended June 30, 2023:



	Number	Weighted
	of	Average
	Stock Units	Fair Value
Nonvested stock units at beginning of period	180,306	$	45.94
Granted	73,696		45.61
Stock units vested and issued	(52,611)		49.26
Forfeited	(3,794)		44.99
Nonvested stock units at end of period	197,597		44.94

The per unit weighted-average fair value at the date of grant for RSUs granted during the six months ended June 30, 2023 and 2022 was $45.61 and $45.10, respectively.

Stock Options – A stock option represents the option to purchase a number of shares of common stock of the Company as specified in the stock option grant agreement at the exercise price per share as determined by the closing market price of our common stock on the grant date. Stock options are exercisable in installments of 33% annually, starting one year from the grant date and expire 10 years from the grant date, subject to satisfaction of designated performance goals. The fair value of each stock option is amortized into compensation expense using the graded-vesting method, which results in the recognition of compensation costs over the requisite service period for each separately vesting tranche of the stock options as though the stock options were, in substance, multiple stock option grants. The following table provides the compensation cost and income tax benefit for stock-based compensation related to stock options:



	Three Months Ended				Six Months Ended
	June 30,					June 30,
	2023		2022		2023		2022
Stock-based compensation within operations and maintenance expenses	$	222	$	141	$	299	$	241
Income tax benefit		56		41		75		69

The fair value of options was estimated at the grant date using the Black-Scholes option-pricing model. The following assumptions were used in the application of this valuation model:


	2023		2022
Expected term (years)		5.5		5.5
Risk-free interest rate		4.03%		1.92%
Expected volatility		27.80%		26.50%
Dividend yield		2.53%		2.37%
Grant date fair value per option	$	11.37	$	9.34

Historical information was the principal basis for the selection of the expected term and dividend yield. The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

The following table summarizes stock option transactions for the six months ended June 30, 2023:



		Weighted		Weighted
		Average		Average	Aggregate
		Exercise		Remaining	Intrinsic
	Shares	Price		Life (years)	Value
Outstanding at beginning of period	820,061	$	36.29
Granted	74,632		45.39
Forfeited	(2,076)		45.31
Expired	(664)		35.20
Exercised	(5,943)		35.21
Outstanding at end of period	886,010	$	37.04	6.0	$	3,347

Exercisable at end of period	763,196	$	35.71	5.5	$	3,347

Restricted Stock – Restricted stock awards provide the grantee with the rights of a shareholder, including the right to receive dividends and to vote such shares, but not the right to sell or otherwise transfer the shares during the restriction period. Restricted stock awards result in compensation expense that is equal to the fair market value of the stock on the date of the grant and is amortized ratably over the restriction period. The Company expects forfeitures of restricted stock to be de minimis. The following table provides the compensation cost and income tax benefit for stock-based compensation related to restricted stock:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock-based compensation within operations and maintenance expenses	$	13	$	13	$	25	$	25
Income tax benefit		4		3		7		7

The following table summarizes restricted stock transactions for the six months ended June 30, 2023:


	Number	Weighted
	of	Average
	Shares	Fair Value
Nonvested restricted stock at beginning of period	1,170	$	42.75
Granted	-		-
Vested	-		-
Nonvested restricted stock at end of period	1,170	$	42.75

There were no restricted stock awards granted during the six months ended June 30, 2023 and 2022.

Stock Awards – Stock awards represent the issuance of the Company’s common stock, without restriction. The issuance of stock awards results in compensation expense that is equal to the fair market value of the stock on the grant date and is expensed immediately upon grant. The following table provides the compensation cost and income tax benefit for stock-based compensation related to stock awards:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Stock-based compensation within operations and maintenance expenses	$	570	$	165	$	780	$	357
Income tax benefit		160		47		219		103

The following table summarizes stock award transactions for the six months ended June 30, 2023:



	Number	Weighted
	of	Average
	Stock Awards	Fair Value
Nonvested stock awards at beginning of period	-	$	-
Granted	18,676		41.78
Vested	(18,676)		(41.78)
Nonvested stock awards at end of period	-		-

The weighted-average fair value at the date of grant for stock awards granted during the six months ended June 30, 2023 and 2022 was $41.78 and $46.66, respectively.