Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.7.0.1
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 issues shares pursuant to the 2007 Stock Incentive Plan (the “2007 Plan”) which 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. The exercise price of stock options granted under the 2007 Plan is equal to the market value on the date of grant. As of December 31, 2016, 2,730,320 shares are authorized under the 2007 Plan, of which 741,831 were available for future grant.
In addition to awards granted under the 2007 Plan, the Company granted non-qualified options to purchase 200,000, 100,000, 50,000 and 130,000 shares of its common stock to newly hired senior management level employees on April 1, 2009, November 26, 2012, January 7, 2013 and May 18, 2015, respectively, of which 230,000 were outstanding as of December 31, 2016. 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 date of grant, 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.
The Company recognized the following amounts related to the Company’s share-based payment arrangements (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Stock-based compensation cost charged against loss, before income tax benefit
 
 
 
 
 
Stock options
$
554

 
$
686

 
$
812

Restricted stock and restricted stock units
867

 
1,148

 
1,029

Total expense included in continuing operations
$
1,421

 
$
1,834

 
$
1,841

Stock-based compensation cost included in:
 
 
 
 
 
Cost of revenues
$
49

 
$
159

 
$
55

Operating expenses
1,372

 
1,675

 
1,786

Total expense included in continuing operations
$
1,421

 
$
1,834

 
$
1,841


As of December 31, 2016, total stock option compensation expense of $1.3 million and $894,000 was not yet recognized related to non-vested option awards and related to non-vested shares and share unit awards, respectively, and is expected to be recognized over a weighted average period of 3.0 years and 1.6 years, respectively.
In addition to the stock-based compensation costs recognized in continuing operations related to the Company’s share-based payment arrangements, stock-based compensation costs of $198,000 are included in discontinued operations for the year ended December 31, 2014.
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:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Expected life of options in years
4.75
 
4.75
 
4.75
Risk-free interest rate
1.1% - 1.4%
 
1.3% - 1.6%
 
1.4% - 1.6%
Expected volatility
57.4% - 63.7%
 
34.5% - 53.2%
 
33.1% - 34.5%
Expected dividend yield
—%
 
—%
 
—%

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 2016, 2015 and 2014, 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.
A summary of share option activity is presented in the table below (in thousands, except per share data):
 
Shares
 
Weighted Average Exercise Price
 
Weighted
Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value(1)
Options outstanding at December 31, 2013
1,748

 
$
12.95

 
 
 
 

Granted
133

 
14.58

 
 
 
 

Exercised
(86
)
 
12.28

 
 
 
 

Canceled
(160
)
 
15.75

 
 
 
 

Options outstanding at December 31, 2014
1,635

 
12.84

 
 
 
 
Granted
617

 
4.73

 
 
 
 
Exercised
(20
)
 
7.27

 
 
 
 
Canceled
(419
)
 
13.45

 
 
 
 
Options outstanding at December 31, 2015
1,813

 
10.00

 
 
 
 
Granted
374

 
2.86

 
 
 
 

Exercised

 

 
 
 
 

Canceled
(679
)
 
12.66

 
 
 
 

Options outstanding at December 31, 2016
1,508

 
7.03

 
4.7
 
$

Total vested and expected to vest as of December 31, 2016
1,501

 
7.05

 
4.7
 

Options exercisable as of:
 
 
 
 
 
 
 
December 31, 2014
1,003

 
$
14.15

 
 
 
 
December 31, 2015
969

 
13.09

 
 
 
 
December 31, 2016
703

 
10.06

 
3.1
 
$

________________________________________________________________
(1) 
Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market value).
Other information pertaining to options is as follows (in thousands, except per share data):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Fair value of options granted
$
556

 
$
1,119

 
$
612

Per share weighted average fair value of options granted
$
1.49

 
$
1.81

 
$
4.60

Total intrinsic value of stock options exercised
$

 
$
131

 
$
242


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 $15,000, $7,000 and $6,000 in 2016, 2015 and 2014 respectively, recorded as a reduction in additional paid-in capital.
Restricted Stock and Restricted Stock Units
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 restricted stock and restricted stock units activity 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, 2013
118

 
$
10.94

Granted
184

 
14.92

Vested
(76
)
 
10.35

Canceled
(12
)
 
10.63

Nonvested at December 31, 2014
214

 
14.59

Granted
129

 
9.96

Vested
(92
)
 
14.52

Canceled
(76
)
 
12.64

Nonvested at December 31, 2015
175

 
12.05

Granted
120

 
4.00

Vested
(76
)
 
11.27

Canceled
(29
)
 
13.03

Nonvested at December 31, 2016
190

 
$
7.13


Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted
$
4.00

 
$
9.96

 
$
14.92

Total fair value of restricted stock and restricted stock units vested
$
294

 
$
667

 
$
1,076

Stock-Based Compensation
The Company issues shares pursuant to the 2007 Stock Incentive Plan (the “2007 Plan”) which 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. The exercise price of stock options granted under the 2007 Plan is equal to the market value on the date of grant. As of December 31, 2016, 2,730,320 shares are authorized under the 2007 Plan, of which 741,831 were available for future grant.
In addition to awards granted under the 2007 Plan, the Company granted non-qualified options to purchase 200,000, 100,000, 50,000 and 130,000 shares of its common stock to newly hired senior management level employees on April 1, 2009, November 26, 2012, January 7, 2013 and May 18, 2015, respectively, of which 230,000 were outstanding as of December 31, 2016. 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 date of grant, 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.
The Company recognized the following amounts related to the Company’s share-based payment arrangements (in thousands):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Stock-based compensation cost charged against loss, before income tax benefit
 
 
 
 
 
Stock options
$
554

 
$
686

 
$
812

Restricted stock and restricted stock units
867

 
1,148

 
1,029

Total expense included in continuing operations
$
1,421

 
$
1,834

 
$
1,841

Stock-based compensation cost included in:
 
 
 
 
 
Cost of revenues
$
49

 
$
159

 
$
55

Operating expenses
1,372

 
1,675

 
1,786

Total expense included in continuing operations
$
1,421

 
$
1,834

 
$
1,841


As of December 31, 2016, total stock option compensation expense of $1.3 million and $894,000 was not yet recognized related to non-vested option awards and related to non-vested shares and share unit awards, respectively, and is expected to be recognized over a weighted average period of 3.0 years and 1.6 years, respectively.
In addition to the stock-based compensation costs recognized in continuing operations related to the Company’s share-based payment arrangements, stock-based compensation costs of $198,000 are included in discontinued operations for the year ended December 31, 2014.
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:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Expected life of options in years
4.75
 
4.75
 
4.75
Risk-free interest rate
1.1% - 1.4%
 
1.3% - 1.6%
 
1.4% - 1.6%
Expected volatility
57.4% - 63.7%
 
34.5% - 53.2%
 
33.1% - 34.5%
Expected dividend yield
—%
 
—%
 
—%

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 2016, 2015 and 2014, 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.
A summary of share option activity is presented in the table below (in thousands, except per share data):
 
Shares
 
Weighted Average Exercise Price
 
Weighted
Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value(1)
Options outstanding at December 31, 2013
1,748

 
$
12.95

 
 
 
 

Granted
133

 
14.58

 
 
 
 

Exercised
(86
)
 
12.28

 
 
 
 

Canceled
(160
)
 
15.75

 
 
 
 

Options outstanding at December 31, 2014
1,635

 
12.84

 
 
 
 
Granted
617

 
4.73

 
 
 
 
Exercised
(20
)
 
7.27

 
 
 
 
Canceled
(419
)
 
13.45

 
 
 
 
Options outstanding at December 31, 2015
1,813

 
10.00

 
 
 
 
Granted
374

 
2.86

 
 
 
 

Exercised

 

 
 
 
 

Canceled
(679
)
 
12.66

 
 
 
 

Options outstanding at December 31, 2016
1,508

 
7.03

 
4.7
 
$

Total vested and expected to vest as of December 31, 2016
1,501

 
7.05

 
4.7
 

Options exercisable as of:
 
 
 
 
 
 
 
December 31, 2014
1,003

 
$
14.15

 
 
 
 
December 31, 2015
969

 
13.09

 
 
 
 
December 31, 2016
703

 
10.06

 
3.1
 
$

________________________________________________________________
(1) 
Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market value).
Other information pertaining to options is as follows (in thousands, except per share data):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Fair value of options granted
$
556

 
$
1,119

 
$
612

Per share weighted average fair value of options granted
$
1.49

 
$
1.81

 
$
4.60

Total intrinsic value of stock options exercised
$

 
$
131

 
$
242


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 $15,000, $7,000 and $6,000 in 2016, 2015 and 2014 respectively, recorded as a reduction in additional paid-in capital.
Restricted Stock and Restricted Stock Units
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 restricted stock and restricted stock units activity 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, 2013
118

 
$
10.94

Granted
184

 
14.92

Vested
(76
)
 
10.35

Canceled
(12
)
 
10.63

Nonvested at December 31, 2014
214

 
14.59

Granted
129

 
9.96

Vested
(92
)
 
14.52

Canceled
(76
)
 
12.64

Nonvested at December 31, 2015
175

 
12.05

Granted
120

 
4.00

Vested
(76
)
 
11.27

Canceled
(29
)
 
13.03

Nonvested at December 31, 2016
190

 
$
7.13


Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):
 
Year Ended December 31,
 
2016
 
2015
 
2014
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted
$
4.00

 
$
9.96

 
$
14.92

Total fair value of restricted stock and restricted stock units vested
$
294

 
$
667

 
$
1,076