Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.10.0.1
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
pany's stock incentive plan (the "Plan") provides for issuance of up to 20,800,000 shares of the Company's common stock, of which 2,292,360 shares were available for future grants under the Plan at December 31, 2018. The Plan allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, and other stock-based or cash-based awards. The Company uses original issuance shares to satisfy share-based payments.
Stock-based compensation expense consisted of the following:
 
 
Year Ended December 31,
(in thousands)
 
2018
 
2017
 
2016
Cost of sales
 
$
250

 
$
243

 
$
233

SG&A expense
 
14,041

 
11,043

 
10,753

Pre-tax stock-based compensation expense
 
14,291

 
11,286

 
10,986

Income tax benefits
 
(3,218
)
 
(1,778
)
 
(3,969
)
Total stock-based compensation expense, net of tax
 
$
11,073

 
$
9,508

 
$
7,017


The Company realized a tax benefit for the deduction from stock-based award transactions of approximately $7,900,000, $10,463,000 and $9,576,000 for the years ended December 31, 2018, 2017 and 2016, respectively.
Stock Options
Options to purchase the Company's common stock are granted at exercise prices equal to or greater than the fair market value of the Company's common stock on the date of grant. Options generally vest and become exercisable ratably on an annual basis over a period of four years and expire ten years from the date of the grant.
The Company estimates the fair value of stock options using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected stock price volatility of the Company's stock over the option's expected term, the risk-free interest rate over the option's expected term, and the Company's expected annual dividend yield. The option's expected term is derived from historical option exercise behavior and the option's terms and conditions, which the Company believes provide a reasonable basis for estimating an expected term. The expected volatility is estimated based on observations of the Company's historical volatility over the most recent term commensurate with the expected term. The risk-free interest rate is based on the U.S. Treasury yield approximating the expected term. The dividend yield is based on the expected cash dividend payouts. Assumptions are evaluated and revised as necessary to reflect changes in market conditions and the Company's experience. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by people who receive equity awards.
The following table presents the weighted average assumptions for stock options granted in the years ended December 31:
 
 
2018
 
2017
 
2016
Expected option term
 
4.50 years
 
4.54 years
 
4.63 years
Expected stock price volatility
 
28.39%
 
28.91%
 
29.79%
Risk-free interest rate
 
2.47%
 
1.73%
 
1.17%
Expected annual dividend yield
 
1.15%
 
1.29%
 
1.20%
Weighted average grant date fair value
 
$18.86
 
$13.11
 
$13.38

The following table summarizes stock option activity under the Plan:
 
 
Number of
Shares
 
 Weighted
Average
Exercise
Price
 
Weighted Average Remaining Contractual Life
 
Aggregate Intrinsic Value (in thousands)
Options outstanding at January 1, 2016
 
2,288,870

 
$
32.69

 
6.50
 
$
38,209

Granted
 
430,544

 
56.63

 
 
 
 
Cancelled
 
(117,699
)
 
47.33

 
 
 
 
Exercised
 
(450,173
)
 
29.25

 
 
 
 
Options outstanding at December 31, 2016
 
2,151,542

 
37.40

 
6.39
 
45,253

Granted
 
540,537

 
55.90

 
 
 
 
Cancelled
 
(246,450
)
 
50.62

 
 
 
 
Exercised
 
(675,742
)
 
29.52

 
 
 
 
Options outstanding at December 31, 2017
 
1,769,887

 
44.22

 
6.69
 
48,962

Granted
 
402,010

 
76.48

 
 
 
 
Cancelled
 
(67,440
)
 
60.75

 
 
 
 
Exercised
 
(499,836
)
 
36.98

 
 
 
 
Options outstanding at December 31, 2018
 
1,604,621

 
$
53.86

 
6.95
 
$
48,703

Options vested and expected to vest at December 31, 2018
 
1,542,039

 
$
53.31

 
6.88
 
$
47,647

Options exercisable at December 31, 2018
 
703,049

 
$
40.39

 
5.16
 
$
30,727


The aggregate intrinsic value in the table above represents pre-tax intrinsic value that would have been realized if all options had been exercised on the last business day of the period indicated, based on the Company's closing stock price on that day.
Total stock option compensation expense for the years ended December 31, 2018, 2017 and 2016 was $4,938,000, $3,843,000 and $3,896,000, respectively. At December 31, 2018, unrecognized costs related to outstanding stock options totaled approximately $8,701,000, before any related tax benefit. The unrecognized costs related to stock options are being amortized over the related vesting period using the straight-line attribution method. Unrecognized costs related to stock options at December 31, 2018 are expected to be recognized over a weighted average period of 2.22 years. The aggregate intrinsic value of stock options exercised was $22,388,000, $19,836,000 and $12,976,000 for the years ended December 31, 2018, 2017 and 2016, respectively. The total cash received as a result of stock option exercises for the years ended December 31, 2018, 2017 and 2016 was $18,484,000, $19,946,000 and $13,167,000, respectively.
Restricted Stock Units
Service-based restricted stock units are granted at no cost to key employees and generally vest over a period of four years. Performance-based restricted stock units are granted at no cost to certain members of the Company's senior executive team, excluding the Chairman of the Board of Directors and the Chief Executive Officer. Performance-based restricted stock units granted after 2009 generally vest over a performance period of between two and three years. Restricted stock units vest in accordance with the terms and conditions established by the Compensation Committee of the Board of Directors, and are based on continued service and, in some instances, on individual performance or Company performance or both. For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that the Company pays in cash to the appropriate taxing authorities on behalf of its employees. For the years ended December 31, 2018, 2017 and 2016, the Company withheld 55,907, 65,437 and 88,335 shares, respectively, to satisfy approximately $4,285,000, $3,662,000 and $5,127,000 of employees' tax obligations, respectively.
The fair value of service-based and performance-based restricted stock units is discounted by the present value of the estimated future stream of dividends over the vesting period using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of restricted stock units include the vesting period, expected annual dividend yield and closing price of the Company's common stock on the date of grant.
The following table presents the weighted average assumptions for restricted stock units granted in the years ended December 31:
 
 
2018
 
2017
 
2016
Vesting period
 
3.77 years
 
3.87 years
 
3.57 years
Expected annual dividend yield
 
1.15%
 
1.30%
 
1.08%
Estimated average grant date fair value per restricted stock unit granted
 
$73.74
 
$52.45
 
$55.93

The following table summarizes the restricted stock unit activity under the Plan:
 
 
Number of  
Shares
 
Weighted Average  
Grant Date Fair Value Per Share 
Restricted stock units outstanding at January 1, 2016
 
553,289

 
$
38.85

Granted
 
205,734

 
55.93

Vested
 
(235,059
)
 
33.98

Forfeited
 
(57,489
)
 
46.35

Restricted stock units outstanding at December 31, 2016
 
466,475

 
47.23

Granted
 
270,169

 
52.45

Vested
 
(176,654
)
 
42.32

Forfeited
 
(110,515
)
 
48.13

Restricted stock units outstanding at December 31, 2017
 
449,475

 
52.07

Granted
 
197,299

 
73.74

Vested
 
(155,847
)
 
50.97

Forfeited
 
(66,926
)
 
53.19

Restricted stock units outstanding at December 31, 2018
 
424,001

 
$
62.38


Restricted stock unit compensation expense for the years ended December 31, 2018, 2017 and 2016 was approximately $9,353,000, $7,443,000 and $7,090,000, respectively. At December 31, 2018, unrecognized costs related to restricted stock units totaled approximately $16,892,000, before any related tax benefit. The unrecognized costs related to restricted stock units are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs at December 31, 2018 are expected to be recognized over a weighted average period of 2.19 years. The total grant date fair value of restricted stock units vested during the years ended December 31, 2018, 2017 and 2016 was approximately $7,944,000, $7,477,000 and $7,988,000, respectively.