Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.6.0.2
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
STOCK-BASED COMPENSATION
The Company's stock incentive plan (the "Plan") provides for issuance of up to 20,800,000 shares of the Company's common stock, of which 3,089,699 shares were available for future grants under the Plan at December 31, 2016. 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 (in thousands):
 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Cost of sales
 
$
233

 
$
326

 
$
399

SG&A expense
 
10,753

 
11,346

 
10,721

Pre-tax stock-based compensation expense
 
10,986

 
11,672

 
11,120

Income tax benefits
 
(3,969
)
 
(4,044
)
 
(3,874
)
Total stock-based compensation expense, net of tax
 
$
7,017

 
$
7,628

 
$
7,246


The Company realized a tax benefit for the deduction from stock-based award transactions of $9,576,000, $11,872,000 and $8,835,000 for the years ended December 31, 2016, 2015 and 2014, 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, expected 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 the years ended December 31:
 
 
2016
 
2015
 
2014
Expected term
 
4.63 years
 
4.60 years
 
4.69 years
Expected stock price volatility
 
29.79%
 
26.57%
 
27.62%
Risk-free interest rate
 
1.17%
 
1.20%
 
1.22%
Expected dividend yield
 
1.20%
 
1.26%
 
1.34%
Weighted average grant date fair value
 
$13.38
 
$10.36
 
$8.69

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, 2014
 
3,148,264

 
$
25.02

 
6.36
 
$
45,187

Granted
 
512,761

 
39.69

 
 
 
 
Cancelled
 
(102,598
)
 
28.39

 
 
 
 
Exercised
 
(917,642
)
 
24.28

 
 
 
 
Options outstanding at December 31, 2014
 
2,640,785

 
28.00

 
6.50
 
43,682

Granted
 
500,761

 
48.46

 
 
 
 
Cancelled
 
(172,018
)
 
34.59

 
 
 
 
Exercised
 
(680,658
)
 
25.63

 
 
 
 
Options outstanding at December 31, 2015
 
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

Options vested and expected to vest at December 31, 2016
 
2,086,456

 
$
36.95

 
6.32
 
$
44,798

Options exercisable at December 31, 2016
 
1,168,794

 
$
28.63

 
4.90
 
$
34,691


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, 2016, 2015 and 2014 was $3,896,000, $3,637,000 and $3,587,000, respectively. At December 31, 2016, unrecognized costs related to stock options totaled approximately $6,678,000, 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, 2016 are expected to be recognized over a weighted average period of 2.11 years. The aggregate intrinsic value of stock options exercised was $12,976,000, $20,400,000 and $16,345,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The total cash received as a result of stock option exercises for the years ended December 31, 2016, 2015 and 2014 was $13,167,000, $17,442,000 and $22,277,000, 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 prior to 2010 generally vest over a performance period of between two and one-half and three years with an additional required service period of one year. 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, 2016, 2015 and 2014, the Company withheld 88,335, 90,355 and 78,265 shares, respectively, to satisfy $5,127,000, $4,895,000 and $3,141,000 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. The relevant inputs and assumptions used in the Black-Scholes model to compute the discount are 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 the years ended December 31:
 
 
2016
 
2015
 
2014
Vesting period
 
3.57 years
 
3.82 years
 
3.83 years
Expected dividend yield
 
1.08%
 
1.14%
 
1.33%
Estimated average fair value per restricted stock unit granted
 
$55.93
 
$51.07
 
$38.98

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, 2014
 
674,494

 
$
25.67

Granted
 
272,642

 
38.98

Vested
 
(220,348
)
 
25.21

Forfeited
 
(68,028
)
 
28.51

Restricted stock units outstanding at December 31, 2014
 
658,760

 
31.03

Granted
 
207,040

 
51.07

Vested
 
(243,765
)
 
28.09

Forfeited
 
(68,746
)
 
34.57

Restricted stock units outstanding at December 31, 2015
 
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


Restricted stock unit compensation expense for the years ended December 31, 2016, 2015 and 2014 was $7,090,000, $8,035,000 and $7,533,000, respectively. At December 31, 2016, unrecognized costs related to restricted stock units totaled approximately $12,430,000, 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, 2016 are expected to be recognized over a weighted average period of 1.94 years. The total grant date fair value of restricted stock units vested during the years ended December 31, 2016, 2015 and 2014 was $7,988,000, $6,848,000 and $5,554,000, respectively.