Capital Transactions |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Capital Transactions |
Capital Transactions
Share-Based Compensation
During the year ended December 31, 2012, the Company’s shareholders adopted and approved the Nature’s Sunshine Products, Inc. 2012 Stock Incentive Plan (the “2012 Incentive Plan”). The 2012 Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards. The Compensation Committee of the Board of Directors has authority and discretion to determine the type of award, as well as the amount, terms and conditions of each award under the 2012 Incentive Plan, subject to the limitations of the 2012 Incentive Plan. A total of 1,500,000 shares of the Company’s common stock were originally authorized for the granting of awards under the 2012 Incentive Plan. In 2015, the Company’s shareholders approved an amendment to the 2012 Incentive Plan, to increase the number of shares of Common Stock reserved for issuance by 1,500,000 shares. The number of shares available for awards, as well as the terms of outstanding awards, are subject to adjustment as provided in the 2012 Incentive Plan for stock splits, stock dividends, recapitalizations and other similar events.
The Company also maintains a stock incentive plan, which was approved by shareholders in 2009 (the “2009 Incentive Plan”). The 2009 Incentive Plan also provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards. Under the 2012 Incentive Plan, any shares subject to award, or awards forfeited or reacquired by the Company issued under the 2009 Incentive Plan are available for award up to a maximum of 400,000 shares.
Stock Options
The Company’s outstanding stock options include time-based stock options, which vest over differing periods of time ranging from the date of issuance to up to 48 months from the option grant date, and performance-based stock options, which have already vested upon achieving operating income margins of six, eight and ten percent as reported in four of five consecutive quarters over the term of the options.
Stock option activity for the nine-month period ended September 30, 2018, is as follows (amounts in thousands, except per share information):
During the nine months ended September 30, 2018, the Company granted options to purchase 50,000 shares of common stock under the 2012 Stock Incentive Plan to members of the Company’s Board of Directors. These options were issued with an exercise price of $8.43 per share and a grant date fair value of $3.30 per share, with an expected life of five years, risk-free interest rate of 2.8 percent, and expected volatility of 38.8 percent.
Share-based compensation expense from time-based stock options for the three-month periods ended September 30, 2018 and 2017, was approximately $0.1 million and $(0.2) million, respectively. Share-based compensation expense from time-based stock options for the nine-month periods ended September 30, 2018 and 2017, was approximately $0.2 million and $0.2 million, respectively. As of September 30, 2018 there was no unrecognized share-based compensation expense related to the grants described above as all outstanding options were vested. As of December 31, 2017, the unrecognized share-based compensation expense related to the grants described above was $13,000.
At September 30, 2018, the aggregate intrinsic value of outstanding and vested stock options to purchase 1,114,000 shares of common stock was $0.3 million. At December 31, 2017, the aggregate intrinsic value of outstanding options to purchase 1,390,000 shares of common stock, the exercisable options to purchase 1,293,000 shares of common stock, and options to purchase 92,000 shares of common stock expected to vest was $0.9 million, $0.9 million and $0.0 million, respectively.
For the nine-month periods ended September 30, 2018 and 2017, the Company issued 99,000 and 9,000 shares of common stock upon the exercise of stock options at an average exercise price of $6.10 and $11.98 per share, respectively. The aggregate intrinsic value of options exercised during the nine-month periods ended September 30, 2018 and 2017, was $0.4 million and $0.2 million, respectively. For the nine-month periods ended September 30, 2018 and 2017, the Company recognized $0.1 million and $0.0 million of tax benefits from the exercise of stock options, respectively.
As of September 30, 2018 and December 31, 2017, the Company did not have any unvested performance-based stock options outstanding.
Restricted Stock Units
The Company’s outstanding restricted stock units (“RSUs”), include time-based RSUs, which vest over differing periods of time ranging from 12 months to up to 48 months from the RSU grant date, as well as performance-based RSUs, which vest either upon achieving cumulative annual net sales growth targets over a rolling one-year period or upon achieving earnings-per-share targets over a rolling one-year period or weighted-average share prices over a rolling 45 day period. RSUs granted to members of the Company’s Board of Directors are not issued until the expiration of a two-year restriction period following vesting. There were 71,000 and 96,000 vested RSUs as of September 30, 2018 and December 31, 2017, respectively, that have been granted to members of the Company’s Board of Directors but remain subject to the two-year restriction period.
RSU activity for the nine-month period ended September 30, 2018, is as follows (amounts in thousands, except per share information):
During the nine-month period ended September 30, 2018, the Company granted 511,000 RSUs under the 2012 Incentive Plan to the Company’s Board of Directors, executive officers and other employees, which were comprised of both time-based RSUs and net sales and adjusted EBITDA performance-based RSUs. The time-based RSUs were issued with a weighted-average grant date fair value of $10.16 per share and vest in annual installments over a three-year period from the grant date or according to the restrictions for the Board of Directors noted above. The net sales and adjusted EBITDA earnings-per-share performance-based RSUs were issued with a weighted-average grant date fair value of $9.79 per share and vest upon achieving targets over a three-year period from the grant date.
RSUs are valued at market value on the date of grant, which is the grant date share price discounted for expected dividend payments during the vesting period. For RSUs with post-vesting restrictions, a Finnerty Model was utilized to calculate a valuation discount from the market value of common shares reflecting the restriction embedded in the RSUs preventing the sale of the underlying shares over a certain period of time. The Finnerty Model proposes to estimate a discount for lack of marketability such as transfer restrictions by using an option pricing theory. The concept underpinning the Finnerty Model is that restricted stock cannot be sold over a certain period of time. Using assumptions previously determined for the application of the option pricing model at the valuation date, the Finnerty Model discount for lack of marketability is approximately 11.9 percent for a common share.
Share-based compensation expense for RSUs for the three-month periods ended September 30, 2018 and 2017, was approximately $0.3 million and $0.3 million, respectively. Share-based compensation expense from RSUs for the nine-month periods ended September 30, 2018 and 2017, was approximately $1.3 million and $1.7 million, respectively. As of September 30, 2018 and December 31, 2017, the unrecognized share-based compensation expense related to the grants described above, excluding incentive awards discussed below, was $2.4 million and $2.0 million, respectively. The remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.5 years.
The Company has not recognized any share-based compensation expense related to the net sales and earnings-per-share performance-based RSUs for the nine-month periods ended September 30, 2018 and 2017. Should the Company attain all of the net sales metrics related to the net sales performance-based stock option grants, the Company would recognize up to $4.7 million of potential share-based compensation expense.
The number of shares issued upon vesting of RSUs granted pursuant to the Company’s share-based compensation plans is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees, which was 55,000 shares for the nine-month period ended September 30, 2018. Although shares withheld are not issued, they are treated as common share repurchases for accounting purposes, as they reduce the number of shares that would have been issued upon vesting. These shares do not count against the authorized capacity under the repurchase program described above.
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