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Share-Based Compensation | 9 Months Ended
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Sep. 30, 2019
Share-based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based Compensation On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (“LTIP”) which provided an additional 3.3 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance awards, in addition to the shares from the previous plan, the 1992 Plan. Since inception of the LTIP, non-qualified stock options and restricted stock awards have been granted with a five years vesting schedule. Under the LTIP, the exercise price of shares granted could not be less than 100% of the fair market value at the date of the grant. On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan ("2016 Plan") which provides for approximately 6.4 million shares, comprised of 3.4 million new shares provided for under the 2016 Plan, approximately 0.4 million shares that were available for issuance under the previous LTIP that are now authorized for issuance under the 2016 Plan, and an additional 2.6 million shares that were approved by the stockholders on May 15, 2018. Under the 2016 Plan, shares can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards. Under the 2016 Plan, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant. The 2016 Plan will be administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the “Committee”). Membership on the Committee shall be limited to independent directors. The Committee may delegate certain duties to one or more officers of the Company as provided in the 2016 Plan. The Committee will determine the persons to whom awards are to be made, determine the type, size and terms of awards, interpret the 2016 Plan, establish and revise rules and regulations relating to the 2016 Plan and make any other determinations that it believes necessary for the administration of the 2016 Plan. Options - The total pre-tax compensation cost related to unvested stock options not yet recognized as of September 30, 2019 is $26.8 million and is expected to be recognized over a weighted average period of 3.8 years. The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the nine months ended September 30, 2019 and 2018 using a Black Scholes-Merton Model:
| Nine months ended |  |
| September 30, 2019 |  | September 30, 2018
Directors and Officers: |  |  |
Expected dividend rate | $0.32 |  |  | $0.26 |
Expected volatility | 29.54% |  |  | 29.73% |
Risk-free interest rate | 2.40% |  |  | 2.20% |
Expected life (in years) | 5.0 |  | 5.0
Employees: |  |  |
Expected dividend rate | $0.32 |  |  | $0.26 |
Expected volatility | 29.54% |  |  | 29.82% |
Risk-free interest rate | 2.39% |  |  | 2.48% |
Expected life (in years) | 5.0 |  | 5.0
The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date. The following is a summary of stock options vested and exercisable as of September 30, 2019:
Range of Exercise Prices |  |  |  | Number of Shares |  | Weighted Average Remaining Contractual Life (in years) |  | Weighted Average Exercise Price |  | Intrinsic Value (in thousands)
$ | 7.18 |  | - | $ | 33.20 |  |  | 350,549 |  |  | 5.29 |  | $ | 21.07 |  |  | $ | 8,717 |
$ | 33.40 |  | - | $ | 40.87 |  |  | 124,622 |  |  | 7.79 |  | 35.63 |  |  | 1,284 |
$ | 41.37 |  | - | $ | 50.68 |  |  | 4,070 |  |  | 0.67 |  | 41.37 |  |  | 19 |
|  | Total |  | 479,241 |  |  | 5.90 |  | $ | 25.03 |  |  | $ | 10,020 |
The following is a summary of stock options vested and exercisable as of September 30, 2018:
Range of Exercise Prices |  |  |  | Number of Shares |  | Weighted Average Remaining Contractual Life (in years) |  | Weighted Average Exercise Price |  | Intrinsic Value (in thousands)
$ | 5.67 |  | - | $ | 32.80 |  |  | 362,715 |  |  | 5.54 |  | $ | 18.14 |  |  | $ | 7,132 |
$ | 32.85 |  | - | $ | 33.80 |  |  | 5,484 |  |  | 4.08 |  | 33.18 |  |  | 25 |
$ | 34.00 |  | - | $ | 40.60 |  |  | 81,417 |  |  | 5.87 |  | 34.32 |  |  | 283 |
|  | Total |  | 449,616 |  |  | 5.58 |  | $ | 21.25 |  |  | $ | 7,440 |
A summary of option activity under the plans is as follows:
| Shares |  | Weighted Average Exercise Price
Outstanding at December 31, 2018 | 2,445,849 |  |  | $ | 30.77 |
Granted | 1,965,520 |  |  | 41.46 |
Exercised | (394,024) |  |  | 28.63 |
Forfeited or Expired | (293,299) |  |  | 36.71 |
Outstanding at September 30, 2019 | 3,724,046 |  |  | $ | 36.17 |
Exercisable at September 30, 2019 | 479,241 |  |  | $ | 25.03 |
The total intrinsic value of options exercised during the nine months ended September 30, 2019 and 2018 was $7.0 million and $5.0 million, respectively. The cash received from options exercised during the nine months ended September 30, 2019 and 2018 was $11.3 million and $3.5 million, respectively. The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows. Restricted Stock - Since 2007, as part of the LTIP and since May 2016, as part of the 2016 Plan, the Compensation Committee of the Board of Directors has authorized and issued restricted stock awards to directors and key employees. Historically, restricted stock awards granted to directors vest at one-third each year. As of May 2019, all new restricted stock awards granted to directors vest ratably over each director's remaining elected term. All other restricted stock awards vest at a rate of 20% per year. The fair value of restricted stock awards is based on the fair market value of AAON, Inc. common stock on the respective grant dates, reduced for the present value of dividends. These awards are recorded at their fair value on the date of grant and compensation cost is recorded using straight-line vesting over the service period. At September 30, 2019, unrecognized compensation cost related to unvested restricted stock awards was approximately $7.6 million, which is expected to be recognized over a weighted average period of 2.8 years. A summary of the unvested restricted stock awards is as follows:
| Shares |  | Weighted Average Grant Date Fair Value
Unvested at December 31, 2018 | 292,450 |  |  | $ | 28.54 |
Granted | 112,018 |  |  | 40.92 |
Vested | (109,514) |  |  | 26.99 |
Forfeited | (12,103) |  |  | 33.87 |
Unvested at September 30, 2019 | 282,851 |  |  | $ | 33.81 |
A summary of share-based compensation is as follows:
| Three months ended |  |  |  | Nine months ended |  |
| September 30, 2019 |  | September 30, 2018 |  | September 30, 2019 |  | September 30, 2018
Grant date fair value of awards during the period: | (in thousands) |  |  |  |  |  |
Options | $ | 244 |  |  | $ | 53 |  |  | $ | 20,315 |  |  | $ | 12,633 |
Restricted stock | — |  |  | 18 |  |  | 4,584 |  |  | 3,379 |
Total | $ | 244 |  |  | $ | 71 |  |  | $ | 24,899 |  |  | $ | 16,012 |
Share-based compensation expense: |  |  |  |  |  |  |
Options | $ | 1,874 |  |  | $ | 1,076 |  |  | $ | 5,156 |  |  | $ | 3,202 |
Restricted stock | 911 |  |  | 839 |  |  | 2,702 |  |  | 2,412 |
Total | $ | 2,785 |  |  | $ | 1,915 |  |  | $ | 7,858 |  |  | $ | 5,614 |
Income tax benefit/(deficiency) related to share-based compensation: |  |  |  |  |  |  |
Options | $ | 233 |  |  | $ | 379 |  |  | $ | 964 |  |  | $ | 980 |
Restricted stock | 7 |  |  | 26 |  |  | 462 |  |  | 245 |
Total | $ | 240 |  |  | $ | 405 |  |  | $ | 1,426 |  |  | $ | 1,225 |

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