Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

v3.10.0.1
Share-Based Compensation
 12 Months Ended
Dec. 31, 2018
Share-Based Compensation.  
Share-Based Compensation

13.  SHARE-BASED COMPENSATION

 

Prior to the Separation, our eligible employees participated in the Masco share-based compensation program and received RSAs and stock options.  Effective July 1, 2015, our eligible employees commenced participation in the 2015 Long-Term Incentive Program.  The 2015 Long-Term Incentive Program authorizes the Board to grant stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and dividend equivalents.  All grants are made by issuing new shares and no more than 4.0 million shares of common stock may be issued under the 2015 Long-Term Incentive Program.  As of December 31, 2018, we had 2.6 million shares available under the 2015 Long-Term Incentive Program.

 

Prior to the Separation, share-based compensation expense was allocated to TopBuild based on the awards and options previously granted by Masco to TopBuild employees.  Outstanding, unvested Masco RSAs and stock options held by employees of TopBuild as of June 30, 2015 were forfeited upon Separation and replaced with TopBuild long-term incentive awards immediately subsequent to the Separation.  The replacement awards are subject to the same terms and conditions in effect prior to the Separation and are of generally equivalent value.

 

Share-based compensation expense is included in selling, general, and administrative expense.  The income tax effect associated with the vesting of awards is included in income tax expense.  The following table presents share-based compensation amounts recognized in our Consolidated Statements of Operations, in thousands:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

2018

 

2017

 

2016

Share-based compensation expense

 

$

11,317

 

$

9,889

 

$

7,669

Income tax benefit realized from the vesting of awards

 

$

3,154

 

$

2,882

 

$

588

 

The following table presents a summary of our share-based compensation activity for the year ended December 31, 2018, in thousands, except per share amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSAs

 

Stock Options

 

 

Number of Shares

   

Weighted Average Grant Date Fair Value Per Share

   

Number of Shares

   

Weighted Average Grant Date Fair Value Per Share

   

Weighted Average Exercise Price Per Share

   

Aggregate
Intrinsic
Value

Balance December 31, 2017

 

591.2

 

$

30.92

 

683.5

 

$

11.13

 

$

28.97

 

$

31,969.7

Granted

 

107.3

 

$

85.43

 

77.3

 

$

27.44

 

$

74.50

 

 

 

Converted/Exercised

 

(144.8)

 

$

26.81

 

(134.5)

 

$

10.91

 

$

28.37

 

$

6,246.7

Forfeited

 

(54.5)

 

$

40.74

 

(14.9)

 

$

16.98

 

$

45.46

 

 

 

Balance December 31, 2018

 

499.2

 

$

41.29

 

611.4

 

$

13.10

 

$

34.45

 

$

8,685.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable December 31, 2018 (a)

 

 

 

 

203.8

 

$

10.65

 

$

27.55

 

$

3,570.9

(a)

The weighted average remaining contractual term for vested stock options is 6.7 years.

 

We had unrecognized share-based compensation expense relating to unvested awards as shown in the following table, dollars in thousands:

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

Unrecognized Compensation Expense
on Unvested Awards

 

Weighted Average
Remaining
Vesting Period

Unrecognized compensation expense related to unvested awards:

 

 

 

 

 

 

RSAs

 

$

8,589

 

 

0.8 years

Stock options

 

 

2,929

 

 

0.8 years

Total unrecognized compensation expense related to unvested awards

 

$

11,518

 

 

 

 

Our RSAs with performance-based conditions are evaluated on a quarterly basis with adjustments to compensation expense based on the likelihood of the performance target being achieved or exceeded.  The following table shows the range of payouts and the related expense for our outstanding RSAs with performance-based conditions, in thousands:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payout Ranges and Related Expense

RSAs with Performance-Based Conditions

 

Grant Date Fair Value

 

0%

 

25%

 

100%

 

200%

February 22, 2016

 

$

1,899

 

$

 —

 

$

475

 

$

1,899

 

$

3,798

February 21, 2017

 

$

1,962

 

$

 —

 

$

491

 

$

1,962

 

$

3,924

February 19, 2018

 

$

2,247

 

$

 —

 

$

562

 

$

2,247

 

$

4,494

 

The fair value of our RSAs with a market-based condition granted under the 2015 Long-Term Incentive Program was determined using a Monte Carlo simulation.  The following are key inputs in the Monte Carlo analysis for awards granted in 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

Measurement period (years)

 

 

2.87

 

 

 

2.86

 

Risk free interest rate

 

 

2.36

%

 

 

1.46

%

Dividend yield

 

 

0.00

%

 

 

0.00

%

Estimated fair value of market-based RSAs granted

 

$

103.31

 

 

$

50.06

 

 

The fair value of stock options granted under the 2015 Long-Term Incentive Program was calculated using the Black-Scholes Options Pricing Model.  The following table presents the assumptions used to estimate the fair values of the stock options granted in 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

Risk free interest rate

 

 

2.78

%

 

 

2.18

%

Expected volatility, using historical return volatility and implied volatility

 

 

32.50

%

 

 

35.00

%

Expected life (in years)

 

 

6.0

 

 

 

6.0

 

Dividend yield

 

 

0.00

%

 

 

0.00

%

Estimated fair value of stock options granted

 

$

27.44

 

 

$

14.44