Note 10 - Options

12 Months Ended

Dec. 31, 2012

Notes

Note 10 - Options

Note 10 – Options

The Company has stock option plans which authorize the grant of stock options to eligible employees, directors and other individuals to purchase up to an aggregate of 1,021,772 shares of common stock, of which 149,527 are outstanding as of December 31, 2012.  All options granted under the plans are granted at current market value at the date of grant, and may be exercised between six months and ten years following the date of grant.  The plans are intended to advance the interest of the Company by attracting and ensuring retention of competent directors, employees and executive personnel, and to provide incentives to those individuals to devote their utmost efforts to the advancement of shareholder value.  Changes in stock options were as follows:

	Shares	Price Range Per Share
2012
Granted	13,000	$	33.30 - 33.30
Expired or canceled	19,393		24.00 - 28.13
Exercised	82,386		15.01 - 31.33
Total outstanding at December 31	149,527		17.71 - 33.30
Total exercisable at December 31	120,420		17.71 - 31.33

2011
Granted	67,200	$	26.52 - 26.75
Expired or canceled	24,612		24.00 - 31.33
Exercised	21,220		9.13 - 25.59
Total outstanding at December 31	238,306		15.01 - 31.33
Total exercisable at December 31	172,027		15.01 - 31.33
2010
Granted	7,700	$	28.06 - 28.06
Expired or canceled	5,243		17.71 - 31.33
Exercised	27,230		6.75 - 28.13
Total outstanding at December 31	216,938		9.13 - 31.33
Total exercisable at December 31	173,178		9.13 - 31.33

For the years ended December 31, 2012, 2011 and 2010, the Company reduced current income taxes payable and increased additional paid-in capital by $178, $34 and $38, respectively, for the income tax benefit attributable to sale by optionees of common stock received upon the exercise of stock options.

Stock-Based Compensation

In 2012, the Company recognized $70 in equity compensation cost, compared to $95 in 2011 and $83 in 2010. 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

		Years ended December 31,
		2012		2011		2010
Expected dividend amount per quarter	$	0.2571	$	0.2449	$	0.2471
Expected stock price volatility		22.8%		22.8%		22.0%
Risk-free interest rate		0.54%		1.19%		2.08%
Expected life of options		3.8 years		3.6 years		4.5 years

The per share weighted average fair value of options granted during 2012, 2011 and 2010 is $3.92, $3.09 and $3.71, respectively.

All UTMD options vest over a four-year service period.  Expected dividend amounts were estimated based on the actual cash dividend rate at the time the options were granted and an estimate of future dividends based on past dividend rate changes as well as management’s expectations of future dividend rates over the expected holding period of the options.  Expected volatility is based on UTMD’s historical volatility over recent periods of time and trends in that volatility, giving weight to more recent periods.  Risk free interest rates were estimated based on actual U.S. Treasury Securities Interest rates as reported by the Federal Reserve Bank for periods of time equivalent to the holding periods estimated for the options on the dates the options were granted.  Expected term of options were estimated based on historical holding periods for similar options previously granted by UTMD to employees and directors. 

The following table summarizes information about stock options outstanding at December 31, 2012:

					Options Outstanding				Options Exercisable
		Range of Exercise Prices			Number Outstanding	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price	Number Exercisable		Weighted Average Exercise Price
1	$	17.71	-	24.02	51,034	4.88	$	22.79	48,107	$	22.71
2		25.59	-	25.59	23,662	1.08		25.59	23,662		25.59
3		26.52	-	33.30	74,831	6.45		29.68	48,651		29.52
4	$	17.71	-	33.30	149,527	5.07	$	26.68	120,420	$	26.03