Note 10 - Share-based Compensation
|12 Months Ended|
Jun. 30, 2016
|Notes to Financial Statements|
|Disclosure of Compensation Related Costs, Share-based Payments [Text Block]||
(10) Share-Based Compensation
For the twelve months ended June 30, 2016, 2015, and 2014, share-based compensation expense totaled $2.4 million, $1.2 million, and $1.3 million respectively. These amounts have been included in the Consolidated Statements of Comprehensive Income within selling, general and administrative expenses. During the twelve months ended June 30, 2016, 2015, and 2014, we recognized related tax benefits associated with our share-based compensation arrangements totaling $0.8 million, $0.5 million and $0.5 million, respectively (before valuation allowances). Such amounts have been included in the Consolidated Statements of Comprehensive Income within income tax expense.
At June 30, 2016, we had 1,341,207 shares of common stock available for future issuance pursuant to the 1992 Stock Option Plan (the “Plan”). The maximum number of shares of common stock reserved for issuance under the Plan is 6,487,867 shares. The Plan provides for the grant of non-compensatory stock options to eligible employees and non-employee directors. Stock options unde the Plan are non-qualified under section 422 of the Internal Revenue Code and allow for the purchase of shares of our common stock. The Plan also provides for the issuance of stock appreciation rights ("SARs") on issued options, however no SARs have been issued to date. The awarding of such options is determined by the Compensation Committee of the Board of Directors after consideration of recommendations proposed by the Chief Executive Officer. Options are generally granted with an exercise price equal to the market price of our common stock at the date of grant, vest ratably over a specified service period, and have a contractual term of 10 years. Equity awards can also include performance vesting conditions. Company policy further requires an additional one year holding period beyond the service vest date for certain executives. Beginning January 31, 2014, grants to employees included both company performance and service vesting conditions (as further described below). Grants to independent directors had a 3 year service vest condition. Following is a description of grants made under the Plan.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Stock Option Awards
We estimate, as of the date of grant, the fair value of stock options awarded using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e. expected volatility) and option exercise activity (i.e. expected life). Expected volatility is based on the historical volatility of our stock. The risk-free rate of return is based on the U.S. Treasury bill rate extrapolated to the term matching the expected life of the grant. The dividend yield is based on the annualized dividend rate at the grant date relative to the grant date stock price. The expected life of options granted, which represents the period of time that the options are expected to be outstanding, is based, primarily, on historical data. The weighted average assumptions used for fiscal years ended June 30 are noted in the following table:
Options granted to employees beginning January 1, 2014 vest provided certain performance and service conditions are met (“Performance Options”). The performance conditions allow the potential vesting in three equal tranches, provided attainment of a minimum annual 5% growth in operating income (as defined in the agreement) for each of the ensuing three fiscal years. If the minimum annual growth is not achieved in any fiscal year, that tranche is forfeited, except that if a cumulative compound growth rate of 5% is achieved at the end of the three fiscal years, performance conditions for all three tranches will have been met. Service conditions require an additional period after performance conditions are met. Consequently, assuming both performance and service conditions are met, shares become exercisable between 3 and 5 years from grant date. At June 30, 2016, 196,000 Performance Options achieved the performance conditions, and consequently will vest ratably in three equal tranches on the grant date anniversary in years three, four and five provided service conditions are also met. The Company considers the remaining 130,000 Performance Options to be probable of achieving the respective performance conditions so they are being amortized to expense over their respective service periods. The Performance Options are reflected in the options tables presented below. All options were issued at the closing stock price on each grant date, and have a contractual term of 10 years. A summary of stock option activity occurring during the fiscal year ended June 30, 2016 is presented below.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
All options granted during fiscal 2016 were to non-employee independent directors of the Company as compensation for their services. The weighted average grant-date fair value of options granted during fiscal 2016, 2015 and 2014 was $11.53, $11.30 and $11.42 respectively. The total intrinsic value of options exercised during 2016, 2015 and 2014 was $0.3 million, $4.5 million, and $0.2 million, respectively. As of June 30, 2016, there was $2.0 million of total unrecognized compensation cost related to nonvested options granted under the Plan. That cost is expected to be recognized over a weighted average period of 2.6 years. A summary of the nonvested shares as of June 30, 2016 and changes during the year then ended is presented below.
Restricted Stock Awards
No new restricted stock awards were granted during fiscal 2016. A summary of nonvested restricted share activity occurring during the fiscal year ended June 30, 2016 is presented below.
As of June 30, 2016, there was no unrecognized compensation cost related to restricted shares granted under the Plan. The total fair value of restricted shares vested during the fiscal years ending June 30, 2016 and 2015 was $0.7 million and $0.8 million respectively.
Stock Unit Awards
We account for stock unit awards as equity-based awards because upon vesting, they will be settled in common shares. These awards, which contain time and other vesting conditions, may also contain performance conditions providing recipients a contingent right to receive shares of the Company's common stock ("Performance Units"), conditioned upon the Company's achievement of certain performance targets and goals, and subject to the terms of the agreements. For Performance Units, we expense as compensation cost the fair value of the shares as of the grant date, and amortize expense ratably over the total performance and time vest period, taking into account the probability that we will satisfy the performance goals. We estimate, as of the date of grant, the fair value of Performance Units with a discounted cash flow model, using as model inputs the risk-free rate of return as the discount rate, dividend yield for dividends not paid during the restriction period, and a discount for lack of marketability for a one-year post-vest holding period. The lack of marketability discount used is the present value of a future put option using Monte-Carlo and Black-Scholes pricing models. The weighted average assumptions used for the fiscal year ended June 30 is noted in the table following. No Performance based restricted stock unit awards were granted under the Plan prior to December 1, 2015.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
For each grant of Performance Units, the amount of the grant that will be earned and paid will be determined by reference to the achievement of certain performance goals for each of two initial fiscal years (on a cumulative basis) and the three fiscal years (on a cumulative basis) applicable to such grant.
A summary of stock unit activity occurring during the fiscal year ended June 30, 2016 is presented below.
As of June 30, 2016, there was $1.4 million of total unrecognized compensation cost related to nonvested units granted under the Plan based on our probability estimates. That cost is expected to be recognized over a weighted average period of 1.3 years.
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef