Share-Based Compensation

Our stockholders most recently approved the NiSource Inc. 2010 Omnibus Incentive Plan (“Omnibus Plan”) at the Annual Meeting of Stockholders held on May 12, 2015. The Omnibus Plan provides for awards to employees and non-employee directors of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards and supersedes the long-term incentive plan approved by stockholders on April 13, 1994 (“1994 Plan”) and the Director Stock Incentive Plan (“Director Plan”). The Omnibus Plan provides that the number of shares of common stock of NiSource available for awards is 8,000,000 plus the number of shares subject to outstanding awards that expire or terminate for any reason that were granted under either the 1994 Plan or the Director Plan, plus the number of shares that were awarded as a result of the Separation-related adjustments (discussed below). At December 31, 2018, there were 3,793,557 shares reserved for future awards under the Omnibus Plan.

We recognized stock-based employee compensation expense of $15.2 million, $15.3 million and $15.1 million, during 2018, 2017 and 2016, respectively, as well as related tax benefits of $3.7 million, $5.9 million and $5.8 million, respectively. Additionally, we adopted ASU 2016-09 in the third quarter of 2016. We recognized related excess tax benefits from the distribution of vested share-based employee compensation of $1.0 million, $4.4 million and $7.2 million in 2018, 2017 and 2016, respectively.

As of December 31, 2018, the total remaining unrecognized compensation cost related to non-vested awards amounted to $16.6 million, which will be amortized over the weighted-average remaining requisite service period of 1.7 years.

Restricted Stock Units and Restricted Stock. In 2018, we granted 158,689 restricted stock units and shares of restricted stock to employees, subject to service conditions. The total grant date fair value of the restricted stock units and shares of restricted stock was $3.5 million, based on the average market price of our common stock at the date of each grant less the present value of any dividends not received during the vesting period, which will be expensed over the vesting period which is generally three years. As of December 31, 2018, 154,799 non-vested restricted stock units and shares of restricted stock granted in 2018 were outstanding as of December 31, 2018.

Restricted stock units and shares of restricted stock granted to employees in 2017 and 2016 were immaterial.

If an employee terminates employment before the service conditions lapse under the 2016, 2017 or 2018 awards due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the service conditions will lapse on the date of such termination with respect to a pro rata portion of the restricted stock units and shares of restricted stock based upon the percentage of the service period satisfied between the grant date and the date of the termination of employment. In the event of a change in control (as defined in the award agreement), all unvested shares of restricted stock and restricted stock units awarded will immediately vest upon termination of employment occurring in connection with a change in control. Termination due to any other reason will result in all unvested shares of restricted stock and restricted stock units awarded being forfeited effective on the employee’s date of termination.



(shares)	Restricted Stock Units		Weighted Average Award Date Fair Value Per Unit ($)
Non-vested at December 31, 2017	698,126		15.09
Granted	158,689		21.94
Forfeited	(6,890	)	21.42
Vested	(671,247	)	14.91
Non-vested at December 31, 2018	178,678		21.82

Performance Shares. In 2018, we awarded 514,338 performance shares subject to service, performance and market conditions. The service conditions for these awards lapse on February 26, 2021. The performance period for the awards is the period beginning January 1, 2018 and ending December 31, 2020. The performance conditions are based on the achievement of one non-GAAP financial measure and additional operational measures as outlined below.

The financial measure is cumulative net operating earnings per share ("NOEPS"), which we define as income from continuing operations adjusted for certain unusual or non-recurring items. The number of cumulative NOEPS shares determined using this measure shall be increased or decreased based on our relative total shareholder return, a market condition which we define as the annualized growth in dividends and share price of a share of our common stock (calculated using a 20 trading day average of our closing price beginning on December 31, 2017 and ending on December 31, 2020) compared to the total shareholder return of a predetermined peer group of companies. A relative shareholder return result within the first quartile will result in an increase to the NOEPS shares of 25% while a relative shareholder return result within the fourth quartile will result in a decrease of 25%. A Monte Carlo analysis was used to value the portion of these awards dependent on market conditions. The grant date fair value of the awards was $9.2 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed over the three year requisite service period. As of December 31, 2018, 405,255 of these non-vested performance shares granted in 2018 remained outstanding.

If a threshold level of cumulative NOEPS financial performance is achieved, additional operational measures which we refer to as the customer value index, which consists of five equally weighted areas of focus including safety, customer satisfaction, financial, culture and environmental apply. Each area of focus represents 20% of the customer value index shares and the targets for all areas must be met for these awards to be eligible for 100% payout of these awards. Individual payout percentages for these shares may range from 0%-200% as determined by the compensation committee in its sole discretion. Due to this discretion, these shares are not considered to be granted under ASC 718. The service inception date fair value of the awards was $2.4 million, based on the closing market price of our common stock on the service inception date of each award. This value will be reassessed at each reporting period to be based on our closing market price of our common stock at the reporting period date with adjustments to expense recorded as appropriate. As of December 31, 2018, 93,522 of these awards that were issued in 2018 remained outstanding. The service conditions for these awards lapse on February 28, 2021.

In 2017, we granted 660,750 performance shares subject to service, performance and market conditions. The grant date fair value of the awards was $12.9 million, based on the average market price of our common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed over the three year requisite service period. The performance conditions are based on achievement of non-GAAP financial measures similar to those discussed above: cumulative net operating earnings per share for the three-year period ending December 31, 2019 and relative total shareholder return (calculated using a 20 trading day average of our closing price beginning on December 31, 2016 and ending on December 31, 2019). As of December 31, 2018, 579,292 non-vested performance shares granted in 2017 remained outstanding. The service conditions for these awards lapse on February 28, 2020.

In 2016, we granted 647,305 performance shares subject to service, performance and market conditions. The grant date fair value of the awards was $12.6 million, based on the average market price of our common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed over the three year requisite service period. Similar to the above grants, performance conditions for these awards are based on achievement of certain non-GAAP financial measures: cumulative net operating earnings per share for the three-year period ending December 31, 2018 and relative total shareholder return (calculated using a 20 trading day average of our closing price beginning on December 31, 2015 and ending on December 31, 2018). As of December 31, 2018, 556,649 non-vested performance shares granted in 2016 remained outstanding. The service conditions for these awards lapse on February 28, 2019.



(shares)	Performance Awards		Weighted Average Grant Date Fair Value Per Unit ($)⁽¹⁾
Non-vested at December 31, 2017	1,184,773		19.52
Granted	514,338		22.51
Forfeited	(64,393	)	26.79
Vested	—		—
Non-vested at December 31, 2018	1,634,718		20.45

⁽¹⁾2018 performance shares awarded based on the customer value index are included at reporting date fair value as these awards have not been granted under ASC 718 as discussed above.

Non-employee Director Awards. As of May 11, 2010, awards to non-employee directors may be made only under the Omnibus Plan. Currently, restricted stock units are granted annually to non-employee directors, subject to a non-employee director’s election to defer receipt of such restricted stock unit award. The non-employee director’s annual award of restricted stock units vest on the first anniversary of the grant date subject to special pro-rata vesting rules in the event of retirement or disability (as defined in the award agreement), or death. The vested restricted stock units are payable as soon as practicable following vesting except as otherwise provided pursuant to the non-employee director’s election to defer. Certain restricted stock units remain outstanding from the Director Plan. All such awards are fully vested and shall be distributed to the directors upon their separation from the Board.

As of December 31, 2018, 142,414 restricted stock units are outstanding to non-employee directors under either the Omnibus Plan or the Director Plan. Of this amount, 53,422 restricted stock units are unvested and expected to vest.

401(k) Match, Profit Sharing and Company Contribution. We have a voluntary 401(k) savings plan covering eligible employees that allows for periodic discretionary matches as a percentage of each participant’s contributions payable in cash for nonunion employees and generally payable in shares of NiSource common stock for union employees, subject to collective bargaining. We also have a retirement savings plan that provides for discretionary profit sharing contributions similarly payable in cash or shares of NiSource common stock to eligible employees based on earnings results; and eligible employees hired after January 1, 2010 receive a non-elective company contribution of 3% of eligible pay similarly payable in cash or shares of NiSource common stock. For the years ended December 31, 2018, 2017 and 2016, we recognized 401(k) match, profit sharing and non-elective contribution expense of $37.6 million, $37.6 million and $32.3 million, respectively.