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Note 13. Share-based Compensation
 12 Months Ended
Dec. 31, 2015
Notes  
Note 13. Share-based Compensation

Note 13.          Share-Based Compensation

 

IHC and AMIC each have a share-based compensation plan. The following is a summary of the activity pertaining to each of these plans.

 

C)                IHC Share-Based Compensation Plan

 

In June 2006, the stockholders approved the Independence Holding Company 2006 Stock Incentive Plan (the “2006 Plan"). Under the terms of the 2006 Plan, option exercise prices are more than or equal to the quoted market price of the shares at the date of grant; option terms are generally five years; and vesting periods are generally three years. The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. In addition to stock options, the Company has also granted restricted stock units, share appreciation rights (“SARs”) and share-based performance awards under the 2006 Plan. Restricted share units are valued at the quoted market price of the shares at the date of grant and have a three year vesting period. Compensation costs for options and restricted share units are recognized over the stated vesting periods on a straight-line basis. Exercise prices of SARs are more than or equal to the quoted market price of IHC shares at the date of the grant and have three year vesting periods. The fair value of SARs is calculated using the Black-Scholes valuation model at the grant date and each subsequent reporting period until settlement. Compensation cost is based on the proportionate amount of the requisite service that has been rendered to date. Once fully vested, changes in fair value of the SARs continue to be recognized as compensation expense in the period of the change until settlement. Compensation costs for share-based performance awards are recognized and accrued as performance conditions are met, based on the current share price. IHC discontinued these award programs in 2013.

 

At December 31, 2015, there were 369,861 shares available for future stock-based compensation grants under IHC’s stock incentive plans. The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Consolidated Statements of Income, applicable to the IHC plans  by award type for each of the years indicated (in thousands):

 

 

 

 

2015

 

2014

 

2013

IHC’s Share-based Compensation Plan:

 

 

 

 

 

 

 

Stock options

 

$

             55 

$

          669 

$

        210 

Restricted stock units

 

 

             89 

 

             85 

 

          66 

SARs

 

 

             13 

 

             14 

 

        698 

Performance awards

 

 

                - 

 

                - 

 

         (15)

 

 

 

 

 

 

 

 

Share-based compensation expense, pre-tax

 

 

          157 

 

          768 

 

        959 

Tax benefits

 

 

             63 

 

          306 

 

        382 

 

 

 

 

 

 

 

 

Share-based compensation expense, net

 

$

             94 

$

          462 

$

        577 

 

Stock Options

 

The Company’s stock option activity during 2015 was as follows:

 

 

 

Shares

 

Weighted- Average

 

 

Under Option

 

Exercise Price

 

 

 

 

 

December 31, 2014

 

614,680 

 

$

9.33

Exercised

 

(30,600)

 

9.09

December 31, 2015

 

584,080 

 

$

9.35

 

No options were granted in 2015, 2014 or 2013. In 2015, IHC received $278,000 in cash from the exercise of stock options with an aggregate intrinsic value of $132,000 and realized $22,000 of tax benefits. In May 2014, option agreements affecting 15 employees were modified to extend the expirations of their terms from 2015 to 2017 and as a result, the Company recorded incremental compensation costs of $405,000. In 2013, the Company received $430,000 in cash from the exercise of stock options with an aggregate intrinsic value of $243,000 and realized $85,000 of tax benefits. In March 2013, option agreements affecting 5 employees were modified to extend the expiration term 5 years. The incremental cost of the modified awards was $618,000, which was recognized over the new 2-year vesting period starting from the date of the modification.

 

The following table summarizes information regarding outstanding and exercisable options:

 

 

 

December 31, 2015

 

 

Outstanding

 

Exercisable

 

 

 

 

 

Number of options

 

584,080

 

584,080

Weighted average exercise price per share

$

9.35

$

9.35

Aggregate intrinsic value for all options (in thousands)

$

2,631

$

2,631

Weighted average contractual term remaining

 

1.3 years

 

1.3 years

 

At December 31, 2015, all of IHC’s outstanding stock options are fully vested and all of the related compensation costs have been recognized.

 

Restricted Stock

 

The following table summarizes IHC’s restricted stock activity for the year ended December 31, 2015:

 

 

 

No. of

 

Weighted-Average

 

 

Non-vested

 

   Grant-Date

 

 

Shares

 

Fair Value

 

 

 

 

 

December 31, 2014

 

             14,850 

 

$

12.09

 

Granted

 

               7,425 

 

 

11.78

 

Vested

 

             (7,425)

 

 

11.44

 

 

 

 

 

 

 

 

December 31, 2015

 

             14,850 

 

$

12.26

 

 

IHC granted 7,425 restricted stock units during each of the years ended December 31, 2015, 2014 and 2013, with weighted-average grant-date fair values of $11.78, $13.27 and $11.66 per share, respectively. The total fair value of restricted stock that vested in 2015, 2014 and 2013 was $89,000, $103,000 and $69,000, respectively.

 

At December 31, 2015, the total unrecognized compensation cost related to non-vested restricted stock awards was $129,000 which is expected to be recognized as compensation expense over a weighted average period of 1.7 years.

 

SARs and Share-Based Performance Awards

 

IHC had 125,850 and 136,850 SAR awards outstanding at December 31, 2015 and 2014, respectively. During 2015, 11,000 SARs were exercised with an aggregate intrinsic value of $61,000. During 2014, 112,200 SARs were exercised with an aggregate intrinsic value of $529,000; and 2,750 SARs were forfeited. During 2013, 14,850 SARs were exercised with an aggregate intrinsic value of $74,000; and 3,300 SARs were forfeited. Included in Other Liabilities in the Company’s Consolidated Balance Sheets at December 31, 2015 and December 31, 2014 are liabilities of $743,000 and $791,000, respectively, pertaining to SARs.

 

In the past, other share-based compensation awards have included performance awards. These programs were discontinued in 2013. The intrinsic value of share-based performance awards paid during the year ended December 31, 2013 was $83,000.

 

B)        AMIC Share-Based Compensation Plans

 

Effective July 1, 2009, AMIC implemented the 2009 Stock Incentive Plan (“AMIC 2009 Plan”), which the AMIC stockholders approved on June 19, 2009.  The AMIC 2009 Plan was preceded by the 1998 Stock Incentive Plan which expired by its terms in 2008. The AMIC 2009 Plan provided for the grants of non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, performance shares, and other awards to officers, employee and other individuals.  Under the terms of the AMIC 2009 Plan, stock options have a maximum term of ten years from the date of grant, and have various vesting criteria depending on the grant with most grants vesting ratably over four years. At December 31, 2015, stock options for 71,558 common stock shares were outstanding, stock options for 62,669 common stock shares were vested, and 6,490,553 common stock shares that had not been issued remained available for future stock options grants and other awards.  Awards made under AMIC’s 1998 Plan prior to its expiration are still in effect.

 

 

The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Consolidated Statements of Income, applicable to the AMIC share-based compensation plans, by award type for each of the years indicated (in thousands):

 

 

 

 

2015

 

2014

 

2013

AMIC’s Share-based Compensation Plans:

 

 

 

 

 

 

 

Stock options

 

$

             43 

$

             52 

$

          42 

 

 

 

 

 

 

 

 

Share-based compensation expense, pre-tax

 

 

             43 

 

             52 

 

          42 

Tax benefits

 

 

             15 

 

             18 

 

          15 

 

 

 

 

 

 

 

 

Share-based compensation expense, net

 

$

             28 

$

             34 

$

          27 

 

Stock Options

 

AMIC’s stock option activity during 2015 was as follows:

 

 

 

Shares

 

Weighted- Average

 

 

Under Option

 

Exercise Price

 

 

 

 

 

December 31, 2014

 

                166,616 

 

$

10.50

Exercised

 

                   (8,890)

 

 

5.81

Forfeited

 

                 (26,001)

 

 

8.90

Expired

 

                 (60,167)

 

 

13.82

December 31, 2015

 

                  71,558 

 

$

8.88

 

The following table summarizes information regarding AMIC’s outstanding and exercisable options:

 

 

 

December 31, 2015

 

 

Outstanding

 

Exercisable

 

 

 

 

 

Number of options

 

71,558

 

62,669

Weighted average exercise price per share

$

8.88

$

8.74

Aggregate intrinsic value for all options (in thousands)

$

73

$

70

Weighted average contractual term remaining

 

4.19 years

 

3.63 years

 

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. No options were granted in 2015. The weighted average grant-date fair-value of options granted during the years ended December 31, 2014 and 2013 was $5.70 and $4.04. The assumptions set forth in the table below were used to value the stock options granted during the periods:

 

 

 

2014

 

2013

 

 

 

 

 

Weighted-average risk-free interest rate

 

2.72%

 

2.30%

Annual dividend rate per share

 

-

 

-

Weighted-average volatility factor of the Company's common stock

 

38.27%

 

45.00%

Weighted-average expected term of options

 

5 years

 

5 years

 

During 2015 and 2014, AMIC received $52,000 and $33,000 in cash from the exercise of stock options with aggregate intrinsic values of $37,000 and $38,000. No options were exercised during the year ended December 31, 2013.

 

As of December 31, 2015, the total unrecognized compensation expense related to AMIC’s non-vested options was $40,000 which will be recognized over the remaining requisite service periods.