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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Share-Based Compensation | Note 16. Share-Based Compensation We recognize compensation expense of all employee and non-employee director share-based compensation awards in the financial statements based upon the grant date fair value of the awards over the requisite service or vesting period, less any expense incurred for estimated forfeitures. As of December 31, 2017, we have approximately 1.9 million maximum shares that can be issued as options, stock appreciation rights, and other share-based awards. Common shares delivered upon exercise or vesting may consist of newly issued common shares or shares acquired in the open market. Share-based compensation cost is recognized in the “Selling, general and administrative expense” line in the Consolidated Statements of Operations and Comprehensive Income (Loss) except for $1.0 million, $0.5 million, and $0.7 million attributable to discontinued operations for the years ended December 31, 2017, 2016 and 2015, respectively. The following table lists the components of share-based compensation cost by type of award.
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Stock options |  | $ | 1,078 |  |  | $ | 687 |  |  | $ | 984 |
Restricted stock |  |  | 1,968 |  |  |  | 2,061 |  |  |  | 2,623 |
Performance share units |  |  | 2,450 |  |  |  | 1,187 |  |  |  | 432 |
Share-based compensation |  | $ | 5,496 |  |  | $ | 3,935 |  |  | $ | 4,039 |
The total tax benefit for share-based compensation cost was $1.6 million, $0.6 million, and $0.6 million for the years ended December 31, 2017, 2016, and 2015, respectively. Unrecognized compensation cost related to unvested awards was $4.6 million as of December 31, 2017. We expect that cost to be recognized over a weighted-average period of 2.0 years. Stock Options Option awards are typically granted to key employees on an annual basis. A single option grant is typically awarded to eligible employees each year by the Compensation Committee of the Board of Directors. The Compensation Committee occasionally awards additional individual grants to eligible employees. All employees are awarded options at an exercise price equal to the closing price of our stock on the date of grant. The term life of options is ten years with a vesting period of generally three years. During 2017, 2016 and 2015, we granted options to purchase 125,700, 167,000, and 54,100 shares, respectively, to certain key employees. The weighted average grant date fair value of the options granted during 2017, 2016 and 2015 was $11.84, $5.02, and $12.61 per share, respectively. The fair value of our options cannot be determined by market value because they are not traded in an open market. Accordingly, we utilized the Black Scholes financial pricing model to estimate the fair value. The following table shows the weighted average assumptions relevant to determining the fair value of stock options granted in each year.
|  | 2017 |  |  | 2016 |  |  | 2015 |
Expected term |  |  | 6 years |  |  |  | 6 years |  |  |  | 6 years |
Risk free interest rate |  |  | 2.03 | % |  |  | 1.43 | % |  |  | 1.43 | %
Dividend yield |  |  | 1.16 | % |  |  | 2.48 | % |  |  | 1.11 | %
Expected volatility |  |  | 56.56 | % |  |  | 59.23 | % |  |  | 59.22 | %
Expected forfeiture rate |  |  | 3.00 | % |  |  | 3.00 | % |  |  | 3.00 | %
The expected term is derived from using the simplified method of determining stock option terms as described under the Securities and Exchange Commission’s Staff Accounting Bulletin Topic 14, Share-based payment. The simplified method was used because sufficient historical stock option exercise experience was not available. The average risk-free interest rate is derived from United States Department of Treasury published interest rates of daily yield curves for the same time period as the expected term. The expected dividend yield is derived by a mathematical formula which uses the expected annual dividends over the expected term divided by the fair market value of our common stock at the grant date. The expected volatility rate is derived from our actual common stock historical volatility over the same time period as the expected term. The volatility rate is derived by mathematical formula utilizing daily closing price data. The forfeiture rate is determined from examining the historical pre-vesting forfeiture patterns of past option issuances to key employees. While the forfeiture rate is not an input of the Black Scholes model for determining the fair value of the options, it is an important determinant of stock option compensation expense to be recorded. The following table summarizes option activity for the year ended December 31, 2017.
Options |  | Shares (in thousands) |  |  | Weighted- Average Exercise Price (per share) |  |  | Weighted- Average Remaining Contractual Term (years) |  |  | Aggregate Intrinsic Value |
Outstanding at January 1, 2017 |  |  | 897 |  |  | $ | 12.22 |  |  |  |  |  |  |  |  |
Granted |  |  | 126 |  |  |  | 24.20 |  |  |  |  |  |  |  |  |
Exercised |  |  | (263 | ) |  |  | 11.84 |  |  |  |  |  |  | $ | 3,784 |
Forfeited or expired |  |  | (14 | ) |  |  | 14.34 |  |  |  |  |  |  |  |  |
Outstanding at December 31, 2017 |  |  | 746 |  |  | $ | 14.33 |  |  |  | 6.2 |  |  | $ | 9,900 | (1)
Exercisable at December 31, 2017 |  |  | 573 |  |  | $ | 12.75 |  |  |  | 5.5 |  |  | $ | 8,506 | (1)
(1) | The intrinsic value is the amount by which the closing market price of our stock as of December 31, 2017, was greater than the exercise price of any individual option grant.
Cash proceeds from the exercise of options in the years ended December 31, 2017, 2016, and 2015 totaled approximately $3.1 million, $2.6 million, and $2.0 million, respectively. The tax benefit recognized from stock option exercises was $0.2 million, less than $0.1 million, and $0.1 million in the years ended December 31, 2017, 2016, and 2015, respectively. For the years ended December 31, 2017, 2016 and 2015, proceeds from stock options are presented exclusive of tax benefits in cash flows from financing activities in the Consolidated Statements of Cash Flows. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $3.8 million, $2.9 million, and $2.6 million, respectively. Restricted Stock During 2017, 2016, and 2015 we granted 85,393, 152,510, and 114,475 restricted stock awards to non-executive directors, officers and certain other key employees. Restricted stock awards generally vest pro-rata over three years for officers and certain other key employees and over one year for non-executive directors. We determined the fair value of the shares awarded by using the closing price of our common stock as of the date of grant. The weighted average grant date value of restricted stock granted in 2017 was $24.29 per share. The following table summarizes the status of unvested restricted stock awards as of December 31, 2017, and changes during the year then ended.
|  | Nonvested Restricted Shares (in thousands) |  |  | Weighted Average Grant- Date Fair Value |
Nonvested at January 1, 2017 |  |  | 202 |  |  | $ | 15.01 |
Granted |  |  | 85 |  |  | $ | 24.29 |
Vested |  |  | (135 | ) |  | $ | 15.63 |
Forfeited |  |  | — |  |  | $ | — |
Nonvested at December 31, 2017 |  |  | 152 |  |  | $ | 19.21 |
Total grant-date fair value of restricted stock that vested in the years ended December 31, 2017, 2016, and 2015, was $2.1 million, $2.6 million, and $ 1.2 million, respectively. Performance Share Units Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value. PSU awards granted in 2017 were made pursuant to the NN, Inc. 2016 Omnibus Incentive Plan and a Performance Share Unit Agreement. PSU awards granted in 2015 and 2016 were made pursuant to the NN, Inc. 2011 Stock Incentive Plan and a Performance Share Unit Agreement. Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”). The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of the S&P SmallCap 600 Index during specified performance periods as defined in the award agreements. Each performance period generally begins on January 1 of the year of grant and ends 36 months later on December 31. The ROIC Awards will vest, if at all, upon our achieving a specified average return on invested capital during the performance periods. We recognize compensation expense over the performance period in which the performance and market conditions are measured. If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically. Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the executive officer’s continued employment. The actual number of shares of common stock will be issued to each award recipient at the end of the performance periods will be interpolated between a threshold and maximum payout amount based on actual performance results. No dividends will be paid on outstanding PSUs during the performance period; however, dividend equivalents will be paid based on the number of shares of common stock that are ultimately earned at the end of the Performance Periods. With respect to the TSR Awards, a participant will earn 50% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance.” With respect to the ROIC Awards, a participant will earn 35% of the target number of PSUs for “Threshold Performance,” 100% of the target number of PSUs for “Target Performance,” and 150% of the target number of PSUs for “Maximum Performance. For performance levels falling between the values shown below, the percentages will be determined by interpolation. The following table presents the goals with respect to TSR and ROIC for each award. TSR:
|  | Threshold Performance (50% of Shares) |  |  | Target Performance (100% of Shares) |  |  | Maximum Performance (150% of Shares) |
2017 grants |  |  | 35th Percentile |  |  |  | 50th Percentile |  |  |  | 75th Percentile |
2016 grants |  |  | 35th Percentile |  |  |  | 50th Percentile |  |  |  | 75th Percentile |
2015 grants |  |  | 35th Percentile |  |  |  | 50th Percentile |  |  |  | 75th Percentile |
ROIC:
|  | Threshold Performance (35% of Shares) |  |  | Target Performance (100% of Shares) |  |  | Maximum Performance (150% of Shares) |
2017 grants |  |  | 15 | % |  |  | 17.5 | % |  |  | 20 | %
2016 grants |  |  | 15.5 | % |  |  | 18 | % |  |  | 20.5 | %
2015 grants |  |  | 11 | % |  |  | 12.5 | % |  |  | 14 | %
We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metric is considered a market condition under ASC Topic 718, Compensation – stock compensation. The grant date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant. The following table presents the number of awards granted and the grant date fair value of each award in the periods presented.
|  | TSR Awards |  |  | ROIC Awards |
Award Year |  | Shares (in thousands) |  |  | Grant Date Fair Value |  |  | Shares (in thousands) |  |  | Grant Date Fair Value |
2017 |  |  | 46 |  |  | $ | 29.84 |  |  |  | 53 |  |  | $ | 24.20 |
2016 |  |  | 101 |  |  | $ | 9.38 |  |  |  | 101 |  |  | $ | 11.31 |
2015 |  |  | 36 |  |  | $ | 28.61 |  |  |  | 36 |  |  | $ | 25.16 |
We generally recognize expense for ROIC Awards based on the Target Performance threshold of 100% because, at the date of grant, the Target Performance is the probable level of performance achievement. In 2017, we determined that it was probable that the ROIC Awards granted in 2015 would vest at the Maximum Performance level of 150% rather than 100%. Accordingly, we recorded a cumulative catch-up adjustment of $0.4 million to selling, general, and administrative expense and additional paid-in capital in the fourth quarter of 2017 to retroactively apply the new estimate. All PSUs that vested on December 31, 2017, will be settled in shares on April 30, 2018. The total grant-date fair value of TSR Awards that vested in 2017 was $0.9 million. The total grant-date fair value of ROIC awards that vested in 2017 was $1.2 million. The following table summarizes the status of unvested PSU awards as of December 31, 2017, and changes during the year then ended.
|  | Nonvested TSR Awards |  |  | Nonvested ROIC Awards |
|  | Shares (in thousands) |  |  | Weighted Average Grant-Date Fair Value |  |  | Shares (in thousands) |  |  | Weighted Average Grant-Date Fair Value |
Nonvested at January 1, 2017 |  |  | 124 |  |  | $ | 14.33 |  |  |  | 124 |  |  | $ | 14.87 |
Change in Vesting Estimate (1) |  |  | — |  |  | $ | — |  |  |  | 16 |  |  | $ | 25.16 |
Granted |  |  | 46 |  |  | $ | 29.84 |  |  |  | 53 |  |  | $ | 24.20 |
Vested |  |  | (32 | ) |  | $ | 28.61 |  |  |  | (48 | ) |  | $ | 25.16 |
Forfeited |  |  | (8 | ) |  | $ | 19.19 |  |  |  | (9 | ) |  | $ | 18.03 |
Nonvested at December 31, 2017 |  |  | 130 |  |  | $ | 16.60 |  |  |  | 136 |  |  | $ | 16.27 |
(1) | Represents additional shares expected to be issued in settlement of ROIC Awards that were granted in 2015.
Acceleration of Vesting Prior to the sale of the PBC Business, our board of directors approved the acceleration of vesting of share-based awards to 19 members of PBC management in recognition of their service to the Company. The vesting date was accelerated to August 17, 2017, and the term was changed to two years for 58,094 option awards. The vesting date for 25,564 restricted stock awards was accelerated to August 17, 2017. We accounted for the acceleration of vesting as a modification of share-based awards. Accordingly, we recognized in discontinued operations approximately $0.8 million of incremental share-based compensation expense.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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