Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

v3.8.0.1
Share-Based Compensation
 12 Months Ended
Dec. 31, 2017
Share-Based Compensation.  
Share-Based Compensation

14.  SHARE-BASED COMPENSATION

 

Prior to the Separation, our eligible employees participated in the Masco share-based compensation program and received RSAs and Options.  Effective July 1, 2015, our eligible employees commenced participation in the 2015 LTIP.  The 2015 LTIP 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 LTIP.  As of December 31, 2017, we had 2.7 million shares available under the 2015 LTIP.

 

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 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 award vestings is included in income tax expense effective July 1, 2016, upon the early adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.”  The following table presents share-based compensation amounts recognized in our Consolidated Statements of Operations, in thousands:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

 

2017

 

2016

 

2015

Share-based compensation expense

 

$

9,889

 

$

7,669

 

$

4,651

Income tax benefit realized from award vestings

 

$

2,882

 

$

588

 

$

 —

 

The following table presents a summary of our share-based compensation activity for the year ended December 31, 2017, in thousands, except per share amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSAs

 

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, 2016

 

653.1

 

$

25.71

 

712.0

 

$

9.73

 

$

25.03

 

$

7,525.8

Granted

 

158.9

 

$

44.28

 

153.0

 

$

14.62

 

$

38.89

 

 

 

Converted/Exercised

 

(187.7)

 

$

24.06

 

(181.5)

 

$

8.56

 

$

21.88

 

$

6,267.5

Forfeited

 

(33.1)

 

$

31.08

 

 —

 

$

 —

 

$

 —

 

 

 

Balance December 31, 2017

 

591.2

 

$

30.92

 

683.5

 

$

11.13

 

$

28.97

 

$

31,969.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable December 31, 2017 (a)

 

 

 

 

141.4

 

$

10.22

 

$

26.45

 

$

6,970.0

(a)

The weighted average remaining contractual term for vested options is 7.8 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, 2017

 

 

Unrecognized Compensation Expense
on Unvested Awards

 

Weighted Average
Remaining
Vesting Period

Unrecognized compensation expense related to unvested awards:

 

 

 

 

 

 

RSAs

 

$

10,531

 

 

1.3 years

Options

 

 

4,122

 

 

1.2 years

Total unrecognized compensation expense related to unvested awards

 

$

14,653

 

 

 

 

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

 

$

1,942

 

$

 —

 

$

486

 

$

1,942

 

$

3,884

February 21, 2017

 

$

2,143

 

$

 —

 

$

536

 

$

2,143

 

$

4,286

 

The fair value of our RSAs with a market-based condition granted under the 2015 LTIP was determined using a Monte Carlo simulation.  The following are key inputs in the Monte Carlo analysis for awards granted in 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

Measurement period (years)

 

 

2.86

 

 

 

2.86

 

Risk free interest rate

 

 

1.46

%

 

 

0.90

%

Dividend yield

 

 

0.00

%

 

 

0.00

%

Estimated fair value of market-based RSAs granted

 

$

50.06

 

 

$

33.77

 

 

The fair value of Options granted under the 2015 LTIP was calculated using the Black-Scholes Options Pricing Model.  The following table presents the assumptions used to estimate the fair values of the options granted in 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

Risk free interest rate

 

 

2.18

%

 

 

1.51

%

Expected volatility, using historical return volatility and implied volatility

 

 

35.00

%

 

 

38.00

%

Expected life (in years)

 

 

6.0

 

 

 

6.0

 

Dividend yield

 

 

0.00

%

 

 

0.00

%

Estimated fair value of options granted

 

$

14.44

 

 

$

10.20