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Capital Transactions | 9 Months Ended
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Sep. 30, 2012
Capital Transactions |
Capital Transactions |
(7) Capital Transactions Dividends The declaration of future dividends is subject to the discretion of the Company’s Board of Directors and will depend upon various factors, including the Company’s earnings, financial condition, restrictions imposed by any indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by its Board of Directors. On May 7, 2012, the Company announced that its Board of Directors approved a cash dividend of $0.05 per common share in an aggregate amount of $780 that was paid on May 29, 2012 to shareholders of record on May 18, 2012. On August 1, 2012, the Company announced that its Board of Directors approved a cash dividend of $0.05 per common share in an aggregate amount of $780 that was paid on August 23, 2012 to shareholders of record on August 13, 2012. Share-based Compensation During the nine-month period ended September 30, 2012, the Company’s shareholders adopted and approved the Nature’s Sunshine Products, Inc. 2012 Stock Incentive Plan (the “2012 Incentive Plan”). The 2012 Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards. The Compensation Committee of the Board of Directors has authority and discretion to determine the type of award as well as the amount, terms and conditions of each award under the 2012 Incentive Plan, subject to the limitations of the 2012 Incentive Plan. A total of 1,500 shares of the Company’s common stock were authorized for the granting of awards under the 2012 Incentive Plan. The number of shares available for awards, as well as the terms of outstanding awards, are subject to adjustment as provided in the 2012 Incentive Plan for stock splits, stock dividends, recapitalizations and other similar events. The Company also maintains a stock incentive plan, which was approved by shareholders in 2009 (the “2009 Incentive Plan”). The 2009 Incentive Plan also provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards. Under the 2012 Incentive Plan, any shares subject to award, or awards forfeited or reacquired by the Company issued under the 2009 Incentive Plan are available for award up to a maximum of 400 shares. The Company also maintained a stock option plan, which was approved by shareholders in 1995 and expired in 2005 (“the 1995 Stock Plan”). The 1995 Stock Plan provided for the granting or awarding of certain nonqualified stock options to officers, directors and other employees. The term, not to exceed 10 years, and the vesting and exercise period of each stock option awarded under the 1995 Stock Plan were determined by the Company’s Board of Directors. Stock option activity for the nine months ended September 30, 2012 is as follows:
|  | Number of Shares |  | Weighted Average Exercise Price Per Share |
Options outstanding at December 31, 2011 |  | 1,374 |  | $ | 9.88 |
Granted |  | 681 |  | 15.11 |
Expired |  | (6 | ) | 8.59 |
Exercised |  | (191 | ) | 10.34 |
Options outstanding at September 30, 2012 |  | 1,858 |  | 11.75 |
The Company’s outstanding stock options include time-based stock options which vest over differing periods ranging from the date of issuance up to 48 months from the option grant date, performance-based stock options which vest upon achieving operating income margins of six, eight and ten percent as reported in four of five consecutive quarters over the term of the options, and performance-based stock options which vest upon achieving cumulative annual net sales revenue growth targets over a rolling two-year period subject to the Company maintaining at least an eight percent operating income margin during the applicable period. During the nine-month period ended September 30, 2012, the Company issued time-based options to purchase 217 shares of common stock under the 2009 Incentive Plan to the Company’s new senior executives. These options were issued with a weighted average exercise price of $15.65 per share and a weighted average grant date fair value of $7.66 per share. All of the options issued have an option termination date of ten years from the option grant date. Also, during the nine-month period ended September 30, 2012, the Company issued options to purchase 464 shares of common stock under the 2012 Incentive Plan to the Company’s executive officers and other employees, which are composed of both time-based stock options and net sales revenue performance-based stock options. These options were issued with a weighted average exercise price of $14.86 per share and a weighted average grant date fair value of $7.01 per share. All of the options issued have an option termination date of ten years from the option grant date. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the nine month period ended September 30, 2012:
|  | 2012 |
Expected life (in years) |  | 4.0 to 6.0 |
Risk-free interest rate |  | 0.3 to 0.9 |
Expected volatility |  | 58.5 to 66.0 |
Dividend yield |  | 0.0 to 1.3 |
Expected option lives and volatilities are based on historical data of the Company. The risk free interest rate is calculated as the average U.S. Treasury obligation rate that corresponds with the option life. Share-based compensation expense from time-based stock options for the three-month periods ended September 30, 2012 and 2011 was approximately $630 and $166, respectively; the related tax benefit was approximately $246 and $66, respectively. Share-based compensation expense from time-based stock options for the nine-month periods ended September 30, 2012 and 2011 was approximately $1,299 and $390, respectively; the related tax benefit was approximately $513 and $156, respectively. As of September 30, 2012 and December 31, 2011, the unrecognized share-based compensation expense related to the grants described above was $3,285 and $607, respectively. As of September 30, 2012, the remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.9 years. Share-based compensation expense from operating income performance-based stock options for the three-month periods ended September 30, 2012 and 2011was approximately $0 and $607, respectively; the related tax benefit was approximately $0 and $240, respectively. Shared-based compensation expense from operating income performance-based stock options for the nine-month periods ended September 30, 2012 and 2011was approximately $652 and $1,527, respectively; the related tax benefit was approximately $255 and $603, respectively. As of September 30, 2012 and December 31, 2011, the unrecognized share-based compensation expense related to these options was approximately $0 and $652, respectively. As of September 30, 2012, there is no remaining compensation expense to be recognized for the operating income performance-based stock options. The Company has not recognized any share-based compensation expense related to the net sales revenue performance-based stock options for the three and nine-month periods ended September 30, 2012. Should the Company attain all of the net sales revenue metrics related to the net sales revenue performance-based stock option grants, the Company could recognize up to $700 of potential share-based compensation expense. At September 30, 2012, the aggregate intrinsic value of all outstanding stock options to purchase 1,858 shares of common stock, exercisable stock options to purchase 1,061 shares of common stock and stock options to purchase 660 shares of common stock that are expected to vest (net of expected forfeitures) was $8,367, $7,213 and $1,085, respectively. At December 31, 2011, the aggregate intrinsic value of outstanding options to purchase 1,374 shares of common stock, the exercisable options to purchase 772 shares of common stock, and options to purchase 602 shares of common stock expected to vest (net of expected forfeitures) was $7,757, $4,819 and $2,732, respectively. Restricted stock unit activity for the nine months ended September 30, 2012 is as follows:
|  | Number of Shares |  | Weighted Average Grant Date Fair Value |
Units outstanding at December 31, 2011 |  | — |  | $ | — |
Granted |  | 18 |  | 12.07 |
Vested |  | — |  | — |
Forfeited |  | — |  | — |
Units outstanding at September 30, 2012 |  | 18 |  | 12.07 |
During the nine-month period ended September 30, 2012, the Company issued 18 restricted stock units (RSUs) of common stock under the 2012 Incentive Plan to the Board of Directors. The RSUs were issued with a weighted average grant date fair value of $12.07 per share and vest over a one year period from the grant date. RSUs are valued at the market value on the date of grant. Due to post-vesting restrictions, a Finnerty Model was utilized to calculate a valuation discount from the market value of common shares reflecting the restriction embedded in the RSUs preventing the sale of the underlying shares over a certain period of time. The Finnerty Model proposes to estimate a discount for lack of marketability such as transfer restrictions by using an option pricing theory. This model has gained recognition through its ability to address the magnitude of the discount by considering the volatility of a company’s stock price and the length of restriction. The concept underpinning the Finnerty Model is that restricted stock cannot be sold over a certain period of time. Share-based compensation expense from RSUs for the three and nine-month periods ended September 30, 2012 was approximately $50 and the related tax benefit was approximately $20. As of September 30, 2012, the unrecognized share-based compensation expense related to the grants described above was $173. As of September 30, 2012, the remaining compensation expense is expected to be recognized over the weighted average period of approximately 0.7 years.

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