Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Stockholders' Equity

7. Stockholders’ equity

Stock Option Activity

At September 30, 2013, the Company had five stock-based compensation plans, four of 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, 2012. On May 23, 2013, the Company’s stockholders approved a new stock incentive plan authorizing an additional 1.6 million shares for issuance under the Company’s Plans. There are approximately 2.3 million shares available for grant under the plans as of September 30, 2013.

Performance-based stock awards

The Company has issued performance-based stock options and performance-based restricted stock units (“RSUs”), the vesting of which is contingent upon the achievement of certain performance criteria related to the operating performance of the Company as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the implicit service period (the longer of the period the performance condition is expected to be achieved or the required service period) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2013:

				Weighted
				Average Grant-
	Number of			Date Fair		Aggregate
	Units			Value		Intrinsic Value
Units outstanding, beginning of period		582,212		$	5.42
Granted		736,479			8.98
Released		(158,700	)		5.39
Forfeited		(44,814	)		7.24
Units outstanding, end of period		1,115,177			7.71	$	16,593,834

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $14.88 per share, multiplied by the number of RSUs. As of September 30, 2013, there was $5.4 million in unrecognized compensation cost related to RSUs granted under our stock plans. We expect to recognize this cost over a weighted average period of 29 months. RSUs are released when vesting requirements are met.

In 2013, the Company granted approximately 149,000 performance-based RSUs (included in the table above). Of the approximately 227,000 performance-based RSUs outstanding as of September 30, 2013, the performance criteria have been met for approximately 85,000 units which will vest upon the completion of service requirements.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2013:

						Average
				Weighted		Remaining
	Number of			Average		Contractual		Aggregate
	options			Exercise Price		Life (years)		Intrinsic Value
Options outstanding, beginning of period		6,321,076		$	6.05
Granted		—
Exercised		(1,985,596	)		5.14
Expired / forfeited		(132,288	)		5.72
Options outstanding,end of period		4,203,192			6.49		4.51	$	35,702,302
Exercisable at September 30, 2013		3,754,714			6.71		4.31		31,097,408
Expected to vest after September 30, 2013		380,339			4.60		6.19		3,908,919

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock of $14.88 on September 30, 2013. The aggregate intrinsic value of options exercised for the three and nine months ended September 30, 2013 was approximately $5.3 million and $9.1 million, respectively. 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. As of September 30, 2013, total unrecognized stock-based compensation expense related to unvested stock options was approximately $0.3 million, which is expected to be recognized over a remaining weighted average period of approximately 9 months. Options expected to vest are presented net of expected forfeitures.

Included in the table above is approximately 0.4 million of performance-based options, including approximately 0.1 million for which performance conditions have been met. At September 30, 2013, there are approximately 0.3 million performance-based options outstanding for which the performance criteria have yet to be met. There is approximately $47,000 of remaining expense to be recognized relative to these performance based options as of September 30, 2013.

Share-Based Compensation Expense

The fair value of RSUs is estimated as the closing price of our common stock on the date of grant. When granted, the Company calculates the fair value of stock options using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected life and risk-free interest rates. No options were awarded during the nine month periods ended September 30, 2013 or September 30, 2012. The estimated fair value of stock-based compensation awards is amortized to expense on a straight-line basis over the service periods. As stock-based compensation expense recognized is based 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 September 30,
	2013		2012		2013		2012
Cost of products sold	$	49,632	$	38,085	$	133,500	$	133,977
Sales, general and administrative expenses		735,433		657,870		2,292,672		1,631,234
Research and development expenses		177,929		153,433		479,463		431,839
Total share-based compensation	$	962,994	$	849,388	$	2,905,635	$	2,197,050

Total share-based compensation expense recognized in the statements of operations for the three months ended September 30, 2013 and 2012, included approximately $22,000 and $98,000, respectively, related to incentive stock options 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, 2013 and 2012, included approximately $85,000 and $0.3 million, respectively, related to incentive stock options for which no tax benefit is recognized.

Issuer Purchases of Equity Securities

In February 2013, the Company announced that TASER’s Board of Directors authorized a stock repurchase program to acquire up to $25.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. Under this program, which was completed in the second quarter of 2013, the Company purchased 3,048,966 common shares under this program for a total cost of approximately $25.0 million, or a weighted average cost of $8.20 per share. The weighted average cost includes the average price paid per share of $8.17, plus any applicable administrative costs for the transaction. The Company completed this buyback in the second quarter of 2013 and does not currently have an open stock repurchase program.