Note 14 - Stock-based Compensation

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 14 — STOCK-BASED COMPENSATION

The Company makes an estimate of expected forfeitures and recognizes compensation costs only for those stock-based awards expected to vest. As of December 31, 2014, the total future compensation cost related to unvested stock-based awards that are expected to vest is $8,146,000, which amount will be recognized over a weighted average period of 1.4 years.

During the years ended December 31, 2014, 2013 and 2012, the Company recorded compensation related to stock-based awards as follows:

	Year Ended December 31,
	2014		2013		2012
	(Dollars in thousands, except per share data)
Cost of revenues	$	3,076	$	3,971	$	4,225
Selling and marketing expenses		261		494		542
General and administrative expenses		2,234		1,799		1,611
Total stock-based compensation expense		5,571		6,264		6,378
Tax effect on stock-based compensation expense		836		783		797
Net effect of stock-based compensation expense	$	4,735	$	5,481	$	5,581

During the fourth quarters of 2014 and 2013, the Company evaluated the trends in the stock-based award forfeiture rate and determined that the actual rates are 5.6%. This represents a decrease of 0.8% from the estimate made in the third quarter of 2012. As a result of the increase in the estimated forfeiture rate, the stock based compensation expense decreased by an immaterial amount.

Valuation assumptions

The fair value of each grant of stock-based awards is estimated using the Black-Scholes valuation model and the assumptions noted in the following table. The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. In the absence of enough historical information, the expected term was determined using the simplified method giving consideration to the contractual term and vesting schedule. The dividend yield forecast is expected to be 20% of the Company’s yearly net profit, which is equivalent to a 0.7% yearly weighted average dividend rate in the year ended December 31, 2014. The risk-free interest rate was based on the yield from U.S. constant treasury maturities bonds with an equivalent term. The forfeiture rate is based on trends in actual stock-based awards forfeitures.

The Company calculated the fair value of each stock-based award on the date of grant based on the following assumptions:

	Year Ended December 31,
	2014			2013			2012
For stock options issued by the Company:
Risk-free interest rates		1.7	%		0.8	%		1.0	%
Expected lives (in years)		5.1			4.6			5.0
Dividend yield		0.9	%		0.71	%		0.81	%
Expected volatility		35.1	%		37.8	%		47.2	%
Forfeiture rate		0.0	%		5.6	%		6.4	%

Stock-based awards

The 2004 Incentive Compensation Plan

In 2004, the Company’s Board of Directors adopted the 2004 Incentive Compensation Plan (“2004 Incentive Plan”), which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights (“SARs”), stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2004 Incentive Plan, a total of 3,750,000 shares of the Company’s common stock have been reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2004 Incentive Plan cliff vest and are exercisable from the grant date as follows: 25% after 24 months, 25% after 36 months, and the remaining 50% after 48 months. Options granted to non-employee directors under the 2004 Incentive Plan cliff vest and are exercisable one year after the grant date. Vested shares may be exercised for up to ten years from the date of grant. The shares of common stock will be issued upon exercise of options or SARs from the Company’s authorized share capital. The 2004 Incentive Plan expired in May 2012 upon adoption of the 2012 Incentive Plan, except as to share based awards outstanding on that date.

The 2012 Incentive Compensation Plan

In May 2012, the Company’s shareholders adopted the 2012 Incentive Compensation Plan (“2012 Incentive Plan”), which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, SARs, stock units, performance awards, phantom stock, incentive bonuses, and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2012 Incentive Plan, a total of 4,000,000 shares of the Company’s common stock have been reserved for issuance, all of which could be issued as options or as other forms of awards. Options and SARs granted to employees under the 2012 Incentive Plan will vest and become exercisable as follows: 25% vest 24 months after the grant date, an additional 25% vest 36 months after the grant date, and the remaining 50% vest 48 months after the grant date. Options granted to non-employee directors under the 2012 Incentive Plan will vest and become exercisable one year after the grant date. Vested stock-based awards may be exercised for up to ten years from the date of grant. The shares of common stock will be issued upon exercise of options or SARs from the Company’s authorized share capital.

The 2012 Incentive Plan empowers our Board of Directors, in its discretion, to amend the 2012 Incentive Plan in certain respects. Consistent with its authority to amend the Incentive Plan, in February 2014 the Board adopted and approved certain amendments to the Incentive Plan. The key amendments are as follows:

Increase of per grant limit: Section 15(a) of the 2012 Incentive Plan was amended to allow the grant of up to 400,000 shares of our common stock with respect to the initial grant of an equity award to newly hired executive officers in any calendar year. This amendment was adopted by our stockholders on May 31, 2014; and

Acceleration of vesting: Section 15(l) of the 2012 Incentive Plan was amended to clarify our ability to provide in the applicable award agreement that part and/or all of the award will be accelerated upon the occurrence of certain pre-determined events and/or conditions, such as a "change in control" (as defined in the 2012 Incentive Plan, as amended).

On February 11, 2014, the Company granted its Chief Financial Officer options to purchase 32,500 shares of common stock under the 2012 Incentive Plan. The exercise price of each option is $24.57, which represented the fair market value of the Company’s common stock on the grant date. Such options will expire five years from the date of grant and will vest in equal annual installments over a period of three years from the grant date, subject to acceleration upon a change of control.

The fair value of each stock option on the grant date was $5.78. The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes valuation model based on the following assumptions:

Risk-free interest rates	0.81	%
Expected life (in years)	3.375
Dividend yield	0.80	%
Expected volatility	33.50	%
Forfeiture rate	0.00	%

On April 2, 2014, the Company granted its newly appointed Chief Executive Officer options to purchase up to an aggregate of 400,000 shares of common stock under the 2012 Incentive Plan. The exercise price of each option is $29.52 per share, which represented the fair market value of the Company’s common stock on the date of the grant. Options to purchase 300,000 shares of common stock will expire six years following the date of grant and will vest in equal annual installments over four years from the grant date, subject to acceleration in the event of a change of control. The remaining options to purchase 100,000 shares of common stock will vest on March 31, 2021, subject to acceleration associated with a change of control, and will expire seven and a half years from the date of grant.

The fair value of each option on the grant date was $12.88 for grant of options to purchase 300,000 shares of common stock, and $8.33 for the grant of options to purchase 100,000 shares of common stock. The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes valuation model based on the following assumptions:

	Grant of options to purchase 100,000 shares of common stock			Grant of options to purchase 300,000 shares of common stock
Risk-free interest rates		2.36	%		1.64	%
Expected life (in years)		7.25			4.75
Dividend yield		0.90	%		0.90	%
Expected volatility		42.80	%		33.10	%
Forfeiture rate		0	%		0	%

On November 5, 2014, the Company granted its board members options to purchase 52,500 shares of common stock under the 2012 Incentive Plan. The exercise price of each option is $28.23, which represented the fair market value of the Company’s common stock on the grant date. Such options will expire seven years from the date of grant and will vest in 100% one year from the grant date.

The fair value of each stock option on the grant date was $7.01. The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes valuation model based on the following assumptions:

Risk-free interest rates	1.30	%
Expected life (in years)	4.0
Dividend yield	0.70	%
Expected volatility	32.40	%
Forfeiture rate	0.00	%

	Year Ended December 31,
	2014					2013					2012
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		4,710		$	28.23		3,563		$	30.09		2,934		$	32.40
Granted, at fair value:
Stock Options		485			29.05		45			26.70		75			19.01
SARs*		—			—		1,270			23.08		602			20.13
Exercised		(243	)		24.10		(39	)		16.89		—			—
Forfeited		(116	)		23.20		(114	)		30.04		(48	)		28.92
Expired		(359	)		42.70		(15.00	)		37.90		—			—
Outstanding at end of year		4,477			27.48		4,710			28.23		3,563			30.09
Options and SARs exercisable at end of year		2,106			31.25		2,123			33.82		1,592			36.61
Weighted-average fair value of options and SARs granted during the year				$	9.00				$	6.66				$	7.25

__________

* Upon exercise, SARs entitle the recipient to receive shares of common stock equal to the increase in value of the award between the grant date and the exercise date.

As of December 31, 2014, 2,124,900 shares of the Company’s common stock are available for future grants under the 2012 Incentive Plan. No shares of the Company’s common stock are available for future grants under the 2004 Incentive Plan as of such date.

The following table summarizes information about stock-based awards outstanding at December 31, 2014 (shares in thousands):

		Options Outstanding						Options Exercisable
Exercise Price		Number of Shares Outstanding		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value		Number of Shares Exercisable		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
$	15.00		-			$	-		-		-	$	-
	18.56		45		4.8		388		45		4.8		389
	19.10		8		3.8		61		8		3.8		182
	19.69		26		4.6		197		26		4.6		197
	20.13		509		4.3		3,585		99		4.3		-
	20.54		100		4.3		664		25		4.3		-
	23.34		1,129		4.4		4,343		-		-		-
	24.57		33		4.1		85		-		-
	25.65		493		3.3		754		220		3.3		225
	25.74		8		0.8		11		8		0.8		33
	26.70		45		5.8		22		45		5.8		-
	26.84		418		1.2		142		418		1.2		196
	28.19		30		2.8		-		30		2.8		-
	28.23		53		6.8		-		-		-
	29.21		8		2.3		-		8		2.3		-
	29.52		400		5.6		-		-		-
	29.95		538		2.3		-		538		2.3		-
	34.13		222		1.3		-		222		1.3		-
	38.50		23		1.8		-		23		1.8		-
	45.78		390		0.3		-		390		0.3		-
			4,477		3.3		10,252		2,106		2.1		1,222

The following table summarizes information about stock-based awards outstanding at December 31, 2013 (shares in thousands):

		Options Outstanding						Options Exercisable
Exercise Price		Number of Shares Outstanding		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value		Number of Shares Exercisable		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
$	15.00		21		.8	$	258		21		.8	$	258
	18.56		45		5.8		389		45		5.8		389
	19.10		23		4.8		182		23		4.8		182
	19.69		26		5.6		197		26		5.6		197
	20.13		578		5.3		4,089		-		-		-
	20.54		120		5.3		800		-		-		-
	23.34		1,138		5.4		4,404		-		-		-
	25.65		578		4.3		901		144		4.3		225
	25.74		23		1.8		33		23		-		33
	26.70		45		6.8		23		-		-		-
	26.84		529		2.2		196		529		2.2		196
	28.19		30		3.8		-		30		3.8		-
	29.21		8		3.3		-		8		3.3		-
	29.95		547		3.3		-		273		3.3		-
	34.13		222		2.3		-		222		2.3		-
	38.50		23		2.8		-		23		2.8		-
	38.85		8		.2		-		8		.2		-
	42.08		329		.3		-		329		.3		-
	45.78		397		1.3		-		397		-		-
	52.98		23		.8		-		23		.8		-
			4,710		3.7		11,472		2,123		2.1		1,480

The aggregate intrinsic value in the above tables represents the total pretax intrinsic value, based on the Company’s stock price of $27.18 and $27.21 as of December 31, 2014 and 2013, respectively, which would have potentially been received by the stock-based award holders had all stock-based award holders exercised their stock-based award as of those dates. The total number of in-the-money stock-based awards exercisable as of December 31, 2014 and 2013 was 895,354 and 811,269, respectively.

The total pretax intrinsic value of options exercised during the year ended December 31, 2014 and 2013 was $2,036,000 and $140,000, respectively, based on the average stock price of $27.49 and 23.57 during the years ended December 31, 2014 and 2013, respectively. No options were exercised during the year ended December 31, 2012.