Stock-Based Compensation and Other Employee Benefit Plans

The stockholders of the Company approved the adoption of the Company’s 2010 Incentive Award Plan effective as of June 3, 2010, which plan has been amended from time to time (the “2010 Plan”). This plan permits the grant of incentive stock options, nonqualified stock options, dividend equivalent rights, stock payments, deferred stock, restricted stock awards, restricted stock units (“RSUs”), performance shares and other incentive awards, stock appreciation rights and cash awards to its employees, directors and consultants. As of December 31, 2018, there were 927,572 shares available for issuance under the 2010 Plan.

The Board of Directors adopted the Company’s 2012 Employment Inducement Incentive Award Plan on May 15, 2012, which plan has been amended from time to time (the “2012 Plan”). This plan allows for grants of stock to employees as employment inducement awards pursuant to New York Stock Exchange rules. The terms of the 2012 Plan are similar to the 2010 Plan. As of December 31, 2018, there were 148,434 shares available for issuance under the 2012 Plan.

The Company believes that stock-based compensation aligns the interests of its employees and directors with those of its stockholders. Stock-based compensation provides incentives to retain and motivate executive officers and key employees responsible for driving Company performance and maintaining important relationships that contribute to the growth of the Company.

Stock-based compensation expense was $31.5 million, $24.0 million and $27.0 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in SG&A expenses.

The Company recognized $2.7 million, $4.5 million and $2.7 million of excess tax benefits in 2018, 2017 and 2016. The 2018 and 2017 excess tax benefits are recorded in the consolidated statements of operations and comprehensive income. The 2016 excess tax benefits are presented in the consolidated statement of stockholders' equity, as this was the presentation prior to the adoption of ASU No. 2016-09 Compensation - Stock Compensation (Topic 718).

Restricted Stock Units

The fair value of each RSU is based on the fair market value of the awards on the grant date and the Company records compensation expense based on this value, net of a forfeiture rate. The forfeiture rate estimates the number of awards that will eventually vest and is based on historical vesting patterns for RSUs.

A summary of the status of the Company’s unvested RSUs as of December 31, 2018 and changes during the year then ended are presented below:



	Service Conditions		Performance and Service Conditions		Total		Weighted Average Grant-Date Fair Value Per Unit
Unvested RSUs outstanding at December 31, 2017	207,771		652,202		859,973			$	44.29
Granted	343,912		389,480		733,392			$	74.61
Vested	(110,500	)	(107,941	)	(218,441	)		$	43.71
Forfeited	(16,502	)	(40,475	)	(56,977	)		$	53.23
Unvested RSUs outstanding at December 31, 2018	424,681		893,266		1,317,947			$	60.87
Unvested and expected to vest RSUs outstanding at December 31, 2018	361,250		859,007		1,220,257			$	60.49

The total number of shares vested in the table above includes 63,412 shares surrendered by the employees to the Company for payment of employees' income taxes. The surrendered shares are available for issuance under the 2010 Plan.

The weighted-average grant-date fair value of RSUs granted during 2018, 2017 and 2016 was $74.61, $49.62 and $36.07 per award, respectively. The fair value of RSUs that vested during 2018, 2017 and 2016, was $16.4 million, $37.8 million and $21.7 million, respectively.

As of December 31, 2018, there was unrecognized compensation expense of $41.1 million related to unvested RSUs based on awards that are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of two years.

Liability Awards

The Company's liability awards have a performance component and vest in one year from the date of grant. The performance goals are approved by the Compensation Committee of the Company’s Board of Directors. The Company classifies these awards as a liability until the number of shares is determined in accordance with the grant. The number of shares is determined by dividing the final award liability balance by the Company’s closing stock price on the settlement date. This liability is included in other accrued expenses in the accompanying consolidated balance sheets.

The following table summarizes the balance of liability awards, expense and settlements (for vested awards) during the years presented (in thousands):



	2018			2017			2016
Liability awards beginning of year	$	—		$	465		$	—
Expense for grants	503			470			465
Settled	(6		)	(935		)	—
Liability awards end of year	$	497		$	—		$	465

There was no unrecognized compensation expense for liability awards as of December 31, 2018.

Stock Options

The Company has not granted any stock options since 2012. The fair value of stock option grants was estimated on the grant date using the Black-Scholes option pricing model. The Company records compensation expense based on this value. The following summarizes pricing and term information for options outstanding as of December 31, 2018:



					Options Outstanding					Options Exercisable
					Number Outstanding at	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price			Number Exercisable at	Weighted Average Exercise Price
Range of Exercise Prices					December 31, 2018	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price			December 31, 2018	Weighted Average Exercise Price
$	6.89	-	$	7.31	12,936	1.1		$	7.09	12,936		$	7.09
$	7.39	-	$	7.39	3,500	1.3		$	7.39	3,500		$	7.39
$	8.26	-	$	8.26	9,256	2.1		$	8.26	9,256		$	8.26
$	10.46	-	$	10.46	12,170	2.9		$	10.46	12,170		$	10.46
$	16.51	-	$	16.51	50,000	3.7		$	16.51	50,000		$	16.51
$	6.89	-	$	16.51	87,862	2.9		$	13.05	87,862		$	13.05

The following table is a summary of stock option activity during 2018:



	Non- Qualified Stock Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017	132,670		$	12.79		3.8	$	6,830,000
Exercised	(44,466	)	$	12.32
Canceled	(342	)	$	5.18
Outstanding at December 31, 2018	87,862		$	13.05		2.9	$	3,642,000
Vested and Expected to Vest at December 31, 2018	87,862		$	13.05		2.9	$	3,642,000
Exercisable at December 31, 2018	87,862		$	13.05		2.9	$	3,642,000

The total intrinsic value of options exercised during 2018, 2017 and 2016 was $3.2 million, $1.5 million and $4.7 million, respectively.

Employee Stock Purchase Plan

The stockholders of the Company approved the Company’s 2010 Employee Stock Purchase Plan on June 3, 2010, which plan has been amended from time to time (the “ESPP”). The ESPP allows eligible employees to purchase common stock of the Company, through payroll deductions, at a 15 percent discount of the lower of the market price on the first day or the last day of the semi-annual purchase periods. Participants are required to hold the shares for a 12-month period after the purchase date. The ESPP is intended to qualify as an employee stock purchase plan under the Internal Revenue Service (“IRS”) Code Section 423. Eligible employees may contribute up to a certain percentage set by the plan administrator of their eligible earnings toward the purchase of the stock (subject to certain IRS limitations). As of December 31, 2018, there were 1,925,448 shares available for issuance under the ESPP.

Shares of common stock are transferred to participating employees at the conclusion of each six-month offering period, which ends on the last business day of the month in March and September each year. Compensation expense is measured using a Black-Scholes valuation model. The table below presents the average Black-Scholes valuation per share of shares purchased and the compensation expense under the ESPP (dollars in thousands, except per share amounts):



Year Ended December 31,	Average Black-Scholes Valuation per Share	Shares	Expense
2018	$15.09	160,407	$	2,740
2017	$9.71	214,466	$	2,092
2016	$9.05	242,303	$	2,497

Deferred Compensation Plan

The Company’s Deferred Compensation Plan, which became effective on June 1, 2017 and has been amended from time to time (the "DCP"), allows for eligible management and highly compensated key employees to elect to defer a portion of their compensation to later years. These deferrals are immediately vested and are subject to investment risk and a risk of forfeiture under certain circumstances. Participants may choose from various investment options representing a broad range of asset classes. The Company’s deferred compensation plan liability was $6.2 million at December 31, 2018, and was included in other long-term liabilities. The Company established a rabbi trust to fund the deferred compensation plan (see Note 14 – Fair Value Measurements).

Employee Defined Contribution Plans

The Company maintains various 401(k) retirement savings plans for the benefit of our eligible U.S. employees. Under terms of these plans, eligible employees are able to make contributions to these plans on a tax-deferred basis. The Company makes matching contributions, some of which are discretionary. The Company made contributions to the 401(k) plans of $13.0 million, $7.5 million and $5.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. The increase in matching contributions to the 401(k) plans in 2018 was primarily due to the ECS acquisition.