Shareholders' Equity Transactions

6 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Shareholders' Equity Transactions

Shareholders’ Equity Transactions

On May 16, 2013, the shareholders of the Company approved the Invacare Corporation 2013 Equity Compensation Plan (the “2013 Plan”), which was adopted on March 27, 2013 by the Company's Board of Directors (the “Board”). The Board adopted the 2013 Plan because the ten-year term of the Company's prior equity plan, the Invacare Corporation Amended and Restated 2003 Performance Plan (the “2003 Plan”), expired on May 21, 2013. No new awards will be granted under the 2003 Plan following its expiration, but awards granted prior to its expiration will remain in effect under their original terms.

The 2013 Plan uses a fungible share-counting method, under which each common share underlying an award of stock options or stock appreciation rights (“SAR”) will count against the number of total shares available under the 2013 Plan as one share; and each common share underlying any award other than a stock option or a SAR will count against the number of total shares available under the 2013 Plan as two shares. Any common shares that are added back to the 2013 Plan as the result of the cancellation or forfeiture of an award granted under the 2013 Plan will be added back in the same manner such shares were originally counted against the total number of shares available under the 2013 Plan. Each common share that is added back to the 2013 Plan due to a cancellation or forfeiture of an award granted under the 2003 Plan will be added back as one common share.

The Compensation and Management Development Committee of the Board (the “Compensation Committee”), in its discretion, may grant an award under the 2013 Plan to any director or employee of the Company or an affiliate. The 2013 Plan initially allows the Compensation Committee to grant up to 4,460,337 common shares in connection with the following types of awards with respect to shares of the Company's common shares: incentive stock options, nonqualified stock options, SARs, restricted stock, restricted stock units, unrestricted stock, and performance shares. The Compensation Committee also may grant performance units that are payable in cash. The Committee has the authority to determine which participants will receive awards, the amount of the awards and the other terms and conditions of the awards. 

As of June 30, 2014, there was $15,415,000 of total unrecognized compensation cost from stock-based compensation arrangements granted under the Company's 2013 Plan and previous plans, which is related to non-vested options and shares, and includes $6,490,000 related to restricted stock awards, $6,148,000 related to non-qualified stock options and $2,777,000 related to performance share awards. Total unrecognized compensation cost will be adjusted for future changes in actual and estimated forfeitures and for updated vesting assumptions for the performance share awards (see "Performance Shares and Performance Share Units" below). No tax benefit for share-based compensation was realized during 2014 or 2013 as a result of a valuation allowance against deferred tax assets.

The amount of amount of stock-based compensation expense recognized under the provisions of Compensation-Stock Compensation, ASC 718 was as follows (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013
Stock-based compensation expense recognized as part of selling, general and administrative expense	$	1,771	$	1,414	$	2,470	$	2,574

Stock Options

During the six months ended June 30, 2014, the Compensation Committee granted 8,977 non-qualified stock options. Generally, non-qualified stock option awards typically have a term of ten years and are granted at the fair market value of the Company’s Common Shares on the date of grant. Compensation expense of $1,356,000 was recognized during the six months ended June 30, 2014 related to stock options previously awarded. The Company expects the compensation expense to be recognized over a weighted-average period of approximately 2 years.

The following table summarizes information about stock option activity for the six months ended June 30, 2014:

	June 30, 2014			Weighted Average Exercise Price
Options outstanding at January 1, 2014	4,533,782			$	23.86
Granted	8,977			16.71
Exercised	(8,810		)	14.93
Canceled	(179,241		)	19.98
Options outstanding at June 30, 2014	4,354,708			$	24.02
Options exercise price range at June 30, 2014	$ 12.42 to
	$	47.80
Options exercisable at June 30, 2014	3,095,001
Shares available for grant at June 30, 2014*	3,622,692

 ________________________

 * Shares available for grant as of June 30, 2014 reduced by net restricted stock and restricted stock unit award and performance share and performance share unit award activity of 387,068 shares and 440,600 shares, respectively during the quarter.

The following table summarizes information about stock options outstanding at June 30, 2014:

	Options Outstanding				Options Exercisable
Exercise Prices	Number Outstanding At 6/30/14	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable At 6/30/14	Weighted Average Exercise Price
$ 12.42 – $15.00	1,222,011	8.4	$	13.95	307,617	$	13.97
$ 15.01 – $25.00	1,548,349	4.9	22.47		1,314,501	22.20
$ 25.01 – $35.00	898,383	5.0	25.72		786,918	25.77
$ 35.01 – $47.80	685,965	0.7	43.23		685,965	43.23
Total	4,354,708	5.2	$	24.02	3,095,001	$	26.95

When stock options have been awarded, they generally become exercisable over a four -year vesting period whereby options vest in equal installments each year. Options granted with graded vesting are accounted for as single options. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate and expected life. The assumed expected life is based on the Company's historical analysis of option history. The expected stock price volatility is also based on actual historical volatility, and expected dividend yield is based on historical dividends as the Company has no current intention of changing its dividend policy.

The 2013 Plan provides that shares granted come from the Company's authorized but unissued common shares or treasury shares. In addition, the Company's stock-based compensation plans allow employee participants to exchange shares for minimum withholding taxes, which results in the Company acquiring treasury shares.

Restricted Stock and Restricted Stock Units

During the six months ended June 30, 2014, an aggregate of 193,534 restricted shares and restricted share units (for non-U.S. recipients) were granted without cost to the recipients, 25,016 restricted shares were forfeited, and 27,925 restricted shares vested. The awards granted during the first quarter are subject to three year cliff vesting and thus vest in their entirety on May 15, 2017. The awards of restricted shares/units are classified as equity awards as they are issued as common shares, or will be settled in common shares upon vesting. The fair value of the awards is based on the stock price on the date of grant discounted for the estimated value of dividends foregone as the awards are not eligible for dividends except to the extent vested. The fair value of the awards granted during the six months ended June 30, 2014 was $20.01 per share. Compensation expense is recognized ratably over the service period and $867,000 was recognized during the six months ended June 30, 2014 related to restricted shares/units and there were shares/units outstanding totaling 558,271 shares that were not vested. The Company expects the compensation expense to be recognized over a weighted-average period of approximately 1.5 years.

Performance Shares and Performance Share Units

During the six months ended June 30, 2014, an aggregate of 152,800 performance shares and performance share units (for non-U.S. recipients) were granted as performance awards with a 3 year performance period with payouts based on achievement of certain performance goals. There was no vesting of performance awards during the period and 7,400 awards were cancelled. The awards are classified as equity awards as they will be settled in common shares upon vesting. The number of shares earned will be determined at the end of the performance period based on achievement of performance criteria for January 1, 2016 through December 31, 2016 established by the Compensation Committee at the time of grant. Recipients will be entitled to receive a number of common shares equal to the number of performance shares that vest based upon the levels of achievement which may range between 0% and 150% of the target number of shares with the target being 100% of the initial grant.

The fair value of the performance awards is based on the stock price on the date of grant discounted for the estimated value of dividends foregone as the awards are not eligible for dividends except to the extent vested. The fair value of the awards granted during the six months ended June 30, 2014 was $20.05 per share. The Company assesses the probability that the performance targets will be met with expense recognized whenever it is probable that at least the minimum performance criteria will be achieved. Depending upon the Company's assessment of the probability of achievement of the goals, the Company may not recognize any expense associated with performance awards in a given period, may reverse prior expense recorded or record additional expense to make up for expense not recorded in a prior period. Compensation expense of $247,000 was recognized during the six months ended June 30, 2014 related to performance awards. The Company expects the compensation expense to be recognized over 3.0 years.