Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.20.4
Stock-Based Compensation
12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation STOCK-BASED COMPENSATION
In April 2016, AFI adopted the Armstrong Flooring, Inc. 2016 Long-Term Incentive Plan (the "2016 LTI Plan") and the Armstrong Flooring, Inc. 2016 Directors' Stock Unit Plan (the "2016 Directors' Plan"), which collectively comprised a new compensation program that allows for the grant of stock-based compensation awards to certain employees and non-employee directors of AFI different forms of benefits, including performance-based awards and RSUs. On June 2, 2017, our stockholders approved an amendment and restatement of the 2016 LTI Plan. Under the 2016 LTI Plan, as amended, our Board of Directors (the "Board") has authorized up to 7,600,000 shares of common stock for issuance. Our Board authorized up to 600,000 shares of common stock that may be issued pursuant to the 2016 Directors' Plan. As of December 31, 2020, 1,185,860 shares and 17,101 shares were available for future grants under the 2016 LTI Plan and the 2016 Directors' Plan, respectively.

Prior to the Spin-off, AWI issued stock-based compensation awards to employees and directors that became employees or directors of AFI. In connection with the Spin-off, these awards were converted into new AFI equity awards using a formula designed to preserve the intrinsic value of the awards immediately prior to the Spin-off. The modification did not result in a change to the value of the awards. The terms and conditions of the AWI awards were replicated and, as necessary, adjusted to ensure that the vesting schedule and economic value of the awards was unchanged by the conversion. At December 31, 2020 only stock option awards remained outstanding related to AWI issued stock-based compensation awards.
Stock-based compensation expense
Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period and is recorded as a component of SG&A. Total stock-based compensation expense included in the Consolidated Statements of Operations and the related tax effects are presented in the table below:
Year Ended December 31,
2020 2019 2018
Stock-based compensation expense $ 2.7  $ 1.2  $ 4.7 
Income tax benefit   —  1.1 

To the extent that the vesting-date fair value of an award is greater than the grant-date fair value, the excess tax benefit is recorded as an income tax benefit in the Consolidated Statements of Operations. For the years ended December 31, 2020, 2019 and 2018 the income tax expense was $0.3 million, $0.1 million and $0.1 million, respectively, related to vested stock-based compensation awards.

As of December 31, 2020, $4.1 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements is expected to be recognized over a weighted-average period of 2.8 years.

Performance-based stock compensation
The Company grants PSAs, PSUs and PBRSUs to key executive employees and certain management employees of AFI under the 2016 LTI Plan. These awards represent units of restricted Company common stock that vest based on the achievement of certain performance or market conditions.

PSAs and PSUs - The performance condition for 75% of the awards is based on earnings before interest, taxes, depreciation and amortization. The performance condition for the remaining 25% of the awards is based on cumulative free cash flow, defined as cash flow from operations, less cash used in investing activities. PSAs issued to key executive employees are also indexed to the achievement of specified levels of absolute total shareholder return and the fair value was measured using a Monte-Carlo simulation on the date of grant. For PSUs that are not indexed to the achievement of specified levels of absolute total shareholder return, the fair value was measured using our stock price on the date of grant. If the performance conditions are met, the awards vest at the conclusion of the performance period, which is generally at the end of the third fiscal year following the date of grant. We did not issue any PSAs during 2020, 2019 or 2018 and did not issue any PSUs during 2020. Details of PSUs issued during 2019 and 2018 are as follows:
2019 2018
Issued (in thousands) 200.9 354.7
Weighted-average grant date fair value $ 13.25  $ 13.97 

PBRSUs - The Company issued 691,130 PBRSUs to key executive employees and certain management employees on March 24, 2020. The market condition is based on price targets for the Company's common stock at a future date. Price targets are achieved if the average closing sale stock price of one share of Company Stock, over the 20 trading days following the date of the 2022 year-end earnings release, equals or surpasses the price targets. The number of shares earned is based upon the achievement of four stock price hurdles: $6.00, $7.50, $9.00 and $10.50. Following the first price target achievement, 50% of the overall performance units are earned. With each of the next three Price Target Achievements, an additional 25% of the overall performance units are earned. Payout percentages will be linearly interpolated for stock price performance between the hurdles. The Monte-Carlo valuation provided a weighted average fair value of $0.90 per share for the grant-date fair value.

The Company issued 371,430 PBRSUs to the CEO on September 11, 2019. The market condition is based on price targets for the Company's common stock at a future date. The number of shares earned is based upon the achievement of five stock price hurdles over the period from September 11, 2019 through September 11, 2024. The five per share stock price hurdles are $10.50, $12.25, $14.00, $15.75 and $17.50. A Monte-Carlo valuation was performed to simulate possible future stock prices for AFI over the time remaining period of the award. The Monte-Carlo valuation provided a fair value for each of the five per share stock price hurdles discussed above, respectively: $5.93, $5.28, $4.70, $4.20 and $3.75 (weighted average value of $4.77); and provided derived service periods of 3 years for the first two hurdles and 4 years for the remaining three hurdles.
The following table summarizes the Monte-Carlo inputs and grant-date fair value price used for PBRSU issuances.

March 24,
2020
September 11,
2019
Grant-date stock price (AFI closing stock price on date of grant) $ 2.18  $ 7.43 
Assumptions
Risk-free rate of return 0.44  % 1.59  %
Expected volatility 66.29  % 41.45  %
Expected dividend yield —  — 

The risk-free rate of return was determined based on the implied yield available on zero-coupon U.S. Treasury bills at the time of grant with a remaining term equal the expected term of the award. The expected volatility was based on a weighted average of the volatility of AFI and (or) the average volatility of our compensation peer group's volatility. The expected dividend yield was assumed to be zero because, at the time of the grant, we had no plans to declare a dividend.

The table below summarizes activity related to the PSAs, PSUs and PBRSUs.
PSAs, PSUs and PBRSUs
Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value (per share)
Non-vested as of December 31, 2019 868.3  $ 10.53 
Granted 691.1  0.90 
Vested —  — 
Cancelled (211.7) 16.54 
Forfeited (90.3) 4.15 
Non-vested as of December 31, 2020 1,257.4  4.69 

The table above contains 4,174 PSUs as of December 31, 2019 which are accounted for as liability awards as they may be settled in cash. These relate to employees in certain international jurisdictions which have prohibitions related to stock settled awards. PSAs with a measurement period that ended on December 31, 2019 resulted in no shares being issued during 2020. PSUs with a measurement period that ended on December 31, 2020 will result in no shares being issued during 2021.

Restricted Stock Awards

RSUs - RSUs were granted to key executive employees and certain management employees of AFI. The RSUs are units representing shares of Company common stock which are converted to shares of Company common stock at the end of the service period. There are no performance or market conditions associated with these awards. For awards issued prior to 2020, vesting generally occurs with one third of the awards vesting at the end of one, two and three years from the date of grant. In 2020, most newly issued RSUs cliff vest three years from the date of grant. The fair value of RSUs was measured using our stock price on the date of grant. Details of RSUs issued during 2020, 2019 and 2018 are as follows:
2020 2019 2018
Issued (in thousands) 165.0 622.8  308.3 
Weighted-average grant date fair value 4.36 7.39  16.12 
The table below summarizes activity related to RSUs. The non-employee director activity is not reflected in the RSU activity below:
RSUs
Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value (per share)
Non-vested as of December 31, 2019 670.8  $ 8.28 
Granted 165.0  4.36 
Vested (131.6) 11.40 
Forfeited (65.9) 6.95 
Non-vested as of December 31, 2020 638.3  6.71 

The table above contains 8,334 and 14,118 RSUs as of December 31, 2020 and 2019, respectively, which are accounted for as liability awards as they may be settled in cash. These relate to employees in certain international jurisdictions which have prohibitions related to stock settled awards.

Director Awards - RSUs were granted to our non-employee directors under the 2016 Directors' Plan. These awards generally have a vesting period of one year and any dividends paid prior to vesting are forfeitable if the award does not vest. The awards are generally payable six months following the director’s separation from service on the Board. The fair value of non-employee director RSUs was measured using our stock price on the date of grant. Details of Director awarded RSUs issued during 2020, 2019 and 2018 are as follows:
2020 2019 2018
Issued (in thousands) 171.2  57.0 67.3
Weighted-average grant date fair value 3.83 $ 11.05  $ 13.30 

The following table summarizes activity related to the non-employee director RSUs.
Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value (per share)
Vested and not yet delivered as of December 31, 2019 260.3  $ 13.07 
Granted 171.2  3.83
Distributed (19.0) 11.05
Outstanding as of December 31, 2020 412.5  9.32

Stock Options

There was no activity related to stock options during 2020. The following table summarizes information about AFI's stock options:
Number of Shares (in thousands) Weighted-Average Exercise Price (per share) Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in millions)
Outstanding (and exercisable) as of December 31, 2019 442.1  $ 12.85  2.7 $ — 
Outstanding (and exercisable) as of December 31, 2020 442.1  12.85  1.7  
Remaining stock options expire between 2021 and 2024. When stock options are exercised, we may issue new shares, use treasury shares (if available), acquire shares held by investors, or a combination of these alternatives.

The following table presents information related to stock option exercises:
Year Ended December 31,
2020 2019
Total intrinsic value of stock options exercised $   $ — 
Cash proceeds received from stock options exercised   0.1