Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

8. Stock-Based Compensation

The condensed consolidated statements of operations include $1.0 million and $1.8 million of stock compensation expense for the three and six months ended June 30, 2011, respectively. Stock compensation expense for the three months ended June 30, 2011 consists of $0.9 million for restricted stock awards and $0.1 million for performance share awards, stock option and stock purchase plan expenses. Stock compensation expense for the six months ended June 30, 2011 consists of $1.6 million for restricted stock awards, $0.1 million for performance share awards, and $0.1 million for stock option and stock purchase plan expenses.

The condensed consolidated statements of operations include $1.6 million and $2.5 million of stock compensation expense for the three and six months ended June 30, 2010, respectively. Stock compensation expense for the three months ended June 30, 2010 consists of $1.2 million for restricted stock awards, $0.1 million for performance share awards, $0.1 million for stock option and stock purchase plan expenses and $0.2 million for stock bonuses. Stock compensation expense for the six months ended June 30, 2010 consists of $1.9 million for restricted stock awards, $0.2 million for performance share awards, $0.1 million for stock option and stock purchase plan expenses, and $0.3 million for stock bonuses.

The Company did not capitalize any stock compensation expense during the three and six months ended June 30, 2011 or 2010, respectively. The Company did not issue any stock awards to employees or contributors of PCTEL Secure during the three and six months ended June 30, 2011.

Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Cost of revenues	$	68	$	165	$	137	$	256
Research and development		156		205		312		354
Sales and marketing		157		273		338		481
General and administrative		608		912		1,023		1,416
Total	$	989	$	1,555	$	1,810	$	2,507

Restricted Stock — Service Based

The Company grants restricted shares as employee incentives as permitted under the Company’s 1997 Stock Plan, as amended and restated (“1997 Stock Plan”). In connection with the grant of restricted stock to employees, the Company records deferred stock compensation representing the fair value of the common stock on the date the restricted stock is granted. Stock compensation expense is recorded ratably over the vesting period of the applicable shares. These grants vest over various periods, but typically vest over four years.

For the three months ended June 30, 2011, the Company did not issue any restricted stock awards and recorded cancellations of 17,100 shares with grant date fair value of $0.1 million. For the six months ended June 30, 2011, the Company issued 154,750 shares of restricted stock with grant date fair value of $1.0 million and recorded cancellations of 22,425 shares with grant date fair value of $0.1 million.

For the three months ended June 30, 2011, 14,525 restricted shares vested with grant date fair value of $0.1 million and intrinsic value of $0.1 million. For the six months ended June 30, 2011, 396,221 restricted shares vested with grant date fair value of $2.5 million and intrinsic value of $2.9 million.

For the three months ended June 30, 2010, the Company issued 73,600 shares of restricted stock with grant date fair value of $0.4 million and recorded cancellations of 59,150 shares with grant date fair value of $0.3 million. For the six months ended June 30, 2010, the company issued 758,250 shares of restricted stock with grant date fair value of $4.7 million and recorded cancellations of 77,750 shares with grant date fair value of $0.4 million.

For the three months ended June 30, 2010, 8,275 restricted shares vested with grant date fair value of $0.1 million and intrinsic value of $48. For the six months ended June 30, 2010, 334,200 restricted shares vested with grant date fair value of $2.2 million and intrinsic value of $1.9 million.

At June 30, 2011, total unrecognized compensation expense related to restricted stock was approximately $4.5 million, net of forfeitures to be recognized through 2016 over a weighted average period of 1.8 years.

The following table summarizes restricted stock activity for the six months ended June 30, 2011:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested Restricted Stock Awards — December 31, 2010		1,274,316		$	5.93
Shares awarded		154,750			6.47
Performance share units converted to restricted stock awards		102,941			6.21
Shares vested		(396,221	)		6.35
Shares cancelled		(22,425	)		5.47
Unvested Restricted Stock Awards — June 30, 2011		1,113,361		$	5.89

Stock Options

The Company may grant stock options to purchase the common stock. The Company issues stock options with exercise prices no less than the fair value of the Company’s stock on the grant date. Employee options contain gradual vesting provisions, whereby 25% vest one year from the date of grant and thereafter in monthly increments over the remaining three years. The Board of Director options vest on the first anniversary of the grant year. Stock options may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement. Historically, the Company has granted stock options with a ten year life. Beginning with options granted in July 2010, the Company granted stock options with a seven year life. During 2010 and 2011, the Company awarded stock options to eligible new employees for incentive purposes.

The fair value of each unvested option was estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options.

During the three months ended June 30, 2011 the Company issued 200 stock options with a weighted average grant date value of $3.20. During the six months ended June 30, 2011 the Company issued 4,000 stock options with a weighted average grant date value of $3.15. The Company received proceeds of $18 from the exercise of 2,500 options during the three and six months ended June 30, 2011. The intrinsic value of these options exercised was $1. During the three and six months ended June 30, 2011, respectively, 5,360 and 74,560 options were either forfeited or expired.

The Company issued 8,500 stock options with a weighted average grant date value of $2.67 during the three and six months ended June 30, 2010. The Company received $5 in proceeds from the exercise of 781 options during the three six months ended June 30, 2010. During the three and six months ended June 30, 2010, respectively, 412,917 and 439,811 options were either forfeited or expired.

As of June 30, 2011, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $0.1 million, net of estimated forfeitures to be recognized through 2015 over a weighted average period of 1.8 years.

The range of exercise prices for options outstanding and exercisable at June 30, 2011 was $5.50 to $12.16. The following table summarizes information about stock options outstanding under all stock plans at June 30, 2011:

				Options Outstanding						Options Exercisable
						Weighted
						Average		Weighted-				Weighted
Range of				Number		Contractual Life		Average		Number		Average
Exercise Prices				Outstanding		(Years)		Exercise Price		Exercisable		Exercise Price
$     5.50	—	$	7.20		221,723		3.96	$	6.84		196,000	$	6.93
7.21	—		7.93		194,346		2.91		7.67		189,815		7.68
7.95	—		8.48		161,347		1.37		8.07		161,347		8.07
8.49	—		9.09		228,600		4.28		8.86		227,700		8.86
9.11	—		9.19		156,627		5.08		9.16		156,627		9.16
9.30	—		10.25		152,900		4.04		9.75		149,079		9.75
10.46	—		10.75		187,660		2.18		10.69		187,281		10.69
10.80	—		11.55		157,050		2.89		11.25		157,050		11.25
11.68	—		11.84		57,000		2.61		11.81		57,000		11.81
12.16	—		12.16		6,400		2.80		12.16		6,400		12.16
$     5.50	—	$	12.16		1,523,653		3.34	$	9.05		1,488,299	$	9.10

The intrinsic value and contractual life of the options outstanding and exercisable at June 30, 2011 were as follows:

	Weighted
	Average
	Contractual		Intrinsic
	Life (years)		Value
Options Outstanding		3.34	$	13
Options Exercisable		3.25	$	4

The intrinsic value is based on the share price of $6.48 at June 30, 2011.

The following table summarizes the stock option activity for the six months ended June 30, 2011:

				Weighted
				Average
	Options			Exercise
	Outstanding			Price
Outstanding at December 31, 2010		1,596,713		$	9.04
Granted		4,000			7.28
Exercised		(2,500	)		7.30
Expired or Cancelled		(73,060	)		9.01
Forfeited		(1,500	)		6.14
Outstanding at June 30, 2011		1,523,653		$	9.05
Exercisable at June 30, 2011		1,488,299		$	9.10

Performance Units

The Company grants performance units to certain executive officers. Shares are earned upon achievement of defined performance goals such as revenue and earnings. Certain performance units granted are subject to a service period before vesting. The fair value of the performance units issued is based on the Company’s stock price on the date the performance units are granted. The Company records expense for the performance units based on estimated achievement of the performance goals.

During the six months ended June 30, 2011, the Company granted 139,691 performance units with a grant date fair value of $1.0 million and cancelled 35,083 performance units with a grant date fair value of $0.4 million. During the six months ended June 30, 2011, 30,037 performance units vested with a grant date fair value of $290 and intrinsic value of $225, and 102,941 performance units were converted to time-based restricted stock awards.

During the three months ended June 30, 2010, no performance units were granted or vested. During the six months ended June 30, 2010, the company granted 85,000 performance units with a grant date fair value of $0.5 million, and the Company cancelled 11,830 performance units with a grant date fair value of $0.1 million.

As of June 30, 2011, the unrecognized compensation expense related to the unvested portion of the Company’s performance units was approximately $0.8 million, to be recognized through 2014 over a weighted average period of 1.9 years The following table summarizes the performance share activity during the six months ended June 30, 2011:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested Performance Units — December 31, 2010		161,276		$	7.79
Units awarded		139,691			6.45
Units vested		(30,037	)		9.67
Performance share units converted to restricted stock awards		(102,941	)		6.21
Units cancelled		(35,083	)		10.42
Unvested Performance Units — June 30, 2011		132,906		$	6.48

Restricted Stock Units

The Company grants restricted stock units as employee incentives as permitted under the Company’s 1997 Stock Plan. Employee restricted stock units are time-based awards and are amortized over the vesting period. At the vesting date, these units are converted to shares of common stock. These units vest over various periods, but typically vest over four years. The fair value of the restricted stock units issued is based on the Company’s stock price on the date the restricted stock units are granted.

No time-based restricted stock units were granted or vested during the three or six months ended June 30, 2011. The Company issued 4,400 time-based restricted stock units with a fair value of $28 to employees during the six months ended June 30, 2011. During the first quarter of 2011, 1,500 restricted stock units vested with a grant date fair value of $9 and intrinsic value of $11.

No time-based restricted stock units were granted in the three months ended June 30, 2010. The Company granted 6,000 time-based restricted stock units with a fair value of $37 to employees during the six months ended June 30, 2010.

As of June 30, 2011, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was approximately $53, to be recognized through 2015 over a weighted average period of 2.0 years.

The following table summarizes the restricted stock unit activity during the three months ended June 30, 2011:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
Unvested Restricted Stock Units — December 31, 2010		7,875		$	6.13
Units awarded		4,400			6.47
Units vested		(1,500	)		6.22
Unvested Restricted Stock Units — June 30, 2011		10,775		$	6.26

Employee Stock Purchase Plan (“ESPP”)

The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is six months. The Company received proceeds of $0.3 million from the issuance of 54,751 shares under the ESPP in February 2011 and received proceeds of $0.2 million from the issuance of 44,360 shares under the ESPP in February 2010.

Based on the 15% discount and the fair value of the option feature of this plan, this plan is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.

The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions:

	June 30,
	2011			2010
Dividend yield	None			None
Risk-free interest rate		0.3	%		0.4	%
Expected volatility		52	%		49	%
Expected life (in years)		0.5			0.5

The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the shares granted. The Company uses a dividend yield of “None” in the valuation model for shares related to the ESPP. The Company has paid only one cash dividend in its history which was paid in May 2008. The Company does not anticipate the payment of regular dividends in the future. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The expected life used is based on the length of the offering period.

Short Term Bonus Incentive Plan (“STIP”)

Bonuses related to the Company’s 2010 Short Term Incentive Plan (“STIP”) were paid in the Company’s common stock to executives and in cash to non-executives. The shares earned under the plan were issued in the first quarter following the end of the fiscal year. In March 2011, the Company issued 48,345 shares, net of shares withheld for payment of withholding tax under the 2010 STIP. In March 2010, the Company issued 1,952 shares, net of shares withheld for payment of withholding tax under the 2009 STIP, and in October 2010, under a severance agreement, issued another 6,339 shares, net of shares withheld for payment of withholding tax, under the 2010 STIP. For the 2011 STIP, executive and non-executive bonuses earned will be paid 100% in cash.

Board of Director Equity Awards

The Board of Directors elected to receive their annual equity award in the form of shares of the Company’s stock or in shares of vested restricted stock units. The director shares and restricted stock units are awarded annually in June. During the quarter ended June 30, 2011, 12,958 shares were awarded that vested immediately and 28,508 vested restricted stock units were awarded. During the quarter ended June 30, 2010, 27,971 shares were awarded that vested immediately and 16,099 vested restricted stock units were awarded.

Employee Withholding Taxes on Stock Awards

For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stock awards for the value of the statutory withholding taxes. The Company paid $1.2 million and $0.7 million for withholding taxes related to stock awards during the six months ended June 30, 2011 and 2010, respectively.

Stock Repurchases

The Company repurchases shares of common stock under share repurchase programs authorized by the Board of Directors. All share repurchase programs are announced publicly. On November 21, 2008, the Board of Directors authorized the repurchase of shares up to a value of $5.0 million. The Company repurchased 43,090 shares at an average price of $6.02 during the three and six months ended June 30, 2011. The Company repurchased 215,495 shares at an average price of $6.04 during the three and six months ended June 30, 2010. At June 30, 2011, the Company had $2.3 million remaining to be purchased under this program.