Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Stockholders' Equity

8. Stockholders’ equity

Stock Option Activity

In May 2013, the Company’s stockholders approved a new stock incentive plan authorizing an additional 1.6 million shares, plus remaining available shares under a prior plan for issuance under the new plan. Combined with the legacy stock incentive plans, there are approximately 1.9 million shares available for grant as of September 30, 2014.

Performance-based stock awards

The Company has issued performance-based stock options and performance-based restricted stock units (“RSUs”), the vesting of which is contingent upon the achievement of certain performance criteria related to the operating performance of the Company as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the implicit service period (the longer of the period the performance condition is expected to be achieved or the required service period) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2014 (number of units and aggregate intrinsic value in thousands):

	Number of Units			Weighted Average Grant- Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of period		1,279		$	9.67
Granted		502			16.73
Released		(369	)		7.51
Forfeited		(144	)		12.83
Units outstanding, end of period		1,268			12.75	$	19,575

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $15.44 per share on September 30, 2014, multiplied by the number of RSUs outstanding. As of September 30, 2014, there was $11.4 million in unrecognized compensation cost related to RSUs granted under the Company’s stock plans. The Company expect to recognize this cost over a weighted average period of 30 months. RSUs are released when vesting requirements are met.

In the nine months ended September 30, 2014, the Company granted approximately 0.1 million performance-based RSUs, which are included in the table above. Of the approximately 0.3 million performance-based RSUs outstanding as of September 30, 2014, the performance criteria have been met for approximately 0.1 million units, which will vest upon the completion of service requirements. Certain of the performance-based RSUs granted in 2014 contain provisions whereby the amount of RSUs that ultimately vest is dependent upon the level of achievement of performance metrics. The amount of RSUs included in the table above related to such grants is the target level, which is the Company’s best estimate of the amount of RSUs that will vest. The maximum additional number of RSUs that could be earned is approximately 0.1 million, which are not included in the table above.

Certain RSUs that vested in the first nine months of 2014 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld were approximately 0.1 million with a value of approximately $1.3 million on their respective vesting dates as determined by the Company’s closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the statement of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the amount of shares that would have otherwise been issued as a result of vesting.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2014 (number of options and aggregate intrinsic value in thousands):

	Number of options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Options outstanding, beginning of period		3,366		$	6.15
Granted		—
Exercised		(1,218	)		7.06
Expired / forfeited		(54	)		10.29
Options outstanding, end of period		2,094			5.51		4.70	$	20,925
Exercisable at September 30, 2014		2,055			5.53		4.70		20,508
Expected to vest after September 30, 2014		27			4.73		4.89		287

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock of $15.44 on September 30, 2014. The aggregate intrinsic value of options exercised for the three and nine months ended September 30, 2014 was approximately $1.7 million and $14.4 million, respectively. The aggregate intrinsic value of options exercised for the three and nine months ended September 30, 2013 was approximately $5.3 million and $9.1 million, respectively. As of September 30, 2014, total unrecognized stock-based compensation expense related to unvested stock options was approximately $32,000, which is expected to be recognized over a remaining weighted average period of approximately nine months. Options expected to vest are presented net of expected forfeitures.

Included in the table above is approximately 0.4 million of performance-based options of which, 0.3 million are vested. The Company does not expect the remaining performance-based options to vest and does not expect to recognize any future expense related to performance-based stock options.

Share-Based Compensation Expense

When granted, the Company calculates the fair value of stock options using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected life and risk-free interest rates. No options were awarded during the nine month periods ended September 30, 2014 or 2013. The estimated fair value of stock-based compensation awards is amortized to expense on a straight-line basis over the service periods. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s forfeiture rate was calculated based on its historical experience of awards which ultimately vested.

Share-based compensation was classified as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Cost of products sold	$	61	$	50	$	149	$	134
Sales, general and administrative expenses		940		736		2,598		2,293
Research and development expenses		436		177		1,374		479
Total share-based compensation	$	1,437	$	963	$	4,121	$	2,906

Total share-based compensation expense recognized in the statements of operations for the three months ended September 30, 2014 and 2013, included approximately $2,000 and $22,000, respectively, related to incentive stock options for which no tax benefit is recognized. Total share-based compensation expense recognized in the statements of operations for the nine months ended September 30, 2014 and 2013, included approximately $18,000 and $0.1 million, respectively, related to incentive stock options for which no tax benefit is recognized.

Issuer Purchases of Equity Securities

In May 2014, the Company announced that TASER’s Board of Directors authorized a stock repurchase program to acquire up to $30.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. During the quarter ended September 30, 2014, the Company purchased approximately 0.2 million common shares under this program for a total cost of approximately $2.9 million, or a weighted average cost of $11.94 per share. The weighted average cost includes the average price paid per share of $11.91, plus any applicable administrative costs for the transaction. During the five month period from inception of the repurchase program through September 30, 2014, the Company purchased approximately 1.7 million common shares under this program for a total cost of approximately $22.4 million, or a weighted average cost of $12.99 per share. The weighted average cost includes the average price paid per share of $12.96, plus any applicable administrative costs for the transaction. The Company has approximately $7.6 million remaining on the repurchase authorization as of September 30, 2014. Repurchases may be made from time to time on the open market.