Stock-Based Compensation

9 Months Ended

Sep. 30, 2017

Note 2 – Stock-Based Compensation

The Company’s 2010 Omnibus Incentive Compensation Plan (the 2010 Plan) authorizes the Company, upon approval of the Compensation Committee of the Board of Directors, to grant a variety of awards, including stock options, restricted shares and restricted stock units (both time-based and performance-based) and other forms of equity awards, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options (which have not been awarded since 2015) are granted to employees with an exercise price equal to the market price of the Company’s common shares on the date of grant, generally vest over a four-year period from the date of grant and have a term of ten years. Time-based restricted stock units granted to employees generally vest over a four-year period from the date of grant, subject to the continued employment of the employee by the Company. Performance-based restricted stock unit awards generally vest over a three-year performance cycle, which includes the year of the grant, and are based upon the Company’s achievement of specified performance metrics. Awards under the 2010 Plan to non-employee directors have been in the form of restricted stock units, which vest in equal quarterly installments over a one-year period, starting on the grant date.

As of September 30, 2017, 3.1 million additional common shares were available for issuance under the Company’s 2010 Plan.

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. The total compensation cost recognized for stock-based awards was $2.3 million and $6.8 million for the three and nine months ended September 30, 2017, respectively, and $0.3 million and $4.3 million for the three and nine months ended September 30, 2016, respectively. The total income tax benefit recognized in the condensed income statements for stock-based awards was $0.8 million and $2.5 million for the three and nine months ended September 30, 2017, respectively, and $0.1 million and $1.5 million for the three and nine months ended September 30, 2016, respectively. Awards of restricted shares, restricted stock units, and performance-based restricted stock units are valued at the closing market price of the Company’s common shares on the date of grant. For performance-based restricted stock units, compensation expense is based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on the Company’s expectation of performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a change in accounting estimate.

As of September 30, 2017, the unrecognized compensation cost and remaining weighted-average amortization related to stock-based awards were as follows:

					Performance-
					based
			Restricted		Restricted
		Stock	Stock		Stock
(in thousands)		Options	Units		Units⁽¹⁾
Unrecognized compensation cost		$ 938		$ 13,111		$ 5,328
Remaining weighted-average
amortization period	0.9 years			2.4 years		1.8 years

⁽¹⁾ Based on the probable achievement of the performance goals identified in each award.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. No options were granted during the nine months ended September 30, 2017 and 2016.

The total cash received by the Company as a result of stock option exercises for the nine months ended September 30, 2017 and 2016 was approximately $9.8 million and $5.5 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the nine months ended September 30, 2017 and 2016 was $4.4 million and $2.6 million, respectively. For the nine months ended September 30, 2017 and 2016, the total intrinsic value of stock options exercised was $6.5 million and $2.2 million, respectively.

The Company awarded performance-based restricted stock units to employees during the nine months ended September 30, 2017 and 2016. The number of performance-based restricted stock units that may ultimately be earned will not be determined until the end of the corresponding performance periods, and may vary from as low as zero to as high as 2.5 times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the audited financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue growth, operating margin expansion, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for issuance under the 2010 Plan.

The following table summarizes activities relating to the Company’s stock options:

			Weighted-
		Weighted-	Average
		Average	Remaining	Aggregate
	Number of	Exercise	Contractual	Intrinsic
(in thousands, except per share data)	Options	Price	Term (Years)	Value
Outstanding as of December 31, 2016	1,197	$19.51
Exercised	(502)	19.56
Forfeited or expired	(14)	20.51
Outstanding as of September 30, 2017	681	$19.45	5.31	$ 10,015
Exercisable as of September 30, 2017	527	$18.39	3.54	$ 8,304

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company’s closing stock price as of the last business day of the period ended September 30, 2017 for options that had exercise prices that were below the closing price.

The following table summarizes the activities related to the Company’s time-based restricted stock units:

		Weighted-
		Average
	Number of	Grant Date
(in thousands, except per share data)	Units	Fair Value
Non-vested awards outstanding as of December 31, 2016	525	$22.57
Granted	302	31.64
Vested	(185)	21.43
Forfeited	(34)	23.96
Non-vested awards outstanding as of September 30, 2017	608	$27.34

The following table summarizes the activities related to the Company’s performance-based restricted stock units:

		Weighted-
		Average
	Number of	Grant Date
(in thousands, except per share data)	Units	Fair Value
Non-vested units outstanding as of December 31, 2016	227	$21.43
Granted ⁽¹⁾	172	31.60
Forfeited or expired	(51)	18.69
Non-vested units outstanding as of September 30, 2017	348	$26.84

⁽¹⁾Represents target number of units that can vest based on the achievement of the performance goals.