Stock-Based Compensation
 12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
STOCK-BASED COMPENSATION
The Company maintains an equity incentive plan (the 2014 Omnibus Plan) to govern awards granted to Vectrus employees and directors, including nonqualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards and other awards. We account for NQOs and stock-settled RSUs as equity-based compensation awards. TSR awards, described below, and cash-settled RSUs are accounted for as liability-based compensation awards.
The maximum number of shares of the Company's common stock authorized for issuance under the 2014 Omnibus Plan is 2.6 million shares. As of December 31, 2016, there were 1.3 million shares remaining available for future awards.
Stock-based compensation expense and the associated tax benefits impacting our Consolidated and Combined Statements of Income were as follows:


Year Ended December 31,
(In thousands)

2016
 
2015
Compensation costs for equity-based awards

$
3,982

 
$
6,250

Compensation costs for liability-based awards

667

 
408

Total compensation costs, pre-tax

$
4,649

 
$
6,658

Future tax benefit

$
1,654

 
$
2,373


Liability-based awards are revalued at the end of each reporting period to reflect changes in fair value. The Company paid $0.5 million related to liability-based compensation awards during the years ended December 31, 2016 and 2015.
At December 31, 2016, total unrecognized compensation costs related to equity-based awards and liability-based awards were $3.2 million and $0.4 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.80 years and 1.74 years, respectively.
In connection with the Spin-off, Vectrus employees' outstanding NQOs and RSUs were adjusted to preserve the aggregate intrinsic value of each award at the date of the Spin-off on terms which were in all material respects identical to the terms of the awards replaced. The fair value of the converted NQOs immediately following the Spin-off was higher than the fair value of such awards immediately prior to the Spin-off. As a result, we incurred incremental compensation expense of approximately $0.7 million of which $0.6 million was recognized as of December 31, 2016. The remaining balance will be expensed over the remaining terms of the specific awards and recognized through 2017.
Non-Qualified Stock Options
NQOs vest in one-third increments on the first, second and third anniversaries of the grant date and expire 10 years from the date of grant.
A summary of the status of our NQOs as of December 31, 2016, 2015 and 2014 and changes during the years then ended is presented below:


Year Ended December 31,


2016

2015

2014
(In thousands, except per share data)

Shares
 
Weighted Average Exercise Price Per Share
 
Shares
 
Weighted Average Exercise Price Per Share
 
Shares
 
Weighted Average Exercise Price Per Share
Outstanding at January 1,

486

 
$19.25
 
446

 
$17.43
 

 

Granted

87

 
$20.06
 
58

 
$31.52
 

 

Exercised

(158
)
 
$13.63
 
(18
)
 
$13.37
 

 

Forfeited, canceled or expired

(31
)
 
$22.51
 
—

 
$0.00
 

 

Outstanding at Spin-off

—

 
$0.00
 
—

 
$0.00
 
—

 
$
—

Conversion related to the Spin-off ¹

—

 
$0.00
 
—

 
$0.00
 
275

 
$14.83
Post Spin-off activities

 
 
 
 
 
 
 
 
 
 
 
Granted

—

 
$0.00
 
—

 
$0.00
 
171

 
$20.62
Outstanding at December 31,

384

 
$21.47
 
486

 
$19.25
 
446

 
$17.43
Options exercisable at December 31,

214

 
$20.35
 
212

 
$16.13
 
47

 
$13.12













¹ The weighted average grant date fair value of the stock options converted is equal to the weighted average grant date fair value of such stock options prior to the Spin-off, reduced by the Spin-off conversion adjustment.

The following table summarizes information about NQOs outstanding and exercisable as of December 31, 2016:
(In thousands, except per share data)
 
Options Outstanding
 
Options Exercisable
Range of Exercise Prices Per Share
 
Number
 
Weighted Average Remaining Contractual Life (In Years)
 
Weighted Average Exercise Price Per Share
 
Aggregate Intrinsic Value
 
Number
 
Weighted Average Remaining Contractual Life (In Years)
 
Weighted Average Exercise Price Per Share
 
Aggregate Intrinsic Value
$12.94 - $20.62
 
283

 
7.78
 
$
19.09

 
$
1,344

 
163

 
7.20
 
$
18.19

 
$
919

$22.16 - $32.04
 
101

 
7.67
 
28.10

 
—

 
51

 
7.49
 
27.21

 
—

Total options and aggregate intrinsic value
 
384

 
7.75
 
$
21.47

 
$
1,344

 
214

 
7.27
 
$
20.35

 
$
919


The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on Vectrus' closing stock price of $23.85 per share on December 31, 2016, which would have been received by the option holders if all option holders had exercised their options as of that date. There were less than 0.1 million exercisable options "out of the money" as of December 31, 2016. The aggregate intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $1.6 million, $0.2 million and $0.0 million, respectively.
As of December 31, 2016, 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 $21.56 per share, an aggregate intrinsic value of $1.4 million and a weighted average remaining contractual life of 7.8 years.
The fair value of stock options is determined on the date of grant utilizing a Black-Scholes valuation model. The following weighted-average assumptions were utilized in deriving the fair value for NQOs:
 
 
Year Ending December 31,
 

2016
 
2015
 
2014
Expected volatility
 
30.2
%
 
34.1
%
 
34.6
%
Expected life (in years)

7

 
7

 
7

Risk-free rates

1.69
%
 
2.00
%
 
2.07
%
Weighted-average grant date fair value per share

$
7.06

 
$
12.42

 
$
8.24


Black-Scholes model volatility is based on daily average volatility of our peer group over 7 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 U.S. Treasury stripped coupon rates with maturities corresponding to the expected term of 7 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 2014 Omnibus Plan, RSUs awarded prior to 2014 typically cliff vest 3 years from the date of grant. In general, for employee RSUs granted in 2014 and after, one-third of the award vests on each of the three anniversary dates following the grant date. Director RSUs are granted on the date of the annual meeting and vest the business day immediately prior to the next annual meeting. 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 the date of the 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.


Year Ended December 31,


2016

2015

2014
(In thousands, except per share data)

Shares
 
Weighted Average Grant Date Fair Value Per Share
 
Shares
 
Weighted Average Grant Date Fair Value Per Share
 
Shares
 
Weighted Average Grant Date Fair Value Per Share
Outstanding at January 1,

350

 
$
22.47

 
423

 
$
19.28

 
 
 
 
Granted

181

 
$
21.25

 
104

 
$
26.69

 
 
 
 
Vested

(206
)
 
$
20.56

 
(171
)
 
$
19.03

 
 
 
 
Forfeited or canceled

(40
)
 
$
22.68

 
(6
)
 
$
19.86

 
 
 
 
Outstanding at Spin-off

—

 
$
—

 
—

 
$
—

 
—

 
$0.00
Conversion related to the Spin-off

—

 
$
—

 
—

 
$
—

 
240

 
$17.61
Post Spin-off activities

 
 
 
 
 
 
 
 
 
 
 
Granted

—

 
$
—

 
—

 
$
—

 
203

 
$20.62
Vested

—

 
$
—

 
—

 
$
—

 
(20
)
 
$13.03
Forfeited or canceled

—

 
$
—

 
—

 
$
—

 
—

 
$0.00
Outstanding at December 31,

285

 
$
23.01

 
350

 
$
22.47

 
423

 
$19.28

The total grant date fair value of RSUs vested during the years ended December 31, 2016, 2015 and 2014 was $3.4 million, $3.0 million and $0.3 million, respectively.
Total Shareholder Return Awards
TSR awards are performance-based cash awards that are subject to a three-year performance period. Any payments earned are made in cash following completion of the performance period according to the achievement of specified performance goals. During the years ended December 31, 2016 and 2015, we granted 2016 and 2015 TSR awards with aggregate target TSR values of $1.5 million and $1.8 million, respectively. The fair value of TSR awards is measured quarterly and is based on the Company’s performance relative to the performance of the Aerospace and Defense Companies in the S&P 1500 Index. Depending on the Company’s performance during the three-year performance period, payments can range from 0% to 200% of the target value. For the year ended December 31, 2016, we recorded $0.6 million in compensation expense related to 2015 and 2016 TSR awards. Payment, if any, will be made in January 2018 and January 2019 with respect to the 2015 TSR awards and 2016 TSR awards, respectively. As of December 31, 2016 and 2015, we had $0.9 million and $0.4 million, respectively, recorded as a liability related to TSR awards in compensation and other employee benefits and other non-current liabilities on the Consolidated Balance Sheets.