Capital Transactions |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Capital Transactions |
Capital Transactions
Dividends
On May 10, 2017, the Company announced that its Board of Directors elected to suspend the payment of quarterly dividends. The Company's Board of Directors will periodically evaluate the Company’s dividend policy in the future. 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 the Company's Board of Directors.
Share-Based Compensation
During the year ended December 31, 2012, the Company’s shareholders adopted and approved 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 1,500,000 shares of the Company’s common stock were originally authorized for the granting of awards under the 2012 Stock Incentive Plan. In January 2015, the Company’s shareholders approved an amendment to the 2012 Incentive Plan, to increase the number of shares of Common Stock reserved for issuance by 1,500,000 shares. 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 the 2009 Incentive Plan, which was approved by shareholders in 2009. 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 400,000 shares.
Stock Options
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; and performance-based stock options, which have already vested 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.
Stock option activity for the three-month period ended March 31, 2018, is as follows (amounts in thousands, except per share information):
Share-based compensation expense from time-based stock options for the three-month periods ended March 31, 2018 and 2017, was approximately $13,000 and $0.1 million, respectively. As of March 31, 2018 and December 31, 2017, the unrecognized share-based compensation expense related to the grants described above was $0 and $13,000, respectively.
At March 31, 2018, the aggregate intrinsic value of outstanding and exercisable stock options to purchase 1,295,000 shares of common stock, was $0.7 million. At December 31, 2017, the aggregate intrinsic value of outstanding options to purchase 1,390,000 shares of common stock, the exercisable options to purchase 1,293,000 shares of common stock, and options to purchase 92,000 shares of common stock expected to vest was $0.9 million, $0.9 million and $0, respectively.
For the three-month period ended March 31, 2018, the Company issued 30,000 shares of common stock upon the exercise of stock options at an average exercise price of $5.88 per share. The aggregate intrinsic values of options exercised during the three-month period ended March 31, 2018 was $0.2 million and the Company recognized $32,000 of tax benefits from the exercise of stock options during the period. There was no stock option activity for the three-month period ended March 31, 2017.
As of March 31, 2018 and December 31, 2017, the Company did not have any unvested performance-based stock options outstanding.
Restricted Stock Units
The Company’s outstanding restricted stock units ("RSUs"), include time-based RSUs, which vest over differing periods ranging from 12 months up to 48 months from the RSU grant date, as well as performance-based RSUs, which vest either upon achieving cumulative annual net sales growth targets over a rolling one-year period or upon achieving earnings-per-share targets over a rolling one-year period. RSUs given to the Board of Directors contain a restriction period in which the shares are not issued until two years after vesting. At March 31, 2018 and December 31, 2017, there were 95,000 and 96,000, respectively, vested RSUs given to the Board of Directors that had a restriction period.
Restricted stock unit activity for the three-month period ended March 31, 2018, is as follows (share amounts in thousands, except per share information):
During the three-month period ended March 31, 2018, the Company granted 203,000 RSUs under the 2012 Incentive Plan to the Company’s executive officers and other employees, which were composed of both time-based RSUs and net sales and adjusted EBITDA performance-based RSUs. The time-based RSUs were issued with a weighted-average grant date fair value of $11.36 per share and vest in annual installments over a three-year period from the grant date. The net sales and adjusted EBTIDA earnings-per-share performance-based RSUs were issued with a weighted-average grant date fair value of $11.20 per share and vest upon achieving targets over a three-year period from the grant date.
RSUs are valued at market value on the date of grant, which is the grant date share price discounted for expected dividend payments during the vesting period. For RSUs with 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. Using assumptions previously determined for the application of the option pricing model at the valuation date, the Finnerty Model discount for lack of marketability is approximately 11.9 percent for a common share.
Share-based compensation expense from RSUs for the three-month periods ended March 31, 2018 and 2017, was approximately $0.5 million and $0.7 million, respectively. As of March 31, 2018 and December 31, 2017, the unrecognized share-based compensation expense related to the grants described above was $2.2 million and $1.3 million, respectively. As of March 31, 2018, the remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.5 years.
The Company has not recognized any share-based compensation expense related to the net sales and earnings-per-share performance-based RSUs for the three-month periods ended March 31, 2018 and 2017. Should the Company attain all of the metrics related to the performance-based RSU grant, the Company would recognize up to $4.0 million of potential share-based compensation expense.
The number of shares issued upon vesting of RSUs granted pursuant to the Company's share-based compensation plans is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees, which was 40,000 and 38,000 shares for the three-month period ended March 31, 2018 and 2017, respectively. Although shares withheld are not issued, they are treated as common share repurchases for accounting purposes, as they reduce the number of shares that would have been issued upon vesting. These shares do not count against the authorized capacity under the repurchase program described above.
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