Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' equity [Abstract]

Stockholders' equity

7. Stockholders’ equity

Stock Option Activity

At September 30, 2012, the Company had four stock-based compensation plans, which are described more fully in the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. There are approximately 1.3 million shares available for grant under the plans as of September 30, 2012. During the first nine months of 2012, the Company granted restricted stock units and performance restricted stock units that vest over one to three years, or upon the achievement of certain performance criteria.

Restricted Stock Units

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2012:

	Number of Units			Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Balance at December 31, 2011		1,096			4.76
Granted		637,148			5.29
Vested		—			—
Forfeited		(19,025	)		4.79
Balance at September 30, 2012		619,219			5.29	$	3,740,083

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $6.04 per share multiplied by the number of restricted stock units. As of September 30, 2012, there was $2.2 million in unrecognized compensation costs related to restricted stock units granted under our stock plans. We expect to recognize these costs over a weighted average period of 14 months.

The Company has granted approximately 180,000 performance restricted stock units (included in the table above), the vesting of which is contingent upon the achievement of certain performance criteria related to new product sales as well as the future sales and operating performance of the Company. Compensation expense is recognized over the implicit service period (the date the performance condition is expected to be achieved) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. As of September 30, 2012, all performance restricted stock units remained unvested.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2012:

	Number of options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Balance at December 31, 2011		7,576,493		$	5.75
Granted		—			—
Exercised		(443,136	)		4.71
Expired/terminated		(370,285	)		7.91
Balance at September 30, 2012		6,763,072			5.92		5.19		6,778,568
Exercisable at September 30, 2012		5,591,287			6.17		4.69		5,258,785
Expected to vest after September 30, 2012		818,240			4.64		7.76		1,139,383

Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $6.04 per share, and the exercise price, multiplied by the applicable number of options. The aggregate intrinsic value of options exercised for the three and nine months ended September 30, 2012, was approximately $0.7 million and $1.6 million, respectively. The aggregate intrinsic value of options exercised for the three and nine months ended September 30, 2011, was approximately $49,000 and approximately $63,000, respectively. As of September 30, 2012, total unrecognized stock-based compensation expense related to unvested stock options was approximately $1.3 million, which is expected to be recognized over a remaining weighted average period of approximately 16 months. Options expected to vest are presented net of expected forfeitures.

The Company has granted a cumulative of 950,800 performance-based stock options from 2008 through September 30, 2012, the vesting of which is contingent upon the achievement of certain performance criteria related to the successful and timely development and market acceptance of future product introductions, as well as the future sales and operating performance of the Company. Compensation expense is recognized over the implicit service period (the date the performance condition is expected to be achieved) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. At September 30, 2012, there are approximately 473,000 performance based options outstanding for which the performance criteria have yet to be met. There is approximately $0.2 million of remaining expense to be recognized relative to these performance based options as of September 30, 2012. No performance-based options were forfeited during the three and nine months ended September 30, 2012. At September 30, 2011, approximately 219,000 unvested performance options with a fair value of approximately $0.5 million remained outstanding. No options were forfeited during the three or nine months ended September 30, 2011.

Share-Based Compensation Expense

Share-based compensation cost for restricted stock units is measured based upon the market price of the Company’s common stock on the date of grant. Share-based compensation cost for stock options is estimated at the grant-date, based upon the fair value as calculated by the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected life, and interest rates. There were no stock options granted during the three and nine months ended September 30, 2012. The assumptions used for the three and nine month periods ended September 30, 2011, and the resulting estimates of weighted-average fair value per share of options granted during those periods, are as follows:

	Three Months Ended Sept 30,			Nine Months Ended Sept 30,
	2011			2011
Expected life of options		4.5 years			4.5 years
Weighted average volatility		54.4	%		55.6	%
Weighted average risk-free interest rate		0.9	%		1.7	%
Weighted average fair value of options granted	$	1.97		$	2.16

The expected life of options represents the estimated period of time until exercise and is based on the Company’s historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of employee behavior. Expected stock price volatility is primarily based on historical volatility of the Company’s stock. The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. The estimated fair value of stock-based compensation awards and other options is amortized to expense on a straight-line basis over the requisite service period. As share-based compensation expense is recognized on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s forfeiture rate was calculated based on its historical experience of awards which ultimately vested.

Share-based compensation was classified as follows:

	Three Months Ended September 30,				Nine Months Ended Sept 30,
	2012		2011		2012		2011
Cost of products sold	$	38,085	$	30,238	$	133,977	$	135,217
Sales, general and administrative expenses		657,870		518,513		1,631,234		1,891,258
Research and development expenses		153,433		144,769		431,839		506,969
Total share-based compensation	$	849,388	$	693,520	$	2,197,050	$	2,533,444

Total share-based compensation expense recognized in the statements of operations for the three months ended September 30, 2012 and 2011, included approximately $98,000 and $251,000, respectively, related to Incentive Stock Options (“ISOs”) for which no tax benefit is recognized. Total share-based compensation expense recognized in the statements of operations for the nine months ended September 30, 2012 and 2011, included approximately $0.3 million and $1.2 million, respectively, related to ISOs for which no tax benefit is recognized. The Company did not tax-effect the share-based compensation expense for tax purposes related to the non-qualified disposition of ISOs exercised and sold as the benefit will be recorded when the Company is in a position to realize the benefit with an offset to taxes payable in future periods. The total unrecognized tax benefit related to the non-qualified disposition of stock options in the three and nine months ended September 30, 2012, was $0 in each period. The total unrecognized tax benefit related to the non-qualified disposition of stock options in the three and nine months ended September 30, 2011, was approximately $49,000 and $63,000, respectively.

Issuer Purchases of Equity Securities

On April 25, 2012, TASER’s Board of Directors authorized a stock repurchase program to acquire up to $20.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. During the nine months ended September 30, 2012, the Company purchased approximately 3.8 million common shares under this program for a total cost of $20.0 million, or a weighted average cost of $5.22 per share.