Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Stockholders' Equity

8. Stockholders’ equity

Stock Option Activity

On May 23^rd, 2013, the Company’s stockholders approved a new stock incentive plan authorizing an additional 1.6 million shares, plus remaining available shares under a prior plan for issuance under the new plan. Combined with the legacy stock incentive plans, there are approximately 2.0 million shares available for grant as of March 31, 2014.

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 three months ended March 31, 2014 (aggregate intrinsic value in thousands):

	Number of Units			Weighted Average Grant- Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of period		1,279,123		$	9.67
Granted		374,947			17.58
Released		(302,194	)		7.51
Forfeited		(107,070	)		13.57
Units outstanding, end of period		1,244,806			12.25	$	22,768

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $18.29 per share on March 31, 2014, multiplied by the number of RSUs. As of March 31, 2014, there was $12.9 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 31.5 months. RSUs are released when vesting requirements are met.

In the three months ended March 31, 2014, the Company granted approximately 0.1 million performance-based RSUs (included in the table above). Of the approximately 0.3 million performance-based RSUs outstanding as of March 31, 2014, the performance criteria have been met for approximately 0.1 million units, which will vest upon the completion of service requirements. The performance-based RSUs granted in 2014 contain provisions whereby the amount of RSUs that ultimately vest is dependent upon the level of achievement of performance metrics. The amount of shares included in the table above related to such grants is the target level, which is the Company’s best estimate of the amount of RSUs that will vest. The maximum additional shares that could be earned is approximately 0.1 million, which are not included in the table above.

Certain RSUs that vested in the first quarter of 2014 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld were approximately 0.1 million with a value of approximately $1.1 million on their respective vesting dates as determined by the Company’s closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the statement of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the amount of shares that would have otherwise been issued as a result of the vesting.

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2014 (aggregate intrinsic value in thousands):

	Number of options			Weighted Average Exercise Price		Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Options outstanding, beginning of period		3,365,692		$	6.15
Granted		—
Exercised		(1,027,600	)		7.08
Expired / forfeited		(27,134	)		9.77
Options outstanding, end of period		2,310,958			5.69		5.02	$	29,213
Exercisable at March 31, 2014		2,200,443			5.75		4.95		27,697
Expected to vest after March 31, 2014		68,150			4.49		7.02		940

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 $18.29 on March 31, 2014. The aggregate intrinsic value of options exercised for the three months ended March 31, 2014 and 2013 was approximately $12.6 million and $1.6 million, respectively. As of March 31, 2014, total unrecognized stock-based compensation expense related to unvested stock options was approximately $0.1 million, which is expected to be recognized over a remaining weighted average period of approximately 10 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 of which, less than 40,000 are unvested and are expected to vest. The Company does not expect to recognize any future expense related to performance-based stock options.

Share Based Compensation Expense

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 three month periods ended March 31, 2014 or 2013. 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 (in thousands):

	Three Months Ended March 31,
	2014		2013
Cost of products sold	$	22	$	34
Sales, general and administrative expenses		711		731
Research and development expenses		444		158
Total share-based compensation	$	1,177	$	923

Total share-based compensation expense recognized in the statements of operations for the three months ended March 31, 2014 and 2013, included approximately $8,000 and $39,000, respectively, related to incentive stock options for which no tax benefit is recognized.