Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.24.0.1
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2023
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation
NOTE 14 — STOCK-BASED COMPENSATION
At its Annual Meeting held on June 3, 2020, the Company’s shareholders approved the Company’s 2020 Stock Incentive Plan (the “2020 Plan”), and the 2020 Plan became effective on that date following such approval. The 2020 Plan replaced the Company’s 1997 Stock Incentive Plan (the "Prior Plan”) and no new awards will be granted under the Prior Plan. The terms and conditions of the awards granted under the Prior Plan will remain in effect with respect to awards granted under the Prior Plan. The Company has reserved 3.0 million shares of common stock for issuance under the 2020 Plan, plus up to an aggregate of 1.5 million shares of the Company's common stock that were previously authorized and available for issuance under the Prior Plan. As of December 31, 2023, 2,552,993 shares were available for future grants under the 2020 Plan.
The Company's Stock Incentive 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

Stock-based compensation expense consisted of the following:
Year Ended December 31,
(in thousands) 2023 2022 2021
Cost of sales $ 311  $ 312  $ 313 
SG&A expenses 22,740  20,709  18,813 
Pre-tax stock-based compensation expense 23,051  21,021  19,126 
Income tax benefits (5,365) (4,867) (4,465)
Total stock-based compensation expense, net of tax $ 17,686  $ 16,154  $ 14,661 
The Company realized a tax benefit for the deduction from stock-based award transactions of $3.9 million, $3.6 million and $8.3 million for the years ended December 31, 2023, 2022 and 2021, 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 fair value of stock options is determined using the Black-Scholes model. Key inputs and assumptions used in the model 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 United States Treasury yield approximating the expected term. The dividend yield is based on the expected cash dividend payouts.

The weighted average assumptions for stock options granted and resulting fair value is as follows:

Year Ended December 31,
2023 2022 2021
Expected option term 4.39 years 4.36 years 4.35 years
Expected stock price volatility 27.37% 25.38% 24.88%
Risk-free interest rate 4.03% 1.72% 0.54%
Expected annual dividend yield 1.36% 1.26% 1.09%
Weighted average grant date fair value per stock option granted $22.61 $18.33 $17.95

The following table summarizes stock option activity under the Plan:

Number of
Options		  Weighted
 Average
Exercise
Price		 Weighted Average Remaining Contractual Life
Aggregate Intrinsic Value (1)
(in thousands)
Options outstanding as of December 31, 2020
 1,919,163  $ 74.45  7.19 $ 29,489 
Granted 687,772  95.90 
Forfeited or expired (213,444) 89.96 
Exercised (459,957) 62.58 
Options outstanding as of December 31, 2021
 1,933,534  83.19  7.26 29,889 
Granted 561,295  89.25 
Forfeited or expired (223,813) 91.09 
Exercised (116,109) 56.75 
Options outstanding as of December 31, 2022
 2,154,907  85.37  7.02 13,929 
Granted 500,219  88.39 
Forfeited or expired (246,104) 90.60 
Exercised (129,008) 57.00 
Options outstanding as of December 31, 2023
 2,280,014  $ 87.08  6.72 $ 10,051 
Options vested and expected to vest as of December 31, 2023
 2,208,014  $ 87.01  6.66 $ 9,979 
Options exercisable as of December 31, 2023
 1,250,833  $ 84.88  5.48 $ 9,038 
(1) The aggregate intrinsic value 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.

Stock option compensation expense was $8.2 million, $7.8 million and $6.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, unrecognized costs related to outstanding stock options totaled $13.0 million, 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. These unrecognized costs related to stock options are being amortized over a weighted average period of 2.26 years. The aggregate intrinsic value of stock options exercised was $3.0 million, $3.4 million and $19.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. The total cash received as a result of stock option exercises was $7.4 million, $6.6 million and $28.8 million for the years ended December 31, 2023, 2022 and 2021, 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 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.

The fair value of service-based and performance-based restricted stock units that are not eligible for dividends are valued at the closing price of the Company’s common stock on the date of grant, reduced by the present value of dividends not received during the vesting period. Other assumptions incorporated into the grant date fair value include the vesting period and the Company's expected annual dividend yield.

The weighted average assumptions for restricted stock units granted and resulting fair value are as follows:

Year Ended December 31,
2023 2022 2021
Vesting period 3.74 years 3.71 years 3.77 years
Expected annual dividend yield 1.38% 1.31% 1.04%
Weighted average grant date fair value per restricted stock unit granted $82.49 $85.27 $96.07