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Share-based compensation | 12 Months Ended
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Dec. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Share-based compensation |
17. | Share-based compensation
At December 31, 2018, and 2017, the Company had stock option and award plans, and a stock purchase plan. 2012 Long Term Incentive Plan The Board of Directors adopted the Amended and Restated 2012 Long-Term Incentive Plan (the “2012 LTIP”) on April 13, 2012, subject to shareholder approval, which was subsequently provided by shareholder ratification. The 2012 LTIP provides for the grant of options to purchase shares of the Company’s common stock, stock awards (including restricted stock, unrestricted stock, and stock units), stock appreciation rights, performance-based awards and other equity-based awards. All of the Company’s employees and the employees of the Company’s subsidiaries and affiliates are eligible and may receive awards under the 2012 LTIP. In addition, the Company’s non-employee directors and consultants and advisors who perform services for the Company and the Company’s subsidiaries and affiliates may receive awards under the 2012 LTIP. Incentive share options; however, are only available to the Company’s employees. Awards granted under the 2012 LTIP expire no later than ten years after the date of grant. At December 31, 2018, the Company reserves a total of 4,750,000 shares of common stock for issuance pursuant to the 2012 LTIP, subject to certain adjustments set forth in the 2012 LTIP. At December 31, 2018, there were 971,763 options outstanding under the 2012 LTIP, of which 520,748 were exercisable. In addition, there were 339,452 shares of unvested restricted stock outstanding, some of which contain performance-based vesting conditions, and 371,676 restricted stock units outstanding, some of which contain performance-based or market-based vesting conditions, under the 2012 LTIP as of December 31, 2018. 2004 Long Term Incentive Plan The 2004 Long Term Incentive Plan (the “2004 LTIP”) reserved 3.1 million shares for issuance, subject to certain adjustments set forth in the 2004 LTIP. At December 31, 2018, there were 25,500 options outstanding under the 2004 LTIP, all of which were exercisable; in addition, there were no shares of unvested restricted stock outstanding. Inducement Plan for Spinal Kinetics Employees The Inducement Plan for Spinal Kinetics Employees (the “Spinal Kinetics Inducement Plan”) reserved 51,705 shares for issuance to employees of Spinal Kinetics as an inducement material to the individual’s entering into and continuing employment with the Company. At December 31, 2018, there were 28,624 options outstanding under the Spinal Kinetics Inducement Plan, none of which were exercisable; in addition, there were 19,914 shares of unvested restricted stock outstanding. Stock Purchase Plan The Second Amended and Restated Stock Purchase Plan, as Amended (the “Stock Purchase Plan”) provides for the issuance of shares of the Company’s common stock to eligible employees and directors of the Company and its subsidiaries that elect to participate in the plan and acquire shares of common stock through payroll deductions (including executive officers). During each purchase period, eligible employees may designate between 1% and 25% of their compensation to be deducted for the purchase of common stock under the plan (or such other percentage in order to comply with regulations applicable to Employees domiciled in or resident of a member state of the European Union). For eligible directors, the designated percentage will be applied to an amount equal to his or her annual or other director compensation paid in cash for the current plan year. The purchase price of the shares under the plan is equal to 85% of the fair market value on the first day of the plan year (which is a calendar year, running from January 1 to December 31) or, if lower, on the last day of the plan year. Due to the compensatory nature of such plan, the Company records the related share-based compensation in the consolidated statement of income. As of December 31, 2018, the aggregate number of shares reserved for issuance under the Stock Purchase Plan is 2,350,000. As of December 31, 2018, 1,628,045 shares had been issued. Share-Based Compensation Expense Share-based compensation expense is recorded in the same line of the consolidated statements of income as the employee’s cash compensation. The following tables present the detail of share-based compensation by line item in the consolidated statements of income as well as by award type, for the years ended December 31, 2018, 2017 and 2016:
|  | Year Ended December 31, |
(U.S. Dollars, in thousands) |  | 2018 |  |  | 2017 |  |  | 2016 |
Cost of sales |  | $ | 522 |  |  | $ | 486 |  |  | $ | 553 |
Sales and marketing |  |  | 1,802 |  |  |  | 1,471 |  |  |  | 1,230 |
General and administrative |  |  | 15,197 |  |  |  | 9,671 |  |  |  | 13,132 |
Research and development |  |  | 1,409 |  |  |  | 929 |  |  |  | 1,051 |
Total |  | $ | 18,930 |  |  | $ | 12,557 |  |  | $ | 15,966 |
|  | Year Ended December 31, |
(U.S. Dollars, in thousands) |  | 2018 |  |  | 2017 |  |  | 2016 |
Stock options |  | $ | 3,061 |  |  | $ | 2,388 |  |  | $ | 2,021 |
Time-based restricted stock awards and stock units |  |  | 7,265 |  |  |  | 5,540 |  |  |  | 6,016 |
Performance-based restricted stock awards and stock units |  |  | 1,998 |  |  |  | 462 |  |  |  | 5,716 |
Market-based restricted stock units |  |  | 5,256 |  |  |  | 2,904 |  |  |  | 948 |
Stock purchase plan |  |  | 1,350 |  |  |  | 1,263 |  |  |  | 1,265 |
Total |  | $ | 18,930 |  |  | $ | 12,557 |  |  | $ | 15,966 |
The income tax benefit related to this expense was $3.8 million, $3.4 million, and $4.3 million for the years ended December 31, 2018, 2017, and 2016, respectively. Stock Options The fair value of time-based stock options is determined using the Black-Scholes valuation model, with such value recognized as expense over the service period, which is typically four years, net of actual forfeitures. The fair value of market-based stock options is determined at the date of the grant using the Monte Carlo valuation methodology, with such value recognized as expense over the requisite service period adjusted for forfeitures as they occur. The Monte Carlo methodology incorporates into the valuation the possibility that the market condition may not be satisfied. A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the year is shown in the following table.
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Assumptions: |  |  |  |  |  |  |  |  |  |  |  |
Expected term (in years) |  | 4.5 |  |  | 4.5 |  |  | 4.5 |
Expected volatility |  | 28.7% – 30.1% |  |  |  | 31.2 | % |  | 30.6% – 32.3% |
Risk free interest rate |  | 2.55% – 2.79% |  |  |  | 1.93 | % |  | 1.07% – 1.92% |
Dividend yield |  | — |  |  | — |  |  | — |
Weighted average grant date fair value |  | $ | 16.28 |  |  | $ | 13.32 |  |  | $ | 11.79 |
The expected term of the options granted is estimated based on a number of factors, including the vesting and expiration terms of the award, historical employee exercise behavior for both options that are currently outstanding and options that have been exercised or are expired, and an employee’s average length of service. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option award. Expected volatility is estimated based on the historical volatility of the Company’s stock. Summaries of the status of the Company’s stock option plans as of December 31, 2018 and 2017 and changes during the year ended December 31, 2018 are presented below:
|  | Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Term |
Outstanding at December 31, 2017 |  |  | 1,086,822 |  |  | $ | 37.47 |  |  |  |  |
Granted |  |  | 231,548 |  |  | $ | 57.66 |  |  |  |  |
Exercised |  |  | (100,821 | ) |  | $ | 27.80 |  |  |  |  |
Forfeited |  |  | (41,662 | ) |  | $ | 48.80 |  |  |  |  |
Outstanding at December 31, 2018 |  |  | 1,175,887 |  |  | $ | 41.87 |  |  |  | 6.61 |
Vested and expected to vest at December 31, 2018 |  |  | 1,175,887 |  |  | $ | 41.87 |  |  |  | 6.61 |
Exercisable at December 31, 2018 |  |  | 696,248 |  |  | $ | 36.67 |  |  |  | 5.36 |
As of December 31, 2018, the unamortized compensation expense relating to options granted and expected to be recognized was $3.0 million. This amount is expected to be recognized through April 2022 or over a weighted average period of approximately 1.4 years. The total intrinsic value of options exercised was $3.2 million, $2.2 million and $4.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. For the year ended December 31, 2018 we received $2.8 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $0.8 million.The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2018 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the shares that had exercise prices that were lower than the $52.49 closing price of the Company’s stock on December 31, 2018. The aggregate intrinsic value of options outstanding was $13.6 million, $18.7 million and $3.3 million for the years ended December 31, 2018, 2017, and 2016, respectively. The aggregate intrinsic value of options exercisable was $11.0 million, $12.4 million and $2.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. Time-based Restricted Stock Awards and Stock Units During the year ended December 31, 2018, the Company granted to employees and non-employee directors 172,108 shares of time-based restricted stock awards or stock units, which vest at various dates through December 2022. The compensation expense, which represents the fair value of the stock measured at the market price at the date of grant, is recognized on a straight-line basis over the vesting period, which is typically four years, net of actual forfeitures. Since 2017, the annual grant to non-employee directors has been made in the form of one-year vesting restricted stock units with deferred delivery (“DSUs”), whereby shares are not settled until after the director ceases service as a director. As at December 31, 2018 there are 27,982 DSUs outstanding that are vested but not settled. The aggregate fair value of time-based restricted stock awards and stock units that vested during the years ended December 31, 2018, 2017 and 2016 was $8.0 million, $7.3 million and $7.2 million, respectively. Unamortized compensation expense related to time-based restricted stock awards and stock units amounted to $12.2 million at December 31, 2018, and is expected to be recognized over a weighted average period of approximately 2.4 years. The aggregate intrinsic value of time-based restricted stock awards and stock units outstanding was $18.8 million, $17.8 million and $13.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. Performance-based Restricted Stock Awards and Stock Units The Company’s performance-based restricted stock awards and stock units contain performance-based vesting conditions. The fair value of performance-based restricted stock awards and stock units is calculated based upon the closing stock price at the date of grant. Such value is recognized as expense over the derived requisite service period beginning in the period in which they are deemed probable to vest, net of actual forfeitures. Vesting probability is assessed based upon forecasted earnings and financial results. During the years ended December 31, 2018, 2017, or 2016, the Company did not grant any performance-based restricted stock awards or stock units to employees. During the year ended December 31, 2015, the Company granted to employees 110,660 shares of performance-based restricted stock awards, which vest based upon the achievement of certain earnings or return on invested capital targets as of and for any of the years ended December 31, 2016, 2017, or 2018. Approximately $0.4 million, $0.5 million and $5.7 million of compensation expense has been recorded for the years ended December 31, 2018, 2017 and 2016, respectively, associated with these performance-based restricted stock awards. The fair value of performance-based restricted stock awards that vested during the year ended December 31, 2017, was $4.9 million. No performance-based restricted stock awards vested during the years ended December 31, 2018 or 2016. No unamortized compensation expense related to performance-based restricted stock awards remains as of December 31, 2018. The aggregate intrinsic value of performance-based restricted stock awards outstanding was $2.9 million, $3.0 million and $7.0 million for the years ended December 31, 2018, 2017, and 2016, respectively. During the year ended December 31, 2015, the Company also granted 55,330 shares of performance-based restricted stock units to employees, which vest based upon the achievement of certain earnings or return on invested capital targets for the year ended December 31, 2018. Approximately $1.6 million of compensation expense has been recognized for the year ended December 31, 2018, associated with these 2015 performance-based restricted stock units. The Company did not record any compensation expense for the years ended December 31, 2017 or 2016 related to these 2015 performance-based restricted stock units as the requisite service period had not yet begun. No unamortized compensation expense related to these 2015 performance-based restricted stock units remains as of December 31, 2018. The aggregate intrinsic value of performance-based restricted stock units outstanding was $2.5 million, $3.0 million, and $2.0 million for the years ended December 31, 2018, 2017, and 2016, respectively. Market-based Restricted Stock Units The Company’s market-based restricted stock units contain market-based vesting conditions. The fair value of market-based restricted stock units is determined at the date of the grant using the Monte Carlo valuation methodology, with any discounts for post-vesting restrictions estimated using the Chaffe Model. The Monte Carlo methodology incorporates into the valuation the possibility that the market condition may not be satisfied. Such value is recognized on a straight-line basis over the vesting period, net of actual forfeitures. During the years ended December 31, 2018, 2017 and 2016, the Company granted 97,420, 94,902 and 96,245 shares, respectively, of market-based restricted stock units to executive officers and certain employees. The awards, if the market conditions are achieved, will be settled in shares of common stock, with one share of common stock issued per restricted stock unit if targets are achieved at the 100% level. Awards may be achieved at a minimum level of 50% and a maximum of 200%. The market conditions for the 2018, 2017, and 2016 awards are based on the Company’s stock achieving certain total shareholder return targets relative to specified index companies during a 3-year performance period beginning in April 2018, July 2017, and July 2016, respectively. The Company recorded $5.3 million $2.9 million, and $0.9 million in compensation expense for the years ended December 31, 2018, 2017, and 2016, respectively, related to market-based restricted stock units. Unamortized compensation expense for market-based restricted stock units amounted to $6.5 million at December 31, 2018, and is expected to be recognized over a weighted average period of approximately 1.4 years. The aggregate intrinsic value of market-based restricted stock units outstanding was $14.2 million, $10.2 million, and $3.5 million for the years ended December 31, 2018, 2017, and 2016, respectively. A summary of the status of our time-based, performance-based and market-based restricted stock awards and stock units as of December 31, 2018 and 2017 and changes during the year ended December 31, 2018 are presented below:
|  | Time-based Restricted Stock Awards and Stock Units |  |  | Performance-based Restricted Stock Awards and Stock Units |  |  | Market-based Restricted Stock Units |
|  | Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Shares |  |  | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2017 |  |  | 325,874 |  |  | $ | 42.44 |  |  |  | 109,880 |  |  | $ | 33.12 |  |  |  | 187,314 |  |  | $ | 51.99 |
Granted |  |  | 172,108 |  |  | $ | 57.18 |  |  |  | — |  |  | $ | — |  |  |  | 97,420 |  |  | $ | 68.38 |
Vested and settled |  |  | (112,249 | ) |  | $ | 40.08 |  |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Cancelled |  |  | (28,141 | ) |  | $ | 48.84 |  |  |  | (7,725 | ) |  | $ | 33.12 |  |  |  | (13,439 | ) |  | $ | 60.83 |
Outstanding at December 31, 2018 |  |  | 357,592 |  |  | $ | 49.77 |  |  |  | 102,155 |  |  | $ | 33.12 |  |  |  | 271,295 |  |  | $ | 57.44 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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