Stockholders' Equity and Stock Compensation
|12 Months Ended|
Dec. 31, 2020
|Stockholders’ Equity and Stock Compensation||
The authorized capital stock of the Company consists of 500 million shares of Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), 75 million shares of Class B Common Stock, par value $0.001 per share (“Class B Common Stock”), and 10 million shares of Preferred Stock, par value $0.001 per share.
The Company has two classes of issued and outstanding common stock: Class A Common Stock and Class B Common Stock. Holders of Class A Common Stock and holders of Class B Common Stock have substantially identical rights, including rights with respect to any declared dividends or distributions of cash or property, and the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness. The two classes have different voting rights, with holders of Class A Common Stock entitled to one vote per share while holders of Class B Common Stock are entitled to ten votes per share on all matters submitted to a vote of stockholders. The Company uses the two-class method for calculating net earnings per share (EPS). Basic and diluted net EPS of Class A Common Stock and Class B Common Stock are identical. The shares of Class B Common Stock are convertible at any time at the option of the holder into shares of Class A Common Stock on a share-for-share basis. In addition, shares of Class B Common Stock will be automatically converted into a like number of shares of Class A Common Stock upon transfer to any person or entity who is not a permitted transferee.
During the years ended December 31, 2020, 2019 and 2018 certain Class B stockholders converted 1,391,670, 1,575,509 and 561,876 shares, respectively, of Class B Common Stock to Class A Common Stock.
SHARE REPURCHASE PROGRAM
On February 6, 2018, the Company’s Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), pursuant to which the Company could purchase shares of its Class A Common Stock, for an aggregate repurchase price not to exceed $150.0 million. The Share Repurchase Program expired on February 6, 2021 at which time share repurchase authorizations of $20.0 million had not been executed.
The following table provides a summary of the Company’s Class A Common Stock repurchase activities:
INCENTIVE AWARD PLAN
As approved by the Company’s stockholders on May 23, 2017, the 2017 Incentive Award Plan (the “2017 Plan”), replaced and superseded the 2007 Incentive Award Plan adopted on May 24, 2007 (the “2007 Plan,” together with the 2017 Plan, the “Plans”). A total of 10,000,000 shares of Class A Common Stock were reserved for issuance under the 2017 Plan, which provides for grants of ISOs, non-qualified stock options, restricted stock and various other types of equity awards as described in the plan to the employees, consultants and directors of the Company. The 2017 Plan is administered by the Company’s Board of Directors with respect to awards to non-employee directors and by the Company’s Compensation Committee with respect to other eligible participants. As of December 31, 2020, a total of 5,737,050 shares remain available for grant as equity awards under the 2017 Plan.
A summary of the status and changes of nonvested shares related to the Plans is presented below:
The Company recognized, as part of general and administrative, compensation expense of $65.2 million, $41.1 million and $30.5 million for grants under the Plans for the years ended December 31, 2020, 2019, and 2018. Related excess income tax benefits (expenses), recorded in the consolidated statements of earnings, for the years ended December 31, 2020, 2019 and 2018, were $(0.7) million, $0.3 million, and $1.6 million. Included in compensation expense recognized in 2020 is an $18.2 million non-cash charge related to the cancellation of 750,000 unvested shares as a result of a legal settlement. Nonvested shares generally vest over a graded vesting schedule from one to four years from the date of grant. For grants that have a service requirement, the Company accounts for forfeitures upon occurrence, rather than estimating the probability of forfeiture at the date of grant. Accordingly, the Company recognizes the full grant-date fair value of these awards on a straight-line basis throughout the requisite service period, reversing any expense if, and only if, there is a forfeiture. There was $75.6 million of unrecognized compensation cost related to nonvested common shares as of December 31, 2020, which is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $41.6 million, $36.3 million and $22.3 million.
The Company determines the fair value of restricted stock awards and any performance-related components based on the closing market price of the Company’s common stock on the date of grant. For share-based awards that have a performance-based vesting requirement, the Company evaluates the probability of achieving the performance criteria throughout the performance period and will adjust share-based compensation expense if it estimates that the achievement of the performance criteria is not probable. Certain performance-based awards contain market condition components which are valued on the date of grant using a Monte Carlo simulation model. The fair value of such awards is expensed ratably over the performance period and is not adjusted for actual achievement. Included in the table above are two tranches of performance-based awards granted on December 30, 2020 which vest at the end of a performance period. The first tranche includes 125,000 shares with a market condition tied to the Company’s total shareholder return in relation to its peer companies, valued at $49.78 per share, and the second tranche includes 125,000 shares with a performance condition tied to annual EPS growth, valued at $36.02 per share. The ultimate payout of performance awards is determined at the end of the performance period and can vary from zero to 200% based on actual results.
STOCK PURCHASE PLAN
As approved by the Company’s stockholders on May 23, 2017, the 2018 Employee Stock Purchase Plan (the “2018 ESPP”), replaced the Company’s previous employee stock purchase plan, the Skechers U.S.A., Inc. 2008 Employee Stock Purchase Plan (the “2008 ESPP”), which expired pursuant to its terms on January 1, 2018. A total of 5,000,000 shares of Class A Common Stock are available for sale under the 2018 ESPP. The 2018 ESPP provides eligible employees of the Company and its subsidiaries the opportunity to purchase shares of the Company’s Class A Common Stock at a purchase price equal to 85% of the fair market value on the first trading day or last trading day of each purchase period, whichever is lower. Eligible employees can invest up to 15% of their compensation through payroll deductions during each purchase period. The purchase price discount and the look-back feature cause the 2018 ESPP to be compensatory and the Company recognizes compensation expense, which is computed using the Black-Scholes valuation model.
Under the 2018 ESPP, the Company received approximately $5.9 million, $6.2 million and $5.3 million, and issued 232,904, 260,630 and 221,889 shares, respectively, for the years ended December 31, 2020, 2019 and 2018.