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Note 12 - Equity Compensation Plans

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

12. Equity Compensation Plans:

All of our outstanding stock options, restricted stock awards, deferred stock units, and PSUs are covered under our 2021 Incentive Plan, our 2013 Incentive Plan, or our 2009 Incentive Plan. Awards under our 2021 Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards, and (vii) cash. Employees, non-employee directors, and consultants are eligible for awards under our 2021 Incentive Plan. We transferred common stock under these plans from our treasury shares. As of September 30, 2022, there were 13,897,497 shares of common stock reserved and available for future issuance under our 2021 Incentive Plan. Cash received from stock option exercises for the nine months ended September 30, 2022 and 2021 was $111.6 million and $44.9 million, respectively.

We grant equity awards to our key employees. The nonqualified stock options have an exercise price equal to the adjusted closing price of our common stock on the grant date, with a ten-year contractual term. The fair value of the restricted stock is determined using the closing price of our common stock on the grant date. The restricted stock is not assignable or transferable until it becomes vested. PSUs vest at the end of a three-year performance period, subject to the recipient’s continued service. Each PSU represents the right to receive one share of our common stock and the ultimate realization is based on our achievement of certain market performance criteria and may range from 0% to 200% of the recipient’s target levels of 100% established on the grant date. The fair value of PSUs is determined on the grant date using the Monte Carlo Simulation model. We recognize the expense of the equity awards ratably over the vesting period, which could be up to four years.

In January 2022, we granted 608,895 nonqualified stock options, 130,555 shares of restricted stock, and 74,887 PSUs to key employees. The nonqualified stock options and restricted stock have a graded service vesting period of four years. The PSUs granted consisted of 49,533 PSUs that are based on the achievement of relative total shareholder return as compared to the companies that comprise the S&P 500 index ("TSR-based PSUs") and 25,354 PSUs that are tied to the achievement of certain financial performance conditions, namely incremental return on invested capital (“ROIC-based PSUs”). Each of the TSR-based PSUs and ROIC-based PSUs have a three-year performance period, subject to the recipients' continued service. The grant date fair value of the ROIC-based PSUs is determined using the closing price of our common stock on the grant date. The related performance condition is driven by the incremental return on invested capital based on net operating profit. The ultimate realization of the PSUs may range from 0% to 200% of the recipient’s target levels established on the grant date.

A summary of the status of the stock options, restricted stock, and PSUs awarded under our 2021, 2013, and 2009 Incentive Plans as of December 31, 2021 and September 30, 2022 and changes during the interim period are presented below:

		*Stock Option*												*Restricted Stock*								*PSU*
		*Number of Shares*				*Weighted Average Exercise Price*				*Aggregate Intrinsic Value*				*Number of Shares*				*Weighted Average Grant Date Fair Value Per Share*				*Number of Shares*					*Weighted Average Grant Date Fair Value Per Share*
										(in millions)
Outstanding at December 31, 2021			5,067,098			$	115.73			$	572.6				351,504			$	161.33				163,123				$	192.99
Granted			653,175			$	196.67								181,380			$	195.93				111,333				$	168.63
Dividend reinvestment			—			$	—								—			$	—				1,021					N/A
Exercised or lapsed			(1,206,156	)		$	92.22			$	110.0				(197,238	)		$	156.30				(54,927	)			$	174.42
Canceled, expired or forfeited			(224,492	)		$	182.28								(33,177	)		$	181.99				(21,406	)			$	202.55
Outstanding at September 30, 2022			4,289,625			$	131.15			$	168.9				302,469			$	182.89				199,144				$	195.31
Exercisable at September 30, 2022			2,919,198			$	108.37			$	181.4
Exercisable at December 31, 2021			3,173,592			$	89.14			$	443.0
Nonvested at September 30, 2022			1,370,427												302,469								199,144
Expected to vest at September 30, 2022			1,181,072												263,954								153,219		(1)

⁽¹⁾	Includes estimated performance achievement

The fair value of the stock options granted was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table for the nine months ended September 30, 2022 and 2021:

		*2022*				*2021*
Option pricing model		Black-Scholes				Black-Scholes
Expected volatility			25.33	%			23.66	%
Risk-free interest rate			1.55	%			0.39	%
Expected term in years			4.2				4.3
Dividend yield			0.60	%			0.63	%
Weighted average grant date fair value per stock option		$	42.25			$	35.14

The expected term for the stock options granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain awards granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor is calculated using historical daily closing prices over the most recent period that is commensurate with the expected term of the stock option awards. The expected dividend yield was based on our expected annual dividend rate on the date of grant.

Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the adjusted closing price of our common stock as of the reporting date. Excess tax benefits from exercised stock options were recorded as income tax benefit in our condensed consolidated statements of operations. This tax benefit is calculated as the excess of the intrinsic value of options exercised and restricted stock lapsed in excess of compensation recognized for financial reporting purposes. The weighted average remaining contractual terms were 6.10 years and 5.10 years for the outstanding and exercisable stock options, respectively, as of September 30, 2022.

For the nine months ended September 30, 2022, there was $106.7 million of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested stock-based compensation arrangements granted under our 2021 and 2013 Incentive Plans. That cost is expected to be recognized over a weighted average period of 2.32 years.

Our U.K. Sharesave Plan offers qualifying employees in the United Kingdom the opportunity to own shares of our common stock. Employees who elect to participate are granted stock options, of which the exercise price is equal to the average of the closing price on the five trading days immediately preceding the plan invitation date discounted by 5%, and enter into a savings contract, the proceeds of which are then used to exercise the options upon the three-year maturity of the savings contract. During the nine months ended September 30, 2022 and 2021, we granted 9,370 and 11,254 stock options, respectively, under our U.K. Sharesave Plan. As of September 30, 2022, there were 454,145 shares of common stock reserved and available for future issuance under our U.K. Sharesave Plan.

Our ESPP offers eligible employees the opportunity to purchase shares of our common stock at a discount of its fair market value at the time of purchase. During the nine months ended September 30, 2022 and 2021, we issued 23,643 and 27,621 shares of common stock at a weighted discounted price of $176.68 and $173.61 for the ESPP, respectively. As of September 30, 2022, there were 1,202,649 shares of common stock reserved and available for future issuance under our ESPP.