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Stock-based Compensation | 12 Months Ended
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Dec. 31, 2020
Share-based Payment Arrangement [Abstract] |
Stock-based Compensation | STOCK-BASED COMPENSATION Description of Plans The Company grants stock options, RSUs, RSAs and PSUs to certain employees and directors of the Company under the 2015 Equity and Incentive Award Plan, and previously did so under the 2001 Stock Option and Incentive Award Plan (the "2015 Plan" and "2001 Plan"). The 2001 Plan was originally approved by the Company’s shareholders in May 2001 and was amended and restated with shareholder approval in May 2009 and discontinued with the approval of the 2015 Plan on May 6, 2015. The 2015 Plan was subsequently amended and restated with shareholder approval in February 2019. Beginning in 2015, as part of the Company’s long-term incentive compensation program ("LTIP Plan") and pursuant to the Company’s 2001 Plan and 2015 Plan, the Company granted a mix of stock options, time-based restricted stock and performance share units to key executives and managers and also granted time-based restricted stock units to directors of the Company. As of December 31, 2020, the aggregate number of shares of common stock that may be issued or transferred under the 2015 Plan is 3,570,891. Conversion at Separation and Distribution of The Aaron's Company In accordance with the terms of the Separation and the Employee Matters Agreement between The Aaron's Company and PROG Holdings, all unexercised, unissued and/or unvested share-based awards previously granted to Aaron's Holdings Company, Inc. employees and directors under the Aaron's, Inc. equity plans through the separation and distribution date of November 30, 2020 were converted at the time of distribution to replacement stock options, RSUs, PSUs and RSAs. The replacement awards were converted using formulas designed to preserve the intrinsic economic value of the awards after taking into consideration the distribution. Aaron's Holdings Company, Inc. employees who held unvested PSUs, and/or RSAs of Aaron's Holdings Company, Inc. on the record date of November 27, 2020 generally had the option to elect one of two conversion methods for determining the replacement awards: i.to receive replacement awards of both PROG Holdings and The Aaron's Company for the number of whole units, rounded down to the nearest whole unit, of PROG Holdings and The Aaron's Company common stock that they would have received as a shareholder of Aaron's Holdings Company, Inc. at the date of separation, which is one share of The Aaron's Company for every two shares of PROG Holdings (i.e., "the shareholder method"); or ii.to receive replacement awards only of the respective employer's common stock for an amount determined by a conversion ratio determined by calculating the product of the pre-distribution share price of Aaron's Holdings Company, Inc. and the pre-distribution number of awards to be cancelled and replaced pursuant to this conversion, then dividing the product by the post-distribution volume weighted adjusted three-day average share price of the respective employer's common stock, rounded down to the nearest whole share (i.e., "the employee method"). In accordance with the Employee Matters Agreement, the conversion of certain awards, including substantially all unvested and unexercised vested stock options, was required to be determined following the employee method. The conversion of RSUs held by the board of directors was required to be determined following the shareholder method. Under both the shareholder method and the employee method, the terms and conditions of the converted awards were replicated, and, as necessary, adjusted to ensure that the vesting schedules were unchanged and the awards were converted in accordance with the Employee Matters Agreement. The impact of the conversion of the unexercised and unvested equity awards on the separation date is reflected in the respective tables below as the "Separation of The Aaron's Company, Inc. on November 30, 2020" and "Granted in Equity Conversion on November 30, 2020". In connection with the conversion, certain equity awards of PROG Holdings employees and directors were converted into equity awards of The Aaron's Company and are therefore not reflected in the ending awards outstanding in the tables below; however, these awards will result in stock based compensation expense of PROG Holdings as the awards continue to vest in the future. In connection with the conversion, certain employees and directors of The Aaron's Company have outstanding RSUs, PSUs, RSAs, and stock options in PROG Holdings, which are reflected in the ending awards outstanding in the tables below; however, these awards will not result in stock based compensation expense of PROG Holdings for periods subsequent to the separation and distribution date. Equity award activity that occurred prior to the separation and distribution has not been segregated between continuing and discontinued operations in the tables below. The Company accounted for the conversion of the awards as award modifications in accordance with ASC 718, Compensation - Stock Compensation ("ASC 718"). The Company compared the fair value of the outstanding awards immediately prior to the conversion with the fair value of the outstanding awards immediately after the conversion, and determined that the conversion of equity awards held by PROG Holdings employees, corporate employees of Aaron's Holding Company, Inc., the Company's directors, and The Aaron's Company directors resulted in incremental compensation expense of $5.2 million related to outstanding vested awards. The incremental expense is classified as continuing operations and is included as a component of separation related charges in the accompanying consolidated statements of earnings for the year ended December 31, 2020. The incremental expense related to outstanding unvested awards held by PROG Holdings employees was immaterial. Retirement-related Modifications In connection with the separation and distribution on November 30, 2020, PROG Holdings and The Aaron's Company entered into a Transition Agreement with the former Chief Executive Officer of Aaron's Holdings Company, Inc., pursuant to which the former CEO would retire and transition to the non-employee Chairman of the Board of Directors of The Aaron's Company, effective November 30, 2020. The Transition Agreement provided that all unvested stock options, RSAs and PSUs granted to the former CEO in prior periods would become fully vested as promptly as practicable following the completion of the separation and distribution. These awards also followed the conversion methodology outlined in the "Conversion at Separation" section above, pursuant to the terms of the Employee Matters Agreement. The terms of the Transition Agreement resulted in award modifications under ASC 718 as both the fair value and vesting conditions of the awards had been changed. The modifications resulted in incremental compensation expense of $4.5 million associated with the conversion and an additional incremental expense of $8.7 million related to the accelerated vesting of the equity awards. The total incremental expense was due to (i) increased fair value of the awards immediately after the modification as compared to immediately prior to the modifications and (ii) the accelerated vesting of all awards following the completion of the separation and distribution, which resulted in the recognition of a total $13.2 million expense during the fourth quarter of 2020. The incremental compensation expense associated with the modification of the former CEO's awards is included in continuing operations as a component of separation related charges in the accompanying consolidated statements of earnings for the year ended December 31, 2020. Stock-based Compensation Expense The Company has elected a policy to estimate forfeitures in determining the amount of stock compensation expense. Total stock-based compensation expense for both continuing and discontinued operations, which includes the incremental compensation expense discussed above, was $41.2 million, $26.5 million and $28.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total stock-based compensation expense classified within continuing operations in the consolidated statements of earnings was $35.8 million, $21.2 million and $21.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. The stock-based compensation expense classified within continuing operations is included as a component of operating expenses in the consolidated statements of earnings, with the exception of the incremental compensation expense associated with the modifications described above, which were included as a component of separation related charges. The total income tax benefit recognized in the consolidated statements of earnings for stock-based compensation arrangements was $10.1 million, $6.6 million and $6.9 million in the years ended December 31, 2020, 2019 and 2018, respectively. Benefits of tax deductions in excess of recognized compensation cost, which are included in operating cash flows, were $2.6 million, $4.8 million and $5.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $13.5 million of total unrecognized compensation expense related to non-vested stock-based compensation of directors and employees of PROG Holdings, which is expected to be recognized over an average period of 1.34 years. Stock Options Under the Company’s 2001 Plan, options granted become exercisable after a period of one to five years and unexercised options lapse 10 years after the date of grant. Under the Company’s 2015 Plan, options granted to date become exercisable after a period of one to three years and unexercised options lapse 10 years after the date of the grant. Unvested options are subject to forfeiture upon termination of service for both plans. The Company recognizes compensation expense for options that have a graded vesting schedule on a straight-line basis over the requisite service period. Shares are issued from the Company’s treasury shares upon share option exercises. The Company determines the fair value of stock options on the grant date using a Black-Scholes-Merton option pricing model that incorporates expected volatility, expected option life, risk-free interest rates and expected dividend yields. The expected volatility is based on implied volatilities from traded options on the Company’s stock and the historical volatility of the Company’s common stock over the most recent period generally commensurate with the expected estimated life of each respective grant. The expected lives of options are based on the Company’s historical option exercise experience. The Company believes that the historical experience method is the best estimate of future exercise patterns. The risk-free interest rates are determined using the implied yield available for zero-coupon United States government issues with a remaining term equal to the expected life of the grant. The expected dividend yields are based on the approved annual dividend rate in effect and market price of the underlying common stock at the time of grant. No assumption for a future dividend rate increase has been included unless there is an approved plan to increase the dividend in the near term. The Company granted 400,000, 293,000 and 361,000 stock options during the years ended December 31, 2020, 2019 and 2018, respectively. The weighted-average fair value of options granted and the weighted-average assumptions used in the Black-Scholes-Merton option pricing model for such grants were as follows:
| 2020 | 2019 | 2018
Dividend Yield | 0.4 | % | 0.3 | % | 0.3 | %
Expected Volatility | 39.4 | % | 36.5 | % | 34.8 | %
Risk-free Interest Rate | 0.9 | % | 2.5 | % | 2.6 | %
Expected Term (in years) | 5.3 | 5.3 | 5.3
Weighted-average Fair Value of Stock Options Granted | $ | 13.48 | $ | 19.59 | $ | 16.54
The following table summarizes information about stock options outstanding at December 31, 2020:
| Options Outstanding |  | Options Exercisable
Range of Exercise Prices | Number Outstanding December 31, 2020 |  | Weighted Average Remaining Contractual Life (in Years) |  | Weighted Average Exercise Price |  | Number Exercisable December 31, 2020 |  | Weighted Average Exercise Price
$20.00-30.00 | 200,926 |  |  | 5.19 |  | $ | 24.11 |  |  | 200,926 |  |  | $ | 24.11 |
30.01-40.00 | 201,776 |  |  | 8.86 |  | 36.33 |  |  | — |  |  | — |
40.01-50.00 | 320,126 |  |  | 7.49 |  | 46.52 |  |  | 147,533 |  |  | 45.34 |
20.00-50.00 | 722,828 |  |  | 7.23 |  | 37.45 |  |  | 348,459 |  |  | 33.10 |
The table below summarizes option activity for the year ended December 31, 2020:
| Options (In Thousands) |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (in Years) |  | Aggregate Intrinsic Value (in Thousands) |  | Weighted Average Fair Value
Outstanding at January 1, 2020 | 1,730 |  |  | $ | 34.71 |  |  |  |  |  |  |
Granted - pre-spin | 400 |  |  | 38.44 |  |  |  |  |  |  |
Forfeited/expired - pre-spin | (99) |  |  | 44.53 |  |  |  |  |  |  |
Exercised - pre-spin | (920) |  |  | 26.87 |  |  |  |  |  |  |
Separation of The Aaron's Company, Inc. on November 30, 2020 | (1,111) |  |  | 41.67 |  |  |  |  |  |  |
Granted in Equity Conversion on November 30, 2020 | 723 |  |  | 37.45 |  |  |  |  |  |  |
Outstanding at December 31, 2020 | 723 |  |  | 37.45 |  |  | 7.2 |  | $ | 11,873 |  |  | $ | 12.96 |
Expected to Vest | 366 |  |  | 41.60 |  |  | 8.4 |  | 4,491 |  |  | 14.76 |
Exercisable at December 31, 2020 | 348 |  |  | 33.10 |  |  | 6.1 |  | 7,237 |  |  | 11.06 |
The aggregate intrinsic value amounts in the table above represent the closing price of the Company’s common stock on December 31, 2020 in excess of the exercise price, multiplied by the number of in-the-money stock options as of that same date. Options outstanding that are expected to vest are net of estimated future option forfeitures. The aggregate intrinsic value of options exercised, which represents the value of the Company’s common stock at the time of exercise in excess of the exercise price, was $24.9 million, $6.5 million and $6.6 million during the years ended December 31, 2020, 2019 and 2018, respectively. The total grant-date fair value of options exercised during the year ended December 31, 2020, 2019 and 2018 was $7.8 million, $4.6 million and $3.5 million, respectively. Restricted Stock Restricted stock units or restricted stock awards (collectively, "restricted stock") may be granted to employees and directors under the 2015 Plan and typically vest over approximately one to three-year periods; under the 2001 Plan restricted stock typically vests over approximately one to five-year periods. Restricted stock grants are generally settled in stock and may be subject to one or more objective employment, performance or other forfeiture conditions as established at the time of grant. The Company generally recognizes compensation expense for restricted stock with a graded vesting schedule on a straight-line basis over the requisite service period as restricted stock is generally not subject to Company performance metrics. Shares are issued from the Company’s treasury shares upon vesting. Any shares of restricted stock that are forfeited may again become available for issuance. The fair value of restricted stock is generally based on the fair market value of the Company’s common stock on the date of grant. During 2015, 2016 and 2017, the Company granted performance-based restricted stock to certain executive officers that vest over a three-year service period and with the achievement of specific performance criteria. The compensation expense associated with these awards is recognized on an accelerated basis over the respective vesting periods based on the Company's projected assessment of the level of performance that will be achieved and earned. As of December 31, 2020, there are no performance-based restricted shares still subject to performance conditions. The Company granted 375,000, 225,000 and 248,000 shares of restricted stock at weighted-average fair values of $41.45, $54.28 and $46.01 in the years ended December 31, 2020, 2019 and 2018, respectively. The following table summarizes information about restricted stock activity during 2020:
| Restricted Stock (In Thousands) | Weighted Average Fair Value
Non-vested at January 1, 2020 | 494 |  | $ | 44.33 |
Granted - pre-spin | 375 |  | 41.45 |
Forfeited - pre-spin | (65) |  | 44.89 |
Vested - pre-spin | (209) |  | 41.33 |
Separation of The Aaron's Company, Inc. on November 30, 2020 | (595) |  | 43.50 |
Granted in Equity Conversion on November 30, 2020 | 487 |  | 37.35 |
Forfeited - post-spin | (2) |  | 40.88 |
Vested - post-spin | (25) |  | 34.44 |
Non-vested at December 31, 2020 | 460 |  | 37.49 |
The total vest-date fair value of restricted stock described above that vested during the year was $10.5 million, $14.6 million and $24.8 million in the years ended December 31, 2020, 2019 and 2018, respectively. Performance Share Units For performance share units, which are gener`ally settled in stock, the number of shares earned is determined at the end of the one-year performance period based upon achievement of various performance criteria, which have included adjusted EBITDA, revenue and invoice volume levels of the respective segments and return on capital for PROG Holdings, Inc. Beginning in 2016, the Company added adjusted pre-tax profit and production volume levels as additional performance criteria for certain segments. When the performance criteria are met, the award is earned and one-third of the award vests. Another one-third of the earned award is subject to an additional one-year service period and the remaining one-third of the earned award is subject to an additional two-year service period. Shares are issued from the Company’s treasury shares upon vesting. The number of performance-based shares which could potentially be issued ranges from zero to 200% of the target award. The fair value of performance share units is based on the fair market value of the Company’s common stock on the date of grant. The compensation expense associated with these awards is amortized on an accelerated basis over the vesting period based on the Company’s projected assessment of the level of performance that will be achieved and earned. In the event the Company determines it is no longer probable that the minimum performance criteria specified in the plan will be achieved, all previously recognized compensation expense is reversed in the period such a determination is made. The following table summarizes information about performance share unit activity during 2020:
| Performance Share Units (In Thousands) |  | Weighted Average Fair Value
Non-vested at January 1, 2020 | 582 |  |  | $ | 43.93 |
Granted - pre-spin | 248 |  |  | 36.05 |
Forfeited/unearned - pre-spin | (62) |  |  | 45.55 |
Vested - pre-spin | (325) |  |  | 37.78 |
Separation of The Aaron's Company, Inc. on November 30, 2020 | (443) |  |  | 44.11 |
Granted in Equity Conversion on November 30, 2020 | 346 |  |  | 39.10 |
Forfeited/unearned - post-spin | (3) |  |  | 38.90 |
Vested - post-spin | (47) |  |  | 34.33 |
Non-vested at December 31, 2020 | 296 |  |  | 39.85 |
The total vest-date fair value of performance share units described above that vested during the period was $18.4 million, $22.1 million and $22.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Employee Stock Purchase Plan Effective May 9, 2018, the Company's Board of Directors and shareholders approved the Employee Stock Purchase Plan ("ESPP"), which is a tax-qualified plan under Section 423 of the Internal Revenue Code. The purpose of the Company's ESPP is to encourage ownership of the Company's common stock by eligible employees of PROG Holdings, Inc. and certain subsidiaries. Under the ESPP, eligible employees are allowed to purchase common stock of the Company during six-month offering periods at the lower of: (i) 85% of the closing trading price per share of the common stock on the first trading date of an offering period in which a participant is enrolled; or (ii) 85% of the closing trading price per share of the common stock on the last day of an offering period. Employees participating in the ESPP can contribute up to an amount not exceeding 10% of their base salary and wages up to an annual maximum of $25,000 in total fair market value of the common stock. The final offering period for the year ended December 31, 2020 was modified to accelerate the purchase date to be prior to the completion of the spin-off. The Company concluded that the acceleration of the purchase date should be considered an award modification under ASC 718, as the fair value of the award had been changed. The Company performed a comparison of fair value immediately before and after modification, noting the post-modification fair value was lower than the pre-modification fair value, resulting in no incremental compensation expense. The compensation cost related to the ESPP is measured on the grant date based on eligible employees' expected withholdings and is recognized over each six-month offering period. Total compensation cost recognized in connection with the ESPP was $0.6 million, $0.5 million and $0.2 million for years ended December 31, 2020, 2019 and 2018, respectively. These costs were included as a component of operating expenses in the consolidated statements of earnings. The compensation cost related to the ESPP that was classified within continuing operations in the consolidated statements of earnings was $0.3 million, $0.2 million and $0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. During the year ended December 31, 2020, the Company issued 52,107 shares under the ESPP at a weighted average purchase price of $38.55. During the year ended December 31, 2019, the Company issued 46,642 shares at a weighted average purchase price of $42.07. During the year ended December 31, 2018, the Company issued 25,239 shares at a purchase price of $35.74. As of December 31, 2020, the aggregate number of shares of common stock that may be issued under the ESPP was 75,314.

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