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STOCK-BASED COMPENSATION | 3 Months Ended
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Mar. 31, 2019
STOCK-BASED COMPENSATION |
STOCK-BASED COMPENSATION | NOTE 14 – STOCK-BASED COMPENSATION Historically we have issued stock options and restricted stock units (“RSUs”), which consisted of time-based and performance-based awards, to employees under stock awards plans approved by stockholders. Beginning in 2019, we no longer issue stock options to employees. In addition, RSUs are issued to non-employee directors under a Restricted Stock Unit Award Agreement for Directors pursuant to the 2018 Equity Incentive Plan. Previously, non-employee directors were issued stock options under a Director Stock Option Plan. Stock options were awarded with the exercise price equal to the market price on the date of grant and generally vest over three years and expire 10 years after grant. RSUs granted to employees vest according to a specified performance period and/or vesting period. Time-based RSUs generally vest over three years. Performance-based RSUs vest at the end of the specified performance period, generally three years, assuming required performance or market vesting conditions are met. Performance-based RSUs have one of two vesting conditions: (1) based on our internal financial performance metrics and (2) based on our total shareholder return (“TSR”) relative to total shareholder returns of an industrial peer group. At the time of vesting, the vested shares of common stock are issued in the employee’s name. In addition, RSU awards are generally net settled (shares are withheld to cover the employee tax obligation). Director RSUs are only time-based and generally vest over one year. Compensation expense attributable to employee stock options for the first three months of 2019 was approximately $1.8 million ($1.5 million after tax). The income tax benefit related to this compensation expense was approximately $0.3 million. Approximately $1.6 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense attributable to stock options for the first three months of 2018 was approximately $4.9 million ($3.5 million after tax). The income tax benefit related to this compensation expense was approximately $1.4 million. Approximately $4.0 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. The reduction in stock option expense is due to our move to RSUs as discussed above. For stock option grants, we used historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the Stock Awards Plans was $14.82 per share during the first three months of 2018. This value was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Stock Awards Plans: |  |  |
Three Months Ended March 31, |  | 2018 |
Dividend Yield |  | 1.5 | %
Expected Stock Price Volatility |  | 14.2 | %
Risk-free Interest Rate |  | 2.8 | %
Expected Life of Option (years) |  | 6.6 |
A summary of option activity under our stock plans during the three months ended March 31, 2019 is presented below:
|  | Stock Awards Plans |  | Director Stock Option Plans |
|  |  |  |  | Weighted Average |  |  |  | Weighted Average |
|  |  | Options |  | Exercise Price |  | Options |  | Exercise Price |
Outstanding, January 1, 2019 |  |  | 6,761,055 |  | $ | 65.76 |  | 155,200 |  | $ | 58.13 |
Granted |  |  | — |  |  | — |  | — |  |  | — |
Exercised |  |  | (349,320) |  |  | 59.81 |  | (1,000) |  |  | 53.72 |
Forfeited or expired |  |  | (5,842) |  |  | 58.11 |  | — |  |  | — |
Outstanding at March 31, 2019 |  |  | 6,405,893 |  | $ | 66.10 |  | 154,200 |  | $ | 58.16 |
Exercisable at March 31, 2019 |  |  | 5,593,702 |  | $ | 63.88 |  | 154,200 |  | $ | 58.16 |
Weighted-Average Remaining Contractual Term (Years): |  |  |  |  |  |  |  |  |  |  |  |
Outstanding at March 31, 2019 |  |  | 5.7 |  |  |  |  | 3.9 |  |  |  |
Exercisable at March 31, 2019 |  |  | 5.3 |  |  |  |  | 3.9 |  |  |  |
Aggregate Intrinsic Value: |  |  |  |  |  |  |  |  |  |  |  |
Outstanding at March 31, 2019 |  | $ | 258,093 |  |  |  | $ | 7,437 |  |  |  |
Exercisable at March 31, 2019 |  | $ | 237,778 |  |  |  | $ | 7,437 |  |  |  |
Intrinsic Value of Options Exercised During the Three Months Ended: |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2019 |  | $ | 14,047 |  |  |  | $ | 51 |  |  |  |
March 31, 2018 |  | $ | 22,804 |  |  |  | $ | 1,608 |  |  |  |
The grant date fair value of options vested during the three months ended March 31, 2019 and 2018 was $12.2 million and $16.5 million, respectively. Cash received from option exercises was approximately $20.9 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $3.4 million in the three months ended March 31, 2019. As of March 31, 2019, the remaining valuation of stock option awards to be expensed in future periods was $6.5 million and the related weighted-average period over which it is expected to be recognized is 1.4 years. The fair value of both time-based RSUs and performance-based RSUs pertaining to internal performance metrics is determined using the closing price of our common stock on the grant date. The fair value of performance-based RSUs pertaining to TSR is estimated using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value are shown in the table below. The fair value of these RSUs is expensed over the vesting period using the straight-line method or using the graded vesting method when an employee becomes eligible to retain the award at retirement.
Three Months Ended March 31, |  |  | 2019 |  |  |  | 2018 |  |
Fair value per stock award |  | $ | 134.97 |  |  | $ | 128.70 |  |
Grant date stock price |  | $ | 104.51 |  |  | $ | 89.42 |  |
Assumptions: |  |  |  |  |  |  |  |  |
Aptar's stock price expected volatility |  |  | 16.50 | % |  |  | 12.30 | % |
Expected average volatility of peer companies |  |  | 31.90 | % |  |  | 27.50 | % |
Correlation assumption |  |  | 37.40 | % |  |  | 20.20 | % |
Risk-free interest rate |  |  | 2.19 | % |  |  | 2.42 | % |
Dividend yield assumption |  |  | 1.30 | % |  |  | 1.43 | % |
A summary of RSU activity as of March 31, 2019 and changes during the three month period then ended, is presented below:
|  | Time-Based RSUs |  | Performance-Based RSUs |
|  |  |  | Weighted Average |  |  |  | Weighted Average |
|  | Units |  | Grant-Date Fair Value |  | Units |  | Grant-Date Fair Value |
Nonvested at January 1, 2019 |  | 261,487 |  | $ | 91.78 |  | 69,990 |  | $ | 111.55 |
Granted |  | 112,553 |  |  | 101.96 |  | 122,737 |  |  | 120.62 |
Vested |  | (32,202) |  |  | 85.13 |  | — |  |  | — |
Forfeited |  | (3,786) |  |  | 104.54 |  | — |  |  | — |
Nonvested at March 31, 2019 |  | 338,052 |  | $ | 95.66 |  | 192,727 |  | $ | 117.32 |
Nonvested time-based RSUs outstanding as of March 31, 2019, include 14,257 units awarded to non-employee directors. Compensation expense recorded attributable to RSUs for the first three months of 2019 and 2018 was approximately $4.7 million and $2.6 million, respectively. The actual tax benefit realized for the tax deduction from RSUs was approximately $408 thousand in the three months ended March 31, 2019. The fair value of units vested during the three months ended March 31, 2019 and 2018 was $2.7 million and $1.0 million, respectively. The intrinsic value of units vested during the three months ended March 31, 2019 and 2018 was $3.2 million and $1.3 million, respectively. As of March 31, 2019, there was $42.0 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.5 years. During 2017, we provided a long-term incentive program for certain employees. Each award is based on the cumulative TSR of our common stock during a three-year performance period compared to a peer group. The total expected expense related to this program for awards outstanding as of March 31, 2019 is approximately $2.8 million, of which $206 thousand and $409 thousand was recognized in the first three months of 2019 and 2018, respectively.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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