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Shared-Based Compensation | 9 Months Ended
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Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Shared-Based Compensation | Shared-Based Compensation The following table lists the components of share-based compensation expense by type of award.
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Stock options |  | $ | 173 |  |  | $ | 527 |  |  | $ | 531 |  |  | $ | 1,102 |
Restricted stock |  | 388 |  |  | 773 |  |  | 1,244 |  |  | 1,628 |
Performance share units |  | 530 |  |  | 467 |  |  | 1,650 |  |  | 1,255 |
Change in estimate of performance share vesting (1) |  | (802 | ) |  | $ | — |  |  | (802 | ) |  | — |
Share-based compensation expense |  | $ | 289 |  |  | $ | 1,767 |  |  | $ | 2,623 |  |  | $ | 3,985 |
(1) | Reflects decrease in share-based compensation expense of $0.8 million to reflect the change in estimate of the probability of vesting of performance share units as described in the “Performance Share Units” section of this Note.
Stock Options During the nine months ended September 30, 2018, we granted options to purchase 57,800 shares to certain key employees. The weighted average grant date fair value of the options granted during the nine months ended September 30, 2018, was $10.60 per share. 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 2018.
| 2018 Stock Option Awards
Expected term | 6 years |
Risk free interest rate | 2.66 | %
Dividend yield | 1.15 | %
Expected volatility | 47.69 | %
Expected forfeiture rate | 4.00 | %
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 nine months ended September 30, 2018.
Options |  | Shares (in thousands) |  | Weighted- Average Exercise Price (per share) |  | Weighted- Average Remaining Contractual Term (years) |  | Aggregate Intrinsic Value |  |
Outstanding at January 1, 2018 |  | 746 |  |  | $ | 14.33 |  |  |  |  |  |  |
Granted |  | 58 |  |  | 24.41 |  |  |  |  |  |  |
Exercised |  | (27 | ) |  | 10.15 |  |  |  |  | $ | 477 |  |  |
Forfeited or expired |  | (4 | ) |  | 23.51 |  |  |  |  |  |  |
Outstanding at September 30, 2018 |  | 773 |  |  | $ | 15.19 |  |  | 5.9 |  | $ | 319 |  |  | (1)
Exercisable at September 30, 2018 |  | 626 |  |  | $ | 13.63 |  |  | 5.2 |  | $ | 1,232 |  |  | (1)
(1) | The intrinsic value is the amount by which the market price of our stock was greater than the exercise price of any individual option grant at September 30, 2018.
Restricted Stock During the nine months ended September 30, 2018, we granted 86,516 restricted stock awards to non-executive directors, officers and certain other key employees. The shares of restricted stock granted during the nine months ended September 30, 2018, 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 the nine months ended September 30, 2018, was $24.55 per share. Total grant-date fair value of restricted stock that vested in the nine months ended September 30, 2018, was $1.8 million. The following table summarizes the status of unvested restricted stock awards as of September 30, 2018, and changes during the nine months then ended.
|  | Nonvested Restricted Shares (in thousands) |  | Weighted Average Grant-Date Fair Value (per share)
Nonvested at January 1, 2018 |  | 152 |  |  | $ | 19.21 |
Granted |  | 87 |  |  | $ | 24.55 |
Vested |  | (93 | ) |  | $ | 19.69 |
Nonvested at September 30, 2018 |  | 146 |  |  | $ | 22.07 |
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 2018 were made pursuant to the NN, Inc. 2016 Omnibus 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 to 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 granted in 2018.
TSR: |  |  |  | Threshold Performance (50% of Shares) |  | Target Performance (100% of Shares) |  | Maximum Performance (150% of Shares)
|  | 2018 grants |  | 35th Percentile |  | 50th Percentile |  | 75th Percentile
ROIC: |  |  |  | Threshold Performance (35% of Shares) |  | Target Performance (100% of Shares) |  | Maximum Performance (150% of Shares)
| 2018 grants |  | 15.5 | % |  | 18.0 | % |  | 19.5 | %
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 (per share) |  | Shares (in thousands) |  | Grant Date Fair Value (per share)
2018 |  | 55 |  |  | $ | 24.65 |  |  | 55 |  |  | $ | 24.55 |
We recognize expense for ROIC Awards based on the probable outcome of the associated performance condition. We generally recognize an 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. During the three months and nine months ended September 30, 2018, the probability of performance achievement for ROIC Awards that were granted in 2016 diminished to below the threshold performance level of 15.5% as defined by the plan. A decrease in share-based compensation expense of $0.8 million to reflect the change in estimate of the probability of vesting is included in selling, general and administrative expense and additional paid-in capital. Related accrued dividend equivalents of less than $0.1 million were also reversed. The following table summarizes the status of unvested PSU awards as of September 30, 2018, and changes during the nine months then ended. All PSUs that vested on December 31, 2017, were settled in shares in May 2018.
|  | Nonvested TSR Awards |  | Nonvested ROIC Awards
|  | Shares (in thousands) |  | Weighted Average Grant-Date Fair Value (per share) |  | Shares (in thousands) |  | Weighted Average Grant-Date Fair Value (per share)
Nonvested at January 1, 2018 |  | 130 |  |  | $ | 16.60 |  |  | 136 |  |  | $ | 16.27 |
Granted |  | 55 |  |  | $ | 24.65 |  |  | 55 |  |  | $ | 24.55 |
Forfeited |  | (13 | ) |  | $ | 14.50 |  |  | (14 | ) |  | $ | 14.86 |
Nonvested at September 30, 2018 |  | 172 |  |  | $ | 18.47 |  |  | 177 |  |  | $ | 18.31 |

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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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