Note 10 - Stock Based Compensation | 12 Months Ended |
Dec. 31, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Note 10—Stock Based Compensation |
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In April 2014, the Board of Directors and the stockholders approved the Orchids Paper Products Company 2014 Stock Incentive Plan (the "Plan"). The Plan provides for the granting of incentive stock options to employees and board members selected by the board's compensation committee and replaced the Orchids Paper Products Company 2005 Stock Incentive Plan (the “2005 Plan”). Equity awards granted under the 2005 Plan will continue in full force and effect under the terms of the 2005 Plan and are not changed or modified. No further grants can be made under the 2005 Plan. The Company's policy is to issue shares of remaining authorized common stock to satisfy option exercises under the Plan. A total of 400,000 shares may be issued pursuant to the Plan. As of December 31, 2014, there were 355,000 shares available for issuance under the Plan. The exercise price of each option is generally equal to the arithmetic mean of the high and low sales price per share of the Company's common stock on the grant date. Options granted to board members under the Plan generally vest immediately. Options granted to employees generally vest over a service period of 2 to 5 years or, beginning in 2014, are market-based and vest when the share price of the Company’s common stock closes at or above a certain percentage of the purchase price of the option for three consecutive business days. Options granted with market-based vesting expire if they remain unvested five years after the grant date. Options granted under the Plan have a 10-year life. |
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Stock options with time-based vesting conditions |
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The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of stock options issued with time-based vesting conditions, as this model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Estimated volatility is calculated based on actual historical volatility of the Company's common stock from the Company's initial public offering date to the grant date. The Company's dividend yield assumption is based on the expected dividend yield as of the grant date. Expected life is calculated based on the simplified method for "plain vanilla" options, due to limited available exercise information. The Company expenses the cost of these options granted over the vesting period of the option based on the grant-date fair value of the award. |
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The following table details the options granted to certain members of the board of directors and management that were valued using the Black-Scholes valuation model and the assumptions used in the Black-Scholes option valuation model for those grants during 2012, 2013 and 2014: |
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| | | | | | | | | | | Risk | | | | | | | | | | | | | | | |
Grant | | Number | | | Exercise | | | Grant Date | | | Free | | | Estimated | | | Dividend | | Expected | | | | | | | |
Date | | of Shares | | | Price | | | Fair Value | | | Interest Rate | | | Volatility | | | Yield | | Life (years) | | | | | | | |
12-Jan | | | 27,000 | | | $ | 18.77 | | | $ | 5.42 | | | | 1.97 | % | | | 45 | % | | | 4.26 | % | 6-May | | | | | | | |
12-May | | | 38,500 | | | $ | 17.845 | | | $ | 4.78 | | | | 1.7 | % | | | 44 | % | | | 4.48 | % | 5 | | | | | | | |
13-Feb | | | 3,750 | | | $ | 21.695 | | | $ | 5.68 | | | | 2.02 | % | | | 43 | % | | | 4.61 | % | 5 | | | | | | | |
13-May | | | 40,000 | | | $ | 22.95 | | | $ | 5.28 | | | | 1.87 | % | | | 43 | % | | | 5.88 | % | 5 | | | | | | | |
14-May | | | 35,000 | | | $ | 29.65 | | | $ | 7.5 | | | | 2.62 | % | | | 41 | % | | | 4.72 | % | 5 | | | | | | | |
14-Jun | | | 5,000 | | | $ | 30.09 | | | $ | 7.67 | | | | 2.63 | % | | | 41 | % | | | 4.65 | % | 5 | | | | | | | |
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Stock options with market-based vesting conditions |
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The Company uses a Monte Carlo option valuation model to estimate the grant date fair value of stock options issued with market-based vesting conditions, as these options include a market condition. Option valuation models require the input of highly subjective assumptions including the expected stock price volatility, dividend yield and expected life of the option. Estimated volatility is calculated based on a mix of historical and implied volatility during the expected life of the options. Historical volatility is considered since the Company’s initial public offering and implied volatility is based on the publicly traded options of a three company peer group within the paper industry. The Company's dividend yield assumption is based on the Company’s average historical dividend yield and current dividend yield as of the grant date. Expected life is calculated based on the average of the service period and the contractual term of the option, using the simplified method for "plain vanilla" options. The Company expenses the cost of these options granted over the implicit, or derived, service period of the option based on the completed Monte Carlo models. |
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During 2014, the Board of Directors granted options to purchase 145,000 shares of the Company’s common stock to certain members of management. These options will become exercisable in four equal tranches, if at all, if and when the share price of the Company’s common stock closes at or above a certain percentage of the purchase price of the option for three consecutive business days, in accordance with the following vesting schedule: |
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| | | Share price required to achieve vesting | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tranche 1 | | $ | 34.788 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tranche 2 | | $ | 42.35 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tranche 3 | | $ | 51.425 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tranche 4 | | $ | 60.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Any unvested portion of the options shall expire five years from the date of grant and the options shall terminate ten years after the date of grant. The following table details the options granted to certain members of management that were valued using the Monte Carlo valuation model and the assumptions used in the valuation model for those grants during 2014: |
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Grant | | Number | | | Exercise | | | Grant Date | | | Risk-Free | | | Estimated | | | Dividend | | | Expected | | | Derived Service | |
Date | | of Shares | | | Price | | | Fair Value | | | Interest Rate | | | Volatility | | | Yield | | | Life (years) | | | Period (years) | |
January 14 - Tranche 1 | | | 10,000 | | | $ | 31.125 | | | $ | 5.64 | | | | 1.98 | % | | | 31 | % | | | 4.5 | % | | | 5.15 | | | | 0.31 | |
January 14 - Tranche 2 | | | 10,000 | | | $ | 31.125 | | | $ | 5.46 | | | | 1.98 | % | | | 31 | % | | | 4.5 | % | | | 5.58 | | | | 1.15 | |
January 14 - Tranche 3 | | | 10,000 | | | $ | 31.125 | | | $ | 5.03 | | | | 1.98 | % | | | 31 | % | | | 4.5 | % | | | 5.97 | | | | 1.94 | |
January 14 - Tranche 4 | | | 10,000 | | | $ | 31.125 | | | $ | 4.27 | | | | 1.98 | % | | | 31 | % | | | 4.5 | % | | | 6.25 | | | | 2.5 | |
February 14 - Tranche 1 | | | 25,000 | | | $ | 30.88 | | | $ | 5.51 | | | | 1.98 | % | | | 31 | % | | | 4.6 | % | | | 5.17 | | | | 0.35 | |
February 14 - Tranche 2 | | | 25,000 | | | $ | 30.88 | | | $ | 5.35 | | | | 1.98 | % | | | 31 | % | | | 4.6 | % | | | 5.6 | | | | 1.19 | |
February 14 - Tranche 3 | | | 25,000 | | | $ | 30.88 | | | $ | 4.88 | | | | 1.98 | % | | | 31 | % | | | 4.6 | % | | | 5.99 | | | | 1.98 | |
February 14 - Tranche 4 | | | 25,000 | | | $ | 30.88 | | | $ | 4.15 | | | | 1.98 | % | | | 31 | % | | | 4.6 | % | | | 6.27 | | | | 2.54 | |
May 14 - Tranche 1 | | | 1,250 | | | $ | 28.185 | | | $ | 5.06 | | | | 2.03 | % | | | 31 | % | | | 4.7 | % | | | 5.36 | | | | 0.71 | |
May 14 - Tranche 2 | | | 1,250 | | | $ | 28.185 | | | $ | 4.74 | | | | 2.03 | % | | | 31 | % | | | 4.7 | % | | | 5.78 | | | | 1.56 | |
May 14 - Tranche 3 | | | 1,250 | | | $ | 28.185 | | | $ | 4.02 | | | | 2.03 | % | | | 31 | % | | | 4.7 | % | | | 6.14 | | | | 2.29 | |
May 14 - Tranche 4 | | | 1,250 | | | $ | 28.185 | | | $ | 3.29 | | | | 2.03 | % | | | 31 | % | | | 4.7 | % | | | 6.39 | | | | 2.79 | |
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In 2014, none of these options vested, as the share price of the Company’s common stock did not reach any of the share prices required for vesting. Additionally, 25,000 of the options that were granted in January 2014 were forfeited when an employee left the Company. |
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Stock options issued outside of the 2014 Plan |
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In April 2014, the Company’s stockholders voted to approve the options granted to Mr. Jeffrey S. Schoen, the Company’s President and Chief Executive Officer, on November 8, 2013. Upon his appointment as an officer of the Company, Mr. Schoen was granted an option to purchase up to 400,000 shares of the common stock of the Company at a purchase price of $30.25 per share. The option will become exercisable, if at all, if and when the share price of the Company’s common stock closes at or above a certain percentage of the purchase price of the option for three consecutive business days, in accordance with the following vesting schedule: |
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Share price closes at or above the following percentage of the purchase price for the Option | | Number of shares that become vested | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
115% (share price $34.788) | | | 100,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
140% (share price $42.35) | | | 100,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
170% (share price $51.425) | | | 100,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
200% (share price $60.50) | | | 100,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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These options were granted outside of the 2005 Plan and the 2014 Plan. Any unvested portion of the option shall expire five years from the date of grant and the option shall terminate ten years after the date of grant. The Company used a Monte Carlo option valuation model to estimate the grant date fair value of each tranche of 100,000 options, as they include a market condition. Assumptions used in the valuation model were the same as those for the stock options with market-based vesting conditions issued to employees, which are noted above. The Company expenses the cost of these options granted over the implicit service period of the option based on the completed Monte Carlo models. The following table details the assumption used in the valuation model for the options granted to Mr. Schoen: |
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| | Number | | | Exercise | | | Grant Date | | | Risk-Free | | | Estimated | | | Dividend | | | Expected | | | Derived Service | |
| | of Shares | | | Price | | | Fair Value | | | Interest Rate | | | Volatility | | | Yield | | | Life (years) | | | Period (years) | |
Tranche 1 | | | 100,000 | | | $ | 30.25 | | | $ | 5.18 | | | | 2.1 | % | | | 30 | % | | | 4.6 | % | | | 4.99 | | | | 0.4 | |
Tranche 2 | | | 100,000 | | | $ | 30.25 | | | $ | 5.04 | | | | 2.1 | % | | | 30 | % | | | 4.6 | % | | | 5.42 | | | | 1.25 | |
Tranche 3 | | | 100,000 | | | $ | 30.25 | | | $ | 4.31 | | | | 2.1 | % | | | 30 | % | | | 4.6 | % | | | 5.79 | | | | 2 | |
Tranche 4 | | | 100,000 | | | $ | 30.25 | | | $ | 3.5 | | | | 2.1 | % | | | 30 | % | | | 4.6 | % | | | 6.04 | | | | 2.5 | |
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Total option expense |
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The Company recognized the following expenses related to all options granted during 2014, 2013 and 2012 under the 2005 Plan, the 2014 Plan and the Schoen options: |
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| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | |
Time-Based Vesting Options | | $ | 308,000 | | | $ | 293,000 | | | $ | 346,000 | | | | | | | | | | | | | | | | | | | | | |
Market-Based Vesting Options | | | 1,520,000 | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | |
Total compensation expense related to stock options | | $ | 1,828,000 | | | $ | 293,000 | | | $ | 346,000 | | | | | | | | | | | | | | | | | | | | | |
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Future expected market-based stock option expense |
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The grant of options that vest based on a market condition have had and will continue to have a material impact on the Company’s results of operations in 2015 and 2016. Based on the derived service periods of the options, the Company expects to expense the compensation cost related to these options as shown in the following table. However, if the market condition is achieved for any tranche of these options prior to the end of the derived service period, all remaining expense related to that tranche would be recognized in the period in which the market condition is achieved. |
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| | 2014 | | | 2015 | | | 2016 | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | Total | | | Total | | | | | | | | | | | | | | | | | | | | | |
| | | (in thousands) | | | | | | | | | | | | | | | | | | | | | |
Tranche 1 | | $ | 717 | | | $ | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
Tranche 2 | | | 424 | | | | 240 | | | | - | | | | | | | | | | | | | | | | | | | | | |
Tranche 3 | | | 229 | | | | 289 | | | | 59 | | | | | | | | | | | | | | | | | | | | | |
Tranche 4 | | | 150 | | | | 189 | | | | 136 | | | | | | | | | | | | | | | | | | | | | |
Total expense | | $ | 1,520 | | | $ | 718 | | | $ | 195 | | | | | | | | | | | | | | | | | | | | | |
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Summary of option activity |
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The following tables summarize activity related to options granted under the 2005 Plan, the 2014 Plan and the Schoen options: |
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| | | | | | Weighted | | Weighted | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Average | | Average | | Aggregate | | | | | | | | | | | | | | | | | | | | |
| | | | | | Exercise | | Remaining | | Intrinsic | | | | | | | | | | | | | | | | | | | | |
| | Number | | | Price | | Contractual Life (years) | | Value | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2011 | | | 605,000 | | | $ | 8.52 | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | | 65,500 | | | $ | 18.23 | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercised | | | (112,250 | ) | | $ | 8.68 | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2012 | | | 558,250 | | | $ | 9.63 | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | | 43,750 | | | $ | 22.84 | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercised | | | (416,334 | ) | | $ | 7.94 | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | | (5,666 | ) | | $ | 18.77 | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2013 | | | 180,000 | | | $ | 16.46 | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | | 585,000 | | | $ | 30.36 | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercised | | | (5,750 | ) | | $ | 13.8 | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | | (25,000 | ) | | $ | 31.125 | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | | | 734,250 | | | $ | 27.06 | | 8.57 | | $ | 2,194,316 | | | | | | | | | | | | | | | | | | | | |
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Exercisable at December 31, 2014 | | | 213,250 | | | $ | 19.03 | | 6.82 | | $ | 2,173,081 | | | | | | | | | | | | | | | | | | | | |
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| | For the year ended December 31, | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | |
Fair value of options vested | | $ | 344,040 | | | $ | 342,868 | | | $ | 308,468 | | | | | | | | | | | | | | | | | | | | | |
Weighted average grant-date fair value of granted options | | $ | 4.83 | | | $ | 5.31 | | | $ | 5.05 | | | | | | | | | | | | | | | | | | | | | |
Aggregate intrinsic value of exercised options | | $ | 102,657 | | | $ | 7,565,711 | | | $ | 1,204,185 | | | | | | | | | | | | | | | | | | | | | |
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Following is a summary of nonvested shares under the 2005 Plan and the 2014 Plan as of December 31, 2014 and changes during the year then ended: |
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| | | | | | Weighted | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Average | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Grant-Date | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number | | | Fair Value | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2013 | | | 7,334 | | | $ | 6.41 | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | | 585,000 | | | $ | 4.83 | | | | | | | | | | | | | | | | | | | | | | | | | |
Vested | | | (46,334 | ) | | $ | 7.43 | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | | (25,000 | ) | | $ | 5.1 | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | | | 521,000 | | | $ | 4.61 | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table summarizes options outstanding and exercisable under the 2005 Plan, the 2014 Plan and the Schoen options as of December 31, 2014: |
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| | | | | Options Outstanding | | Options Exercisable | | | | | | | | | | | | | |
| | | | | | | | | Weighted | | Weighted | | | | | | Weighted | | | | | | | | | | | | | |
| | | | | | | | | Average | | Average | | | | | | Average | | | | | | | | | | | | | |
| | | | | | | | | Exercise | | Remaining | | | | | | Exercise | | | | | | | | | | | | | |
| Exercise price range | | | Number | | | Price | | Contractual Life (years) | | Number | | | Price | | | | | | | | | | | | | |
| $5.18 - $7.48 | | | | 18,750 | | | $ | 6.37 | | 2.52 | | | 18,750 | | | $ | 6.37 | | | | | | | | | | | | | |
| $8.58 - $12.50 | | | | 20,750 | | | $ | 11.39 | | 5.7 | | | 19,750 | | | $ | 11.34 | | | | | | | | | | | | | |
| $13.84 - $18.77 | | | | 91,000 | | | $ | 16.79 | | 6.09 | | | 91,000 | | | $ | 16.79 | | | | | | | | | | | | | |
| $21.695 - $31.125 | | | | 603,750 | | | $ | 29.79 | | 9.24 | | | 83,750 | | | $ | 26.12 | | | | | | | | | | | | | |
| | | | | | 734,250 | | | | | | | | | 213,250 | | | | | | | | | | | | | | | | | |
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As of December 31, 2014, there was $3,000 of unrecognized compensation expense related to non-vested stock options with a time-based vesting condition for options granted in 2012, 2013 and 2014. This cost is expected to be recognized on a straight-line basis over a weighted average period of 0.9 years. At December 31, 2014, there was $913,000 of unrecognized compensation expense related to non-vested stock options with a market-based vesting condition for options granted in 2014. This cost is expected to be recognized on a straight-line basis for each tranche of options granted over a weighted average period of 0.8 years. |
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During the years ended December 31, 2014, 2013 and 2012, the Company received $79,000, $3,305,000, and $974,000, respectively, in proceeds from the exercise of stock options. The Company realized $16,000, $408,000, and $201,000 of tax benefits related to stock option exercises during the years ended December 31, 2014, 2013 and 2012, respectively. Excess tax benefits related to stock option exercises are recorded to additional-paid in capital ("APIC pool") when realized and may be used to offset future tax deficiencies. During the years ended December 31, 2014, 2013 and 2012, the Company recorded excess tax benefits of $20,000, $1,409,000, and $395,000, respectively. As of December 31, 2014, the Company’s APIC pool was $1.8 million. |
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Restricted stock |
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In February 2013, the Company granted 16,000 shares of restricted stock to certain employees under the 2005 Plan. These awards were valued at the arithmetic mean of the high and low market price of the Company's stock on the grant date, which was $21.695 per share, and vest ratably over a three year period beginning on the first anniversary of the grant date. The Company expenses the cost of restricted stock granted over the vesting period of the shares based on the grant-date fair value of the award. The Company recognized expense of $51,000 and $53,000 during 2014 and 2013, respectively, related to the shares granted under the 2005 Plan. |
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The following tables summarize activity related to restricted stock granted under the 2005 Plan, which was entirely unvested as of December 31, 2013: |
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| | | | | | Weighted | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Average | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Grant Date | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number | | | Fair Value | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2013 | | | 8,000 | | | $ | 21.695 | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | |
Vested | | | (2,666 | ) | | $ | 21.695 | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeited | | | (667 | ) | | $ | 21.695 | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | | | 4,667 | | | $ | 21.695 | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | For the year ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of shares vested | | $ | 57,839 | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average grant-date fair value of granted shares | | $ | - | | | $ | 21.695 | | | | | | | | | | | | | | | | | | | | | | | | | |
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