Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

v3.6.0.2
Share-Based Compensation
12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
SHARE-BASED COMPENSATION
Share-Based Compensation Expense—The Company accounts for share-based compensation in accordance with ASC Topic 718, Compensation—Stock Compensation. Share-based compensation was recognized as follows in the consolidated statement of income (in thousands):
 
December 31,
 
2016
 
2015
 
2014
Cost of revenue
$
219

 
$
156

 
$
143

Marketing and selling
821

 
808

 
977

Research and development
1,515

 
1,264

 
664

General and administrative
6,453

 
4,725

 
4,278

Total expense
9,008

 
6,953

 
6,062


Stock Awards Plans—Natus' 2011 Stock Awards Plan (the “Plan”) provides for the granting of the following:
Incentive stock options to employees;
Non-statutory stock options to employees, directors and consultants;
Restricted stock awards and restricted stock units;
Stock bonuses; and
Stock appreciation rights.
As of December 31, 2016, there were 1,098,514 shares available for future awards under the plan.
Under the Plan, stock options may be issued at not less than the fair market value of the common stock on the date of grant, as determined by the Board of Directors. Options issued under the Plan become exercisable as determined by the Board of Directors and expire no more than six years after the date of grant. Most options vest ratably over four years.
Stock Option Activity—Stock option activity under the stock awards plans for the year ended December 31, 2016 is summarized as follows:  
 
Number of
Shares
 
Weighted
Average
Exercise Price
Outstanding, December 31, 2015 (737,032 shares exercisable at a weighted average exercise price of $14.40 per share)
1,105,182

 
$
15.07

Granted

 
$

Exercised
(151,142
)
 
$
15.01

Forfeited
(18,600
)
 
$
17.62

Expired
(2,500
)
 
$
16.78

Outstanding, December 31, 2016 (816,691 shares exercisable at a weighted average exercise price of $14.54 per share)
932,940

 
$
15.02


As of December 31, 2016, unrecognized compensation related to the unvested portion of stock options was approximately $0.6 million, which is expected to be recognized over a weighted average period of 0.8 years. The intrinsic value of options exercised, representing the difference between the closing stock price of common stock on the date of the exercise and the exercise price, in the years ended December 31, 2016, 2015 and 2014 was $3.4 million, $17.7 million, and $20.6 million, respectively.
As of December 31, 2016, there were: (i) 930,544 options vested and expected to vest with a weighted average exercise price of $15.01, an intrinsic value of $18.4 million, and a weighted average remaining contractual term of 2.1 years; and (ii) 816,691 options exercisable with a weighted average exercise price of $14.54, an intrinsic value of $16.5 million, and a weighted average remaining contractual term of 2.0 years.
The expected life of options is based primarily on historical share option exercise experience of the employees for options granted by the Company. All options are treated as a single group in the determination of expected life, as the Company does not currently expect substantially different exercise or post-vesting termination behavior among the employee population. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant. Expected volatility is based primarily on historical volatility data of the Company's common stock. The Company has no history or expectation of paying dividends on common stock.
Share-based compensation expense associated with options is based on awards ultimately expected to vest. At the time of an option grant, the Company estimates the expected future rate of forfeitures based on historical experience. These estimates are revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. If the actual forfeiture rate is lower than estimated the Company will record additional expense and if the actual forfeiture is higher than estimated the Company will record a recovery of prior expense.
Restricted Stock Awards Activity—The following table summarizes the activity for restricted stock awards during the year ended December 31, 2016:  
 
Shares
 
Weighted
Average
Grant
Date Fair
Value
Unvested at December 31, 2015
535,208

 
$
24.87

Granted
205,234

 
$
44.22

Vested
(212,811
)
 
$
19.75

Forfeited
(21,242
)
 
$
26.69

Unvested at December 31, 2016
506,389

 
$
34.82


As of December 31, 2016, unrecognized compensation related to the unvested portion of stock awards was $9.2 million, which is expected to be recognized over a weighted average period of 2.2 years. The fair market value of outstanding restricted stock awards at December 31, 2016 was $17.6 million. For the restricted stock awards units that vested during the years ended December 31, 2016, 2015, and 2014, the total intrinsic value was $9.0 million, $10.3 million, and $6.0 million, respectively.
Restricted Stock Units Activity—The following table summarizes restricted stock units activity for the year ended December 31, 2016:  
 
Shares
 
Weighted
Average
Grant
Date Fair
Value
Outstanding at December 31, 2015
45,483

 
$
24.57

Awarded
11,860

 
$
45.23

Released
(24,687
)
 
$
21.52

Forfeited
(2,753
)
 
$
26.42

Outstanding at December 31, 2016
29,903

 
$
34.39

As of December 31, 2016, unrecognized compensation related to the unvested portion of stock units was $0.5 million, which is expected to be recognized over a weighted average period of 1.6 years. The aggregate intrinsic value of outstanding restricted stock units at December 31, 2016 was $1.0 million. For the restricted stock units that vested during the years ended December 31, 2016, 2015, and 2014, the total intrinsic value was $0.9 million, $0.9 million, and $0.4 million, respectively.
Employee Stock Purchase Plan—Under Natus' 2011 Employee Stock Purchase Plan (the “ESPP”), U.S. employees can elect to have salary withholdings of up to 15% of eligible compensation to a maximum of $10,625 per offering period, to purchase shares of common stock on April 30 and October 31 of each year. The purchase price for shares acquired under the ESPP is 85% of the fair market value on the last day of the offering period. As of December 31, 2016, there were 165,740 shares reserved for future issuance under the ESPP.
Because the ESPP does not have a “look back” feature, the compensation expense associated with the Plan is not measured by the use of the Black-Scholes pricing model, but rather by measuring the difference between the fair market value of common stock on the last day of the offering period and the purchase price for the offering period, which is 85% of the fair market value. Compensation expense associated with the ESPP for the years ended December 31, 2016, 2015 and 2014, respectively, was $0.2 million, $0.2 million, and $0.2 million.