Equifax Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

We have one active share-based award plan, the amended and restated 2008 Omnibus Incentive Plan. This plan was originally approved by our shareholders in 2008 and was amended and restated with shareholder approval in May 2013 to, among other things, increase the reserve for awards under the plan by 11 million shares. The plan provides our directors, officers and certain key employees with stock options, restricted stock units and performance share awards. The plan is described below. We expect to issue common shares held as either treasury stock or new issue shares upon the exercise of stock options or once shares vest pursuant to restricted stock units or performance share awards. Total stock-based compensation expense in our Consolidated Statements of Income during the twelve months ended December 31, 2018, 2017 and 2016, was as follows:



	Twelve Months Ended December 31,
	2018		2017		2016
	(In millions)
Cost of services	$	9.5	$	7.2	$	4.5
Selling, general and administrative expenses	33.0		31.1		32.6
Stock-based compensation expense, before income taxes	$	42.5	$	38.3	$	37.1

The total income tax benefit recognized for stock-based compensation expense was $9.7 million, $13.7 million and $13.3 million for the twelve months ended December 31, 2018, 2017 and 2016, respectively.

In conjunction with the adoption of ASU 2016-09, windfall tax benefits are to be presented as cash flows from operating activities on a prospective basis. As a result, we classified $7.5 million and $26.7 million as cash flows from operating activities for the years ended December 31, 2018 and 2017, respectively. Previous guidance required benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduced operating cash flows and increased financing cash flows by $35.9 million for the twelve months ended December 31, 2016.

Stock Options. The 2008 Omnibus Incentive Plan provides that qualified and nonqualified stock options may be granted to officers and other employees. In conjunction with our acquisition of TALX, we assumed options outstanding under the legacy TALX stock option plan, which was approved by TALX shareholders. The 2008 Omnibus Incentive Plan requires that stock options be granted at exercise prices not less than market value on the date of grant. Generally, stock options are subject to graded vesting for periods of up to three years based on service, with 33% vesting for each year of completed service, and expire ten years from the grant date.

We use the binomial model to calculate the fair value of stock options granted on or after January 1, 2006. The binomial model incorporates assumptions regarding anticipated employee exercise behavior, expected stock price volatility, dividend yield and risk-free interest rate. Anticipated employee exercise behavior and expected post-vesting cancellations over the contractual term used in the binomial model were primarily based on historical exercise patterns. These historical exercise patterns indicated there was not significantly different exercise behavior between employee groups. For our expected stock price volatility assumption, we weighted historical volatility and implied volatility. We used daily observations for historical volatility, while our implied volatility assumption was based on actively traded options related to our common stock. The expected term is derived from the binomial model, based on assumptions incorporated into the binomial model as described above.

The fair value for stock options granted during the twelve months ended December 31, 2018, 2017 and 2016, was estimated at the date of grant, using the binomial model with the following weighted-average assumptions:



	Twelve Months Ended December 31,
	2018			2017			2016
Dividend yield	1.2		%	1.9		%	1.2		%
Expected volatility	21.8		%	22.8		%	19.4		%
Risk-free interest rate	2.7		%	1.1		%	1.2		%
Expected term (in years)	4.8			4.8			4.8
Weighted-average fair value of stock options granted	$	24.34		$	22.20		$	20.62

The following table summarizes changes in outstanding stock options during the twelve months ended December 31, 2018, as well as stock options that are vested and expected to vest and stock options exercisable at December 31, 2018:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)				(In years)	(In millions)
Outstanding at December 31, 2017	1,184		$	87.64
Granted (all at market price)	553		$	122.35
Exercised	(212	)	$	60.55
Forfeited and canceled	(63	)	$	114.67
Outstanding at December 31, 2018	1,462		$	103.50	7.3	$	14.0
Vested and expected to vest at December 31, 2018	1,415		$	103.01	7.2	$	13.9
Exercisable at December 31, 2018	631		$	80.81	5.2	$	14.0

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of Equifax’s common stock on December 31, 2018 and the exercise price, multiplied by the number of in-the-money stock options as of the same date. This represents the value that would have been received by the stock option holders if they had all exercised their stock options on December 31, 2018. In future periods, this amount will change depending on fluctuations in Equifax’s stock price. The total intrinsic value of stock options exercised during the twelve months ended December 31, 2018, 2017 and 2016, was $13.3 million, $31.4 million and $64.8 million, respectively. At December 31, 2018, our total unrecognized compensation cost related to stock options was $8.2 million with a weighted-average recognition period of 1.6 years.

The following table summarizes changes in outstanding options and the related weighted-average exercise price per share for the twelve months ended December 31, 2017 and 2016:



	December 31,
	2017				2016
	Shares		Weighted- Average Price		Shares		Weighted- Average Price
	(In thousands)				(In thousands)
Outstanding at the beginning of the year	1,228		$	66.81	1,866		$	49.54
Granted (all at market price)	401		$	114.66	181		$	131.41
Exercised	(398	)	$	48.23	(779	)	$	40.61
Forfeited and canceled	(47	)	$	103.13	(40	)	$	72.06
Outstanding at the end of the year	1,184		$	87.64	1,228		$	66.81
Exercisable at end of year	636		$	62.62	856		$	48.43

Other Stock Awards. Our 2008 Omnibus Incentive Plan also provides for awards of restricted stock units and performance shares or units that are settled in shares of our common stock that can be granted to executive officers, employees and directors. Such stock awards are generally subject to cliff vesting over a period between one to three years based on service and may also have vesting conditions based on meeting specified performance goals.

The fair value of these stock awards is based on the fair market value of our common stock on the date of grant. However, stock awards granted prior to February 16, 2017 did not accrue or pay dividends during the vesting period, so the fair value on the date of grant for the pre-2017 awards was reduced by the present value of the expected dividends over the requisite service period (discounted using the appropriate risk-free interest rate). Stock awards granted beginning in 2017 do include the right to dividends or dividend equivalents, which are accrued and payable only if and when the underlying stock vests and is payable.

Pursuant to our 2008 Omnibus Incentive Plan, certain executive officers have been granted performance shares in which the number of shares earned is dependent upon the Company’s three-year total shareholder return relative to the three-year total shareholder return of the companies in the S&P 500 stock index, as comprised on the grant date, subject to adjustment, and, in 2017, have also been granted performance shares in which the number of shares earned is dependent upon the Company’s three-year cumulative adjusted earnings per share. The number of shares which could potentially be issued under these performance share awards ranges from zero to 200% of the target award. The grants outstanding subject to market performance as of December 31, 2018 would result in 283,003 shares outstanding at 100% of target and 566,006 at 200% of target at the end of the vesting period. Compensation expense for shares earned based on the Company’s three-year total shareholder return is recognized on a straight-line basis over the measurement period and is based upon the fair market value of the shares estimated to be earned at the date of grant using a Monte-Carlo simulation. Compensation expense for shares earned based on the Company’s three-year cumulative adjusted earnings per share is recognized on a straight-line basis over the measurement period based on the grant date fair value of our common stock and the number of awards expected to vest at each reporting date.

The following table summarizes changes in these other stock awards during the twelve months ended December 31, 2018, 2017 and 2016 and the related weighted-average grant date fair value:



	Shares		Weighted-Average Grant Date Fair Value
	(In thousands)
Nonvested at December 31, 2015	1,431		$	72.64
Granted	460		$	84.07
Vested	(645	)	$	55.28
Forfeited	(59	)	$	73.54
Nonvested at December 31, 2016	1,187		$	87.54
Granted	498		$	89.45
Vested	(632	)	$	56.53
Forfeited	(42	)	$	104.24
Nonvested at December 31, 2017	1,011		$	109.48
Granted	563		$	109.71
Vested	(417	)	$	87.09
Forfeited	(82	)	$	115.40
Nonvested at December 31, 2018	1,075		$	120.11

The total fair value of stock awards that vested during the twelve months ended December 31, 2018, 2017 and 2016, was $50.2 million, $79.4 million and $71.7 million, respectively, based on the weighted-average fair value on the vesting date, and $40.4 million, $45.0 million and $38.8 million, respectively, based on the weighted-average fair value on the date of grant. At December 31, 2018, our total unrecognized compensation cost related to these nonvested stock awards was $51.6 million with a weighted-average recognition period of 2.1 years.