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Stock-Based Compensation
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Dec. 31, 2014
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | STOCK-BASED COMPENSATION On September 11, 2014, the Board of Directors of Vectrus (the Board) adopted and approved the Vectrus, Inc. 2014 Omnibus Incentive Plan (the 2014 Omnibus Plan). The purpose of the 2014 Omnibus Plan is to promote the long-term interests of the Company and its shareholders by strengthening the Company's ability to attract and retain employees of the Company and its affiliates and members of the Board upon whose judgment, initiative and efforts the financial success and growth of the business of the Company largely depend, and to provide an additional incentive for such individuals through share ownership and other rights that promote and recognize the financial success and growth of the Company and create value for shareholders. The 2014 Omnibus Plan permits the Compensation and Personnel Committee of the Board (the Committee) to grant to eligible employees and directors of the Company and its affiliates any of the following types of awards (or any combination thereof): nonqualified stock options (NQOs), incentive stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs) and other awards that may include, without limitation, unrestricted shares, the payment of shares in lieu of cash, the payment of cash based on attainment of performance goals, service conditions or other goals established by the Committee and the payment of shares in lieu of cash under other Company incentive or bonus programs. Subject to adjustment, the maximum number of shares of the Company's common stock authorized for issuance under the 2014 Omnibus Plan is 2.6 million shares. The 2014 Omnibus Plan also generally governs equity awards that were issued under equity plans of Exelis and converted into awards denominated in the Company's common stock, provided that such converted awards will generally continue to be subject to the material terms and conditions of the original equity incentive plans under which they were granted. As of December 31, 2014, there were 1.7 million shares available under the 2014 Omnibus Plan. Outstanding Exelis Awards Vectrus awards granted prior to the Spin-off were denominated in Exelis common shares. Exelis' equity incentive plan governs awards granted to Exelis employees and directors including NQOs and incentive stock options, Restricted Stock and RSUs, target cash awards called Total Shareholder Return (TSR) awards and other awards. On September 29, 2014, Exelis converted or adjusted outstanding NQOs and RSUs to 514,941 replacement awards denominated in Vectrus common shares. The manner of conversion for each award reflected a mechanism intended to preserve the intrinsic value of each award and generally on terms which were in all material respects identical to the terms of the award replaced. The fair value of the converted Vectrus NQOs immediately following the Spin-off was higher than the fair value of the Exelis awards prior to the Spin-off. As a result, we will incur incremental compensation expense of approximately $0.7 million of which $0.3 million was recognized as of December 31, 2014. The remaining balance will be expensed over the remaining term of the specific award and recognized through 2017. 2014 Omnibus Plan Awards Granted Post Spin-off Employee Grants On September 29, 2014, the Committee approved the grant of 6,727 RSUs, to be effective October 10, 2014, to executives who had outstanding Exelis TSR awards under the Exelis plan. The RSUs will vest on December 4, 2015, subject to the participants' continued employment and the terms of the award agreement. The fair value of the RSUs is determined based on the closing price of Vectrus common stock on the date of grant, which was $20.62. Stock compensation expense will be recognized ratably over the vesting period of the awards. Founders' Grants On September 29, 2014, the Committee approved the grant of 175,606 RSUs and 171,298 NQOs, effective October 10, 2014, to employees in positions deemed critical to the establishment and success of Vectrus. These Founders' Grants were a special one-time award intended to closely align the economic interest of the recipients with the Vectrus shareholders. The RSUs vest in one-third increments on each of the three anniversary dates following the grant date. The fair value of the RSUs was determined based on the closing price of Vectrus common stock on the date of grant, which was $20.62. The NQOs expire ten years from the date of the grant and vest in one-third increments over 3 years following the date of the grant. The fair value of each NQO grant was estimated as $8.24 on the date of grant using the Black-Scholes option pricing model. Stock compensation expense will be recognized ratably over the vesting period of the awards. Non-employee Director Grants On September 29, 2014, the Committee approved the grant of 21,024 RSUs, effective October 10, 2014, as a portion of the directors' compensation, prorated for their service from the Spin-off through the day before the May 2015 annual meeting. The RSUs vest one day prior to the Vectrus 2015 annual meeting. The fair value of the RSUs is determined based on the closing price of Vectrus common stock on the date of grant, which was $20.62. Stock compensation expense will be recognized ratably over the vesting period of the awards. Prior to September 27, 2014, our employees participated in equity incentive plans maintained by Exelis. Stock-based compensation amounts awarded under the Exelis plans have historically been immaterial, as such, amounts presented in the following tables include equity and liability awards issued under the Vectrus equity incentive plan after September 27, 2014.
At December 31, 2014, total unrecognized compensation costs related to equity-based awards and liability based awards were $6.6 million and $0.3 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.89 years and 0.98 years, respectively. We account for NQOs and RSUs as equity-based compensation awards. TSR and cash settled RSUs are accounted for as liability-based compensation awards. Non-Qualified Stock Options NQOs generally vest in one-third increments over 3 years following the date of the grant and are exercisable for periods up to 10 years from the date of grant at a price equal to the fair market value of common stock at the date of grant, except for Exelis awards that were outstanding on September 26, 2014 and converted to Company awards, which were revalued as a result of the Spin-off. The NQOs granted from 2011 through 2013 were awarded with a term of ten years and retained the vesting schedule of the original Exelis NQO awards. The table below provides a roll-forward of outstanding NQOs subsequent to the Spin-off:
The following table summarizes information about NQOs outstanding and exercisable as of December 31, 2014:
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on Vectrus' closing stock price of $27.40 per share on December 31, 2014, which would have been received by the option holders had all option holders exercised their options as of that date. There were no exercisable options "out of the money" as of December 31, 2014. As of December 31, 2014, the total number of stock options expected to vest (including those that have already vested) was 0.4 million. These stock options have a weighted-average exercise price of $17.58 per share, an aggregate intrinsic value of $3.6 million and a weighted average remaining contractual life of 8.7 years. The fair value of stock options is determined on the date of grant utilizing a Black-Scholes valuation model. The following assumptions were utilized in deriving the fair value for NQOs granted on October 10, 2014 under the Black-Scholes model:
Black-Scholes model volatility is based on daily average volatility of our peer group over 7.0 years, which is consistent with the expected term. Peer group companies were selected from companies within the aerospace and defense industry that most closely match our business, including size, diversification, and customer base. The expected term of the stock option represents the estimated period of time until exercise and is based on the vesting period of the award and the estimated exercise patterns of employees. The risk-free rate is based on the United States Treasury stripped coupon rates with maturities corresponding to the expected term of seven years, measured as of the grant date. Restricted Stock Units The fair value of RSUs is determined based on the closing price of Vectrus common stock on the date of the grant. Under the plan, RSUs awarded prior to 2014 typically cliff vest 3 years from the date of grant. For RSUs granted in 2014, one-third of the award vests on each of the three anniversary dates following the grant date. RSUs have no voting rights. If an employee leaves the Company prior to vesting, whether through resignation or termination for cause, the RSUs are forfeited. If an employee retires or is terminated by the Company other than for cause, all or a pro rata portion of the RSUs may vest. The RSUs outstanding at Spin-off retained the vesting schedule of the original Exelis awards. The table below provides a roll-forward of outstanding RSUs subsequent to the Spin-off.
Total Shareholder Return Awards In connection with the Spin-off, outstanding Exelis TSR awards under the Exelis Omnibus Incentive Plan were replaced with Vectrus RSUs for the remaining uncompleted portion of the 2013 TSR award performance period. On October 10, 2014, 6,727 RSUs were granted at a fair value of $20.62. These RSUs will vest on December 4, 2015 subject to the participant's continued employment and award terms. |
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