Stock-Based Compensation

6 Months Ended

Jun. 30, 2015

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

Stock-Based Compensation

Under the Company’s 2012 Blue Buffalo Pet Products, Inc. Stock Purchase and Option Plan (the “Plan”), the Board of Directors is authorized to award incentive stock options (ISOs and non-qualified), stock appreciation rights (SARs), restricted stock, performance units, performance-based stock awards, dividend equivalent rights, and other stock-based grants. Participation in the Plan is limited to key employees, officers, and directors.

On March 4, 2013, the Plan was amended to increase the maximum number of shares of stock available under the Plan by 210,000 shares to 14,242,061 shares (the “Amended Plan”). As of June 30, 2015, there were 5,230,642 shares of common stock reserved under the Amended Plan. As of June 30, 2015, the maximum number of shares available for grant under the Amended Plan was 108,129.

Stock Options

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. The fair value of stock options, which are subject to pro-rata vesting, is expensed on a straight-line basis over the vesting period of the stock options.

Prior to the Company's initial public offering, the Company used a third party valuation specialist to assist it in the estimation of the fair value of its common stock. The Company believed these valuations to be appropriate; however, the valuation of the equity of any private company involves various estimates and assumptions that may differ from actual values. Effective with our initial public offering, the Company bases its common stock value on actual transactions or other transactions that are representative of stock value. The expected volatility assumption is based on the combination of the industry index for pet food wholesalers and the volatility of the Company’s largest customer. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant. The weighted-average expected term is determined with reference to historical exercise and post-vesting cancellation experience, and the vesting period and contractual term of the awards.

The following table summarizes stock-based award activity during the year and also presents stock options outstanding and exercisable as of June 30, 2015 (dollars in millions, except for per share data):



	Number of Shares		Weighted Average Exercise Price Per Share
Outstanding, December 31, 2014	4,671,639		$	5.88
Granted	—		$	—
Exercised	(5,880	)	$	7.36
Forfeited	—		$	—
Expired	(5,457	)	$	6.12
Outstanding, June 30, 2015	4,660,302		$	5.88
Exercisable, June 30, 2015	1,827,403		$	5.76

During the three and six months ended June 30, 2015, there were no grants of ISO and non-qualified stock options. Stock-based compensation costs charged to operations (as a component of selling, general, and administrative expenses) during each of the three months ended June 30, 2015 and 2014 was approximately $0.5 million. Stock-based compensation costs charged to operations (as a component of selling, general, and administrative expenses) during each of the six months ended June 30, 2015 and 2014 was approximately $0.9 million.

There were no non-qualified options exercised in the three and six months ended June 30, 2015 and 2014. The benefits of tax deductions in excess of the grant date fair value resulting from the exercise of non-qualified options was not material to three and six months ended June 30, 2015 and 2014.

Unrecognized stock-based compensation related to outstanding unvested stock options is expected to be recognized in the Company’s statements of income as follows (by fiscal year):



(dollars in thousands)
2015 (period from July 1, through December 31, 2015)	$	844
2016	1,749
2017	1,688
2018	234
2019	32
Total	$	4,547