(13) Share-based Compensation

Stock Options

The Company measures the cost of employee services received in exchange for awards of stock options based on the fair value of those awards at the date of grant. Awards of stock options generally vest in equal increments over a three-year service period from the date of grant. The fair value of stock options on the date of grant is amortized to compensation expense on a straight-line basis over the requisite service period for the entire award, that is, over the requisite service period of the last separately vesting portion of the award. The exercise price for stock options is equal to the market price of the Company’s common stock on the date of grant. The maximum contractual term of stock options is 10 years. The Company estimates the fair value of stock options using a Black-Scholes option-pricing model.

The assumptions used to estimate the fair value of stock awards granted in the years ended December 31, 2013, 2012 and 2011 are as follows:

 

		Year Ended December 31,
		2013				2012				2011
Volatility			44.4	%			40.1	%			34.6	%
Expected term (years)			8				10				10
Risk free interest rate			2.0	%			2.1	%			2.7	%
Expected dividend yield			0	%			0	%			0	%

The expected term of stock options represents the period of time that the stock options granted are expected to be outstanding taking into consideration the contractual term of the options and termination history and option exercise behaviors of the Company’s employees. The expected volatility is based on the historical price volatility of the Company’s common stock. The risk-free interest rate represents the U.S. Treasury bill rate for the expected term of the related stock options. The dividend yield represents the Company’s anticipated cash dividend over the expected term of the stock options.

Compensation cost for stock options recognized in operating results is included in general and administrative expense in the consolidated statements of operations and was $1.7 million, $2.0 million and $1.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. For the year ended December 31, 2013, compensation costs for stock options was reduced by $0.2 million for forfeitures resulting from terminations. In addition, approximately $0.5 million of stock-based compensation cost for stock options was included in the results from discontinued operations for the year ended December 31, 2011. This cost includes expense associated with the vesting of 0.3 million stock options previously granted to employees of China Water, which were accelerated upon closing of the Share Purchase Agreement (Note 20). The income tax expense associated with stock option activity recognized in the consolidated statements of operations was $0.1 million for the year ended December 31, 2013. The income tax benefit associated with stock option activity recognized in the consolidated statements of operations was $0.9 million for the year ended December 31, 2012. There was no income tax benefit recognized in the consolidated statement of operations for the year ended December 31, 2011 as all deferred tax assets were fully reserved by a valuation allowance.

A summary of stock option activity during 2013 is presented below:

 

Options		Shares				Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term (Years)
Outstanding December 31, 2012			399			$	41.80
Granted			74				32.10
Exercised			—				—
Forfeited, canceled, or expired			(157	)			42.10
Outstanding December 31, 2013			316			$	39.40				6.5
Exercisable at December 31, 2013			184			$	42.30				2.6

As of December 31, 2013, there was approximately $2.5 million of unrecognized compensation expense for employee stock options, which is expected to be recognized over a weighted-average period of approximately 0.8 years.

Restricted Stock

The Company measures the cost of employee services received in exchange for awards of restricted stock based on the market value of the Company’s common shares at the date of grant. Shares of restricted common stock generally vest over a two or three year service period from the date of grant. The fair value of the restricted stock is amortized on a straight-line basis over the requisite service period for the entire award, that is, over the requisite service period of the last separately vesting portion of the award.

Compensation cost for shares of restricted common stock recognized in operating results is included in general and administrative expense in the consolidated statements of operations and was $1.4 million, $1.6 million and $1.0 million, for the years ended December 31, 2013, 2012 and 2011, respectively. For the year ended December 31, 2013, compensation costs for shares of restricted common stock was reduced by $0.2 million for forfeitures resulting from terminations. The income tax expense (benefit) associated with restricted stock activity recognized in the consolidated statements of operations was $0.2 million and ($0.7 million) for the years ended December 31, 2013 and 2012, respectively. There was no income tax benefit recognized in the consolidated statement of operations for the year ended December 31, 2011 as all deferred tax assets were fully reserved by a valuation allowance.

A summary of non-vested restricted common stock activity is presented below:

 

Non-Vested Restricted Stock		Shares				Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2012			87			$	51.30
Granted			41				15.82
Vested			(25	)			52.87
Forfeited			(10	)			47.43
Non-vested at December 31, 2013			93			$	35.64

 

As of December 31, 2013, there was approximately $1.6 million of unrecognized compensation expense for restricted common stock, which is expected to be recognized over a weighted-average period of approximately 1.3 years. The total fair value of shares vested during the years ended December 31, 2013, 2012 and 2011 was approximately $0.4 million, $0.4 million and $1.3 million, respectively.

Restricted Stock Units

The Company measures the cost of employee services received in exchange for awards of restricted stock units based on the market value of the Company’s common shares at the date of grant. Restricted common stock units generally vest over a two or three year service period from the date of grant. The fair value of the restricted stock units is amortized on a straight-line basis over the requisite service period for the entire award, that is, over the requisite service period of the last separately vesting portion of the award.

Compensation cost for restricted common stock units recognized in operating results is included in general and administrative expense in the consolidated statements of operations and was approximately $0.6 million for the year ended December 31, 2013. There was no compensation cost recognized in the consolidated statements of operations for restricted common stock units for the years ended December 31, 2012 and 2011 as no restricted common stock units were granted in those years. The income tax benefit associated with restricted common stock unit activity recognized in the consolidated statements of operations was $0.2 million for the year ended December 31, 2103. There was no income tax benefit recognized in the consolidated statements of operations for the years ended December 31, 2012 and 2011 as restricted common stock units were not granted until fiscal 2013.

A summary of non-vested restricted common stock activity is presented below:

 

Non-Vested Restricted Stock Units		Shares				Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2012			—			$	—
Granted			62				34.40
Vested			—				—
Forfeited			(6	)			36.30
Non-vested at December 31, 2013			56			$	35.64

As of December 31, 2013, there was approximately $1.4 million of unrecognized compensation expense for restricted common stock units, which is expected to be recognized over a weighted-average period of approximately 1.3 years. No restricted stock units were vested at December 31, 2013 as restricted stock units were not granted prior to 2013, and the first units are not expected to vest until 2014.

Employee Stock Purchase Plan

Effective September 1, 2013, the Company established a noncompensatory employee stock purchase plan (“ESPP”) which permits all regular full-time employees and employees who work part time over 20 hours per week to purchase shares of the Company’s common stock at a five percent discount. Annual employee contributions are limited to twenty-five thousand dollars, are voluntary and made through a bi-weekly payroll deduction.