Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.8
Stock-Based Compensation
12 Months Ended
Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation, Common Stock Repurchases and Dividends
Stock-Based Compensation, Common Stock Repurchases and Dividends
The Company issues shares pursuant to the 2007 Stock Incentive Plan (the “2007 Plan”). The 2007 Plan approved by shareholders provides for the grant of stock incentive awards in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units and other awards in stock and/or cash to certain key employees, non-employee directors and service providers. Effective with the approval of the 2007 Plan in May 2007, the Company may not issue any new awards or options under its Amended and Restated 1992 Stock Option Plan (the “1992 Plan”). At December 31, 2013, a total of 204,109 shares were available for future grant under the 2007 Plan. The exercise price of stock options granted under the 2007 Plan is equal to the market value on the date of grant. Options issued to employees under the 2007 Plan generally become exercisable over a four-year period and terminate seven years from the date of grant. Stock options granted to non-employee directors vest 6 months from the date of grant and terminate ten years from the date of grant. Restricted stock and restricted stock units issued to employees and to non-employee directors under the 2007 Plan are subject to the risk of forfeiture and transfer restrictions that lapse in varying time periods from the date of grant.
In addition to awards granted under the 2007 Plan and 1992 Plan, the Company granted non-qualified options to purchase 200,000, 100,000 and 50,000 shares of its common stock to newly hired senior management level employees on April 1, 2009, November 26, 2012, and January 7, 2013, respectively. The options in all cases were granted outside of any shareholder-approved plan as inducements to accept employment with the Company. The options have an exercise price equal to the closing price of the Company’s common stock as reported by the Nasdaq Stock Market on the first day of employment, vest in four equal installments on each of the first four anniversaries of the date of grant and have terms of seven years. In other respects, the options were structured to mirror the terms of the options granted under the 2007 Plan and are subject to stock option agreements between the Company and the employees.
In September 2013, the Company completed an offer to exchange certain outstanding options to active non-executive employees. Eligible outstanding options were those that were granted before September 4, 2012 and had an exercise price of $13.50 per share or higher. Eligible employees participating in the exchange offer received new options determined by applying exchange ratios set forth in the exchange offer. The exchange ratios were calculated on an approximate “value-for-value” basis, meaning that the exchange ratios were intended to result in the grant of new options with an aggregate fair value approximately equal to the aggregate fair value of the eligible options they replace. The new options, which were issued under and subject to the terms of the Company's 2007 Plan, will all expire on the later of (i) the expiration date of the surrendered options for which they were exchanged or (ii) the third anniversary of the exchange date, September 19, 2016, subject to earlier expiration upon termination of employee services. New options granted in the option exchange will not be vested on their date of grant regardless of whether the surrendered option was fully vested. The new options granted to employees under the offer will not vest at all until the first anniversary of the date of grant. At that time, each new option granted will then vest as to that portion of the underlying shares that would be vested under the original vesting schedule of the eligible options that had been exchanged. Approximately 182,000 outstanding options were exchanged for approximately 29,000 new option awards. Options granted pursuant to the exchange offer have an exercise price of $11.87 per share, the closing price of the Company's common stock on September 19, 2013. The exchange offer was considered a modification but did not result in a charge or other financial statement impact.
The Company determines stock-based compensation expense based on the grant-date fair value and recognizes it on a straight-line basis over the vesting period. The Company recognizes stock-based compensation net of an estimated forfeiture rate, resulting in the recognition of compensation cost for only those shares expected to vest. Compensation cost is recognized for all awards over the vesting period to the extent the employees or directors meet the requisite service requirements, whether or not an option is ultimately exercised. Conversely, when an employee or director does not meet the requisite service requirements and forfeits the award prior to vesting, any compensation expense previously recognized for the award is reversed.
The Company recognized the following amounts related to the Company’s share-based payment arrangements (in thousands):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Stock-based compensation cost charged against income, before income tax benefit
 
 
 
 
 
Stock options
$
1,145

 
$
1,387

 
$
1,447

Restricted stock and restricted stock units
633

 
737

 
534

     Total
$
1,778

 
$
2,124

 
$
1,981

Stock-based compensation cost included in:
 
 
 
 
 
Cost of revenues
$
141

 
$
137

 
$
124

Operating expenses
1,637

 
1,987

 
1,857

     Total
$
1,778

 
$
2,124

 
$
1,981

Income tax benefit related to stock-based compensation included in net income
$

 
$

 
$
(692
)

Stock Options
The fair value of each option award is estimated at the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of stock option awards granted were as follows:
 
Years Ended December 31,
 
2013
 
2012
 
2011
Expected life of options in years
2.0 - 4.75
 
4.75
 
4.75
Risk-free interest rate
0.34% - 1.34%
 
0.59% - 0.94%
 
0.80% - 2.05%
Expected volatility
31.5% - 43.7%
 
43.8% - 46.9%
 
46.2% - 48.4%
Expected dividend yield
0.0%
 
0.0% - 9.9%
 
2.7% - 6.1%

The Company reviews these assumptions at the time of each new option award and adjusts them as necessary to ensure proper option valuation. The expected life represents the period that the stock option awards are expected to be outstanding. Effective April 2008, the Company’s Board of Directors approved a change in the contractual term of stock options granted to employees from ten to seven years. Given the reduction in the contractual term of its employee stock option awards, the Company determined it was unable to rely on its historical exercise data as a basis for estimating the expected life of stock options granted to employees subsequent to this change. As such, the Company used the “simplified” method for determining the expected life of stock options granted to employees in 2013, 2012 and 2011, which bases the expected life calculation on the average of the vesting term and the contractual term of the awards. The risk-free interest rate is based on the yield of constant maturity U.S. treasury bonds with a remaining term equal to the expected life of the awards. The Company estimated the stock price volatility using weekly price observations over the most recent historical period equal to the expected life of the awards. With the approval by the Company’s Board of Directors effective February 23, 2011 of the initiation of dividend payments, the Company computed an expected dividend rate for grants awarded in 2011 and through the third quarter of 2012 based on the relationship of the expected dividend to the stock price on the date of grant. On October 26, 2012, the Company's Board of Directors approved the termination of the Company's quarterly dividend payment.
A summary of share option activity for the year ended December 31, 2013 is presented in the table below (in thousands, except per share data):
 
Shares
 
WAEP*
 
Weighted
Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value**
Options outstanding at December 31, 2012
1,925

 
$
13.81

 
 
 
 

Granted
389

 
11.78

 
 
 
 

Exercised
(1
)
 
9.26

 
 
 
 

Canceled
(565
)
 
15.10

 
 
 
 

Options outstanding at December 31, 2013
1,748

 
$
12.95

 
4.45
 
$
3,415

Options subject to exercise at
December 31, 2013
881

 
$
15.55

 
3.13
 
$
756

*Weighted Average Exercise Price
**Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market value).
As of December 31, 2013, $2,474,000 of total stock option compensation expense (gross of the impact of potential forfeitures) was not yet recognized related to non-vested option awards, and is expected to be recognized over a weighted average period of 3.0 years.
Other information pertaining to options is as follows (in thousands, except per share data):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Fair value of options granted
$
1,382

 
$
1,288

 
$
1,838

Per share weighted average fair value of options granted
$
3.55

 
$
2.44

 
$
3.13

Total intrinsic value of stock options exercised
$
2

 
$

 
$
240


The aggregate impact of the exercise of stock options, expirations of vested stock options and lapse of restrictions on restricted stock generated a net tax impact of $13,000, $214,000 and $19,000 in 2013, 2012 and 2011 respectively, recorded as a reduction in additional paid-in capital.
Restricted Stock
Restricted stock and restricted stock units are valued based on the market value of the Company’s shares on the date of grant, which was equal to the intrinsic value of the shares on that date. These awards vest and the restrictions lapse over varying periods from the date of grant. The Company recognizes compensation expense for the intrinsic value of the restricted awards ratably over the vesting period.
A summary of the status of the Company’s nonvested shares and share units as of December 31, 2013 and changes during the year ended December 31, 2013 is presented in the table below (in thousands, except per share data):
 
Number of Shares
 
Weighted Average
Grant-Date Fair Value
Nonvested at December 31, 2012
150

 
$
11.21

Granted
55

 
10.14

Vested
(66
)
 
10.72

Canceled
(21
)
 
11.46

Nonvested at December 31, 2013
118

 
$
10.94


As of December 31, 2013, $954,000 of total compensation expense (gross of the impact of potential forfeitures) was not yet recognized related to non-vested shares and share unit awards, which is expected to be recognized over a weighted average period of 2.2 years.
Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted
$
10.14

 
$
8.63

 
$
13.19

Total fair value of restricted stock and restricted stock units vested
$
593

 
$
394

 
$
349


Common Stock Repurchases
Since October 2010, the Company’s Board of Directors has approved common stock repurchases of up to 3,500,000 shares. Shares may be purchased at prevailing market prices in the open market or in private transactions, subject to market conditions, share price, trading volume and other factors. The repurchase program may be discontinued at any time. The repurchase program has been funded to date using cash on hand. A summary of the Company's repurchase activity is presented in the table below (in thousands, except per share data):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Common stock shares repurchased under Board authorized plan

 
1,569

 
459

Average purchase price per share
$

 
$
6.22

 
$
13.15

Shares available under Board authorizations at December 31, 2013
778

 
 
 
 

Dividends
On October 26, 2012, the Company's Board of Directors approved the termination of the Company's quarterly dividend payment. The Company did not pay a dividend in 2013. The following table sets forth the quarterly cash dividends authorized and paid by the Company in 2012 (in thousands, except per share amounts):
 
Date of Declaration
 
Date of Payment
 
Dividend per Share
 
Total Dividends Paid
First Quarter
2/21/12

 
3/20/12

 
$
0.17

 
$
1,738

Second Quarter
4/24/12

 
6/15/12

 
0.17

 
1,730

Third Quarter
7/24/12

 
9/14/12

 
0.17

 
1,712

Fourth Quarter

 

 

 

Total
 
 
 
 
$
0.51

 
$
5,180