NOTE J – EQUITY-BASED COMPENSATION



On October 25, 2016, the Company declared a two-for-one stock split of its common stock that was distributed in the form of a stock dividend on November 22, 2016 to shareholders of record as of November 14, 2016.  All existing equity award agreements provide that the number of shares of common stock and the respective exercise price covered by each outstanding option agreement be proportionately adjusted for a stock split or similar event.  Equity award data in the following has been adjusted to reflect the stock split.



Equity-based compensation expense was $9,805,  $11,081, and $16,542 for fiscal years 2014, 2015, and 2016, respectively.  The related tax benefit for these periods was $3,308,  $3,766, and $5,540, respectively. 



The following table shows the remaining unrecognized compensation expense on a pre-tax basis for all types of unvested equity awards outstanding as of December 31, 2016.  This table does not include an estimate for future grants that may be issued.









The Company’s 2015 Equity Incentive Award Plan (the “2015 Plan”), which was approved by the shareholders at the Annual Shareholders’ Meeting held on May 8, 2015, allows for the grant of various equity awards including stock-settled stock appreciation rights, stock options, deferred stock units, and other types of equity-based awards to the Company’s officers, key employees, and non-employee directors.  Prior to the approval of the 2015 plan, the Company maintained a 2006 Equity Incentive Award Plan (the “2006” Plan”), which expired in April of 2016.    The 2015 Plan replaced the 2006 Plan for all future grants, and no new awards have been granted under the 2006 Plan. 



At the inception of the 2015 Plan, 13,839 awards had been granted under the 2006 Plan, of which 13,595 were stock-settled stock appreciation rights, 15 were stock options, and 229 were deferred stock units.  Also, at the inception of the 2015 Plan, 2,551 awards had been forfeited.  Under the 2015 Plan, 10,000 shares have been authorized.  As of December 31, 2016, 2,773 awards had been granted under the 2015 Plan, of which 2,752 were stock-settled stock appreciation rights, and 21 were deferred stock units.  Also, as of December 31, 2016, a total of 612 awards had been forfeited and added back to the number of shares available for issuance under the 2015 Plan. 



The Company’s Compensation Committee utilizes two types of vesting methods when granting awards to officers and key employees under the 2015 Plan based upon the nature of the grant.  Awards granted to officers and key employees upon hire or promotion to such a position generally vest 20% each year on the anniversary of the grant date and expire five and one-half years from the date of grant.  Awards granted as a supplement to existing equity awards held by officers and key employees will generally vest 50% each year beginning on the first grant date anniversary following the final vesting of previous grants.  The expiration of these supplemental awards is generally within 12 months following the last vest date of such award.  Awards of stock options and stock-settled stock appreciation rights to be granted to non-employee directors generally vest 25% each quarter, commencing on the first vest date anniversary following the final vesting of the previous award.  The expiration of these awards is generally within 12 months following the last vest date of the previous award.  Awards of deferred stock units are full-value shares at the date of grant, vesting over the periods of service, and do not have expiration dates.  Beginning in 2015, certain new grants of stock-settled stock appreciation rights became subject to a mandatory post-vesting holding requirement of 10% of the shares derived upon exercise for the sooner of five years following the exercise or at such time the grantee no longer qualifies as a participant under the Plan.  As a result of this requirement, the Company has included an illiquidity discount in the fair value calculation of these awards.

NOTE J – EQUITY-BASED COMPENSATION - CONTINUED

 

The Company uses the Black-Scholes option pricing model to estimate the fair value of its equity awards.  The weighted-average fair value, net of illiquidity discount, of stock-settled stock appreciation rights that was $9.46,  $23.50, and $22.99, granted in 2014, 2015, and 2016, respectively.



Following is a table that includes the weighted-average assumptions that the Company used to calculate fair value of equity awards that were granted during the periods indicated.  Deferred stock units are full-value shares at the date of grant and have been excluded from the table below.









A summary of the Company’s stock option and stock-settled stock appreciation right activity is as follows:





* Aggregate intrinsic value is defined as the difference between the current market value at the reporting date (the closing price of the Company's common stock on the last trading day of the period) and the exercise price of awards that were in-the-money.  The closing price of the Company's common stock at January 2, 2016, and December 31, 2016, was $63.88 and $61.20, respectively.



The total intrinsic value of stock options and stock-settled stock appreciation rights exercised was $51,795 in 2014, $41,548 in 2015, and $38,198 in 2016.  The Company currently has no deferred stock units that are nonvested.     

NOTE J – EQUITY-BASED COMPENSATION - CONTINUED



The total fair value of equity awards that vested was $7,568,  $7,184, and $11,481, for the years ended 2014, 2015, and 2016 respectively.  This total fair value includes equity-based awards issued in the form of stock-settled stock appreciation rights.