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| CAPITAL TRANSACTIONS |
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 February 24, 2016, the Company announced a cash dividend of $0.10 per common share in an aggregate amount of $1.9 million that was paid on March 22, 2016, to shareholders of record on March 11, 2016. On May 10, 2016, the Company announced a cash dividend of $0.10 per common share in an aggregate amount of $1.9 million that was paid on June 6, 2016, to shareholders of record on May 25, 2016. On August 5, 2016, the Company announced a cash dividend of $0.10 per common share in an aggregate amount of $1.9 million that was paid on September 2, 2016, to shareholders of record on August 23, 2016. On November 2, 2016, the Company announced a cash dividend of $0.10 per common share in an aggregate amount of $1.9 million that was paid on December 5, 2016, to shareholders of record on November 23, 2016.
Share Repurchase Program
In December 2014, the Company completed share repurchases under its previously announced $10.0 million share repurchase program. In November 2014, the Board of Directors authorized a $20.0 million share repurchase program beginning January 1, 2015. Such purchases may be made in the open market, through block trades, in privately negotiated transactions or otherwise. The timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions and other factors and the program may be discontinued or suspended at any time. At December 31, 2016, the remaining balance available for repurchases under the program was $13.4 million. Shares repurchased during the years ended December 31, 2016, 2015, and 2014, totaled 0 shares, 501,000 shares and 496,000 shares, respectively.
Share-Based Compensation
During the year ended December 31, 2012, the Company’s shareholders adopted and approved the 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; 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 2016, 2015, and 2014 consisted of the following (share amounts in thousands, except for per share information):
On September 19, 2014, the Company paid a special non-recurring cash dividend of $1.50 per common share. In accordance with the provisions of the Company’s stock incentive plans, the exercise price of all outstanding stock options on the ex-dividend dates were decreased by $1.50 per share in order to prevent a dilution of benefits or potential benefits intended to be made available to the stock option holders. Because this modification was required by the provisions of the Company’s stock incentive plans, no additional share-based compensation expense was recorded.
During the year ended December 31, 2016, the Company did not grant any stock options to purchase shares of common stock under the 2012 Stock Incentive Plan to the Company’s Board of Directors and executive officers.
During the year ended December 31, 2015, the Company granted options to purchase 335,000 shares of common stock under the 2012 Stock Incentive Plan to the Company’s executive officers and other employees, which are composed of both time-based stock options and net sales performance-based stock options. These options were issued with a weighted-average exercise price of $14.04 per share and a weighted-average grant date fair value of $4.79 per share. All of the options issued have an option termination date of ten years from the option grant date.
During the year ended December 31, 2014, the Company granted time-based options to purchase 258,000 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 $15.38 per share and a weighted average grant date fair value of $6.53 per share. All of the options issued have an option termination date of ten years from the option grant date.
For the years ended December 31, 2016, 2015, and 2014, the Company issued 35,000, 405,000, and 124,000 shares of common stock upon the exercise of stock options at an average exercise price of $4.74, $9.78, and $6.42 per share, respectively. The aggregate intrinsic values of options exercised during the years ended December 31, 2016, 2015, and 2014 was $0.2 million, $1.4 million, and $1.1 million, respectively. For the years ended December 31, 2016, 2015, and 2014, the Company recognized $0.1 million, $0.5 million, and $0.3 million of tax benefits from the exercise of stock options during the period, respectively.
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 years ended December 31, 2015 and 2014:
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 bill rate that corresponds with the option life. The dividend yield is based on the Company’s historical and expected amount of dividend payouts, at the time of grant. On August 29, 2013, and September 19, 2014, the Company paid special non-recurring cash dividends of $1.50 per common share. The Company has excluded these special non-recurring cash dividends from the dividend yield used in the Black-Scholes option-pricing model calculations as it is not representative of future dividends to be declared by the Company.
Share-based compensation expense from time-based stock options for the years ended December 31, 2016, 2015, and 2014 was $0.8 million, $1.6 million and $2.9 million, respectively. As of December 31, 2016, 2015, and 2014, the unrecognized share-based compensation cost related to grants described above was $0.3 million, $1.1 million, and $2.0 million, respectively. As of December 31, 2016, the remaining compensation cost is expected to be recognized over the weighted-average period of approximately 1.2 years.
As of December 31, 2016, the Company did not have any unvested performance-based stock options outstanding.
The following table summarizes information about options outstanding and exercisable at December 31, 2016 (share amounts in thousands, except per share information):
At December 31, 2016, the aggregate intrinsic value of outstanding options to purchase 1,524,000 shares of common stock, the exercisable options to purchase 1,201,000 shares of common stock, and options to purchase 306,000 shares of common stock expected to vest was $4.2 million, $3.7 million, and $0.4 million, respectively. At December 31, 2015, the aggregate intrinsic value of outstanding options to purchase 1,683,000 shares of common stock, the exercisable options to purchase 958,000 shares of common stock, and options to purchase 588,000 shares of common stock expected to vest was $0.9 million, $0.9 million, and $0, respectively.
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 upon achieving cumulative annual net sales growth targets over a rolling one-year period and performance-based RSUs, which vest 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 December 31, 2016 and 2015, there were 69,000 and 60,000 vested RSUs given to the Board of Directors that had a restriction period.
Restricted stock unit activity for the period ended December 31, 2016, 2015, and 2014 is as follows: (share amounts in thousands, except per share information):
On September 19, 2014, and August 29, 2013, the Company paid special non-recurring cash dividends of $1.50 per common share. In accordance with the provisions of the Company’s stock incentive plans, additional RSUs were issued in order to prevent a dilution of benefits or potential benefits intended to be made available to the RSU holders. Because this RSU issuance was required by the provisions of the Company’s stock incentive plans, no additional share-based compensation expense was recorded.
During the year ended December 31, 2016, the Company granted 281,000 restricted stock units (RSUs) of common stock under the 2012 Incentive Plan to the Company’s board, executive officers and other employees, which are composed of both time-based RSUs and net sales and earnings per share performance-based RSUs. The time-based RSUs were granted with a weighted-average grant date fair value $10.06 per share and vest in annual installments over a three year from the grant date. The net sales performance-based RSUs were granted with a weighted-average grant date fair value of $8.16 per share and vest upon achieving net sales targets over a three year period from the grant date.
During the period ended December 31, 2015, the Company granted 679,000 restricted stock units (RSUs) of common stock under the 2012 Incentive Plan to the Company's board, executive officers and other employees. The RSUs were granted with a weighted average grant date fair value of $12.61 per share and vest in annual installments over a three year period from the grant date or after a three-year cliff. The net sales and earnings per share performance-based RSUs were granted with a weighted-average grant date fair value of $12.13per share and vest upon achieving (i) net sales targets over a three year period from the grant date and (ii) earnings per share targets over a six year period from the grant date.
During the period ended December 31, 2014, the Company granted 156,000 restricted stock units (RSUs) of common stock under the 2012 Incentive Plan to the Board of Directors. The RSUs were granted with a weighted average grant date fair value of $10.73 per share and vest in 12 monthly installments over a one year period from the grant date.
RSUs are valued at the 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 period ended December 31, 2016, 2015, and 2014, was approximately $2.4 million, $2.9 million, and $1.0 million, respectively. As of December 31, 2016, and 2015, the unrecognized share-based compensation expense related to the grants described above was $2.0 million and $2.5 million, respectively. As of December 31, 2016, 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 years ended December 31, 2016, 2015, and 2014. Should the Company attain all of the metrics related to the performance-based RSU grant, the Company would recognize up to $3.0 million of potential share-based compensation expense.
The number of shares issued upon vesting or exercise for restricted stock units granted, pursuant to the Company’s share-based compensation plans, is net of shares withheld to cover the minimum statutory withholding requirements that the Company pays on behalf of its employees, which was 20,000 and 8,000 shares for the years ended December 31, 2016 and 2015, 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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