Stock-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

11. STOCK-BASED COMPENSATION

The Parent issues stock-based awards to the Company’s employees from time to time, including stock options and other stock-based awards in accordance with the Parent’s various board-approved compensation plans. In April 2014, the Parent adopted the 2014 Stock Option Plan (the “2014 Plan”), which effectively replaced the 2006 Stock Option Plan (the “2006 Plan”). During the three and nine months ended September 30, 2013, the Company incurred non-cash stock-based compensation expense of $0.1 million and $0.6 million, respectively. During the three and nine months ended September 30, 2014, the Company incurred non-cash stock-based compensation expense of $0.4 million and $3.7 million, respectively. Stock-based compensation expense is included in salaries and benefits in the accompanying condensed consolidated statements of operations.

Restricted Shares

The Parent’s restricted share awards, granted to certain of the Company’s employees, typically vest over a five year term. As of September 30, 2014, approximately 716,000 restricted share awards issued by the Parent remained unvested. The Company expects approximately 527,000 of the unvested restricted shares to vest. As of September 30, 2014, there was approximately $0.8 million of estimated unrecognized compensation cost related to these outstanding restricted share awards. These costs are expected to be recognized by the Company over approximately 3.2 years.

During the three months ended June 30, 2014, the Parent issued to the Company’s employees approximately 18,203,000 restricted shares, in connection with the Parent’s equity restructuring, as previously described in Note 1. Organization and Basis of Presentation, Recent Developments. The 18,203,000 restricted shares vested immediately and included a cash payment of $1.8 million to partially reimburse employees for tax-related liabilities associated with the award. The Company considered the cash-based incentive payment to be stock-based compensation that is included in salaries and benefits in the accompanying consolidated statements of operations.

Stock Options

The Company records stock-based employee compensation for options granted using a Black-Scholes-Merton model. The following table sets forth the range of assumptions the Company has utilized in the Black-Scholes-Merton model.


Risk-free interest rate		2.14% to 2.31%
Dividend yield		0%
Volatility (annual)		30.0% to 35.0%
Expected option life		6.5 years

For stock-based awards included in the Black-Scholes-Merton valuation model, the Company uses historical stock price information of certain peer group companies for a period of time equal to the expected award life period to determine estimated volatility. The Company determined the expected life of the stock awards by averaging the contractual life of the awards and the vesting period of the awards. The estimated fair value of awards are amortized to expense on a straight-line basis over the awards’ vesting period. Compensation cost related to stock-based awards will be adjusted for future changes in estimated forfeitures and actual results of performance measures.

The 2014 Plan permits the Parent’s board of directors to issue approximately 90.5 million stock options to the Company’s employees. During the nine months ended September 30, 2014, the Parent issued to the Company’s employees 89,838,000 stock options under the 2014 Plan. As of September 30, 2014, approximately 525,000 options have been forfeited and the Parent has the ability to issue approximately 689,000 additional stock based awards under the 2014 Plan. The stock options vest over five years. The Parent’s options outstanding have an exercise price of $0.16 per option. The Black-Sholes-Merton valuation model indicated that the fair value of options granted during the nine months ended September 30, 2014, at $0.06 per option. As of September 30, 2014, no options were vested, and the Company expects approximately 74.5 million options to vest over the life of the awards. As of September 30, 2014, there was approximately $4.1 million of estimated unrecognized compensation cost related to outstanding stock options. These costs are expected to be recognized over approximately 4.6 years.

- 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+ Details

Capella Healthcare, Inc. 10-Q