Annual report pursuant to Section 13 and 15(d)

Note 10 - Share-based Compensation

v3.10.0.1
Note 10 - Share-based Compensation
12 Months Ended
Jun. 30, 2018
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, 2018,
2017,
and
2016,
share-based compensation expense totaled
$1.0
million,
$1.3
million, and
$2.4
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, 2018,
2017,
and
2016,
we recognized related tax benefits associated with our share-based compensation arrangements totaling
$0.5
million,
$0.5
million and
$0.8
million, respectively (before valuation allowances). Such amounts have been included in the Consolidated Statements of Comprehensive Income within income tax expense.
 
At
June 30, 2018,
we had
1,447,639
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 under 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 include both company performance and service vesting conditions (as further described below). Grants to independent directors have a
3
-year service vesting condition. Following is a description of grants made under the Plan.
 
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:
 
   
2018
   
2017
   
2016
 
Volatility
   
31.5
%    
36.8
%    
48.1
%
Risk-free rate of return
   
1.76
%    
1.03
%    
1.93
%
Dividend yield
   
2.47
%    
1.96
%    
1.95
%
Expected average life (years)
   
4.6
     
5.0
     
6.3
 
 
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, 2017,
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 remaining
130,000
Performance Options did
not
achieve the respective performance conditions so the amortization to date was reversed at
June 30, 2017,
and the options were cancelled during fiscal
2018.
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, 2018
is presented below.
 
                   
Weighted
         
     
 
   
Weighted
   
Average
     
 
 
     
 
   
Average
   
Remaining
     
 
 
     
 
   
Exercise
   
Contractual
   
Aggregate
 
Options
 
Shares
   
Price
   
Term (yrs)
   
Intrinsic Value
 
Outstanding - June 30, 2017
   
836,020
    $
24.41
     
 
     
 
 
Granted
   
19,482
     
30.80
     
 
     
 
 
Exercised
   
(9,066
)    
21.37
     
 
     
 
 
Canceled (forfeited/expired)
   
(284,841
)    
30.28
     
 
     
 
 
Outstanding - June 30, 2018
   
561,595
     
21.70
     
3.7
    $
2,205,554
 
Exercisable - June 30, 2018
   
453,423
    $
20.25
     
2.9
    $
2,205,554
 
 
The weighted average grant-date fair value of options granted during fiscal
2018,
2017
and
2016
was
$6.93,
$8.30
and
$11.53
respectively. The total intrinsic value of options exercised during fiscal
2018,
2017
and
2016
was
$0.1
million,
$0.8
million, and
$0.3
million, respectively. As of
June 30, 2018,
there was
$0.3
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
1.4
years. A summary of the nonvested shares as of
June 30, 2018
and changes during the year then ended is presented below.
 
           
Weighted Average
 
Options
 
Shares
   
Grant Date Fair Value
 
Nonvested June 30, 2017
   
285,284
    $
11.18
 
Granted
   
19,482
     
6.93
 
Vested
   
(69,219
)    
10.99
 
Canceled (forfeited/expired)
   
(127,375
)    
11.40
 
Nonvested at June 30, 2018
   
108,172
    $
10.27
 
 
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 years ended
June 30
are noted in the table following.
No
Performance based restricted stock unit awards were granted under the Plan prior to
December 1, 2015.
 
   
2018
   
2017
 
Volatility
   
32.9
%    
30.8
%
Risk-free rate of return
   
1.41
%    
0.92
%
Dividend yield
   
2.47
%    
1.97
%
Expected average life (years)
   
1.91
     
2.04
 
 
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 applicable to such grant. Equity-based compensation expenses related to performance-based shares recognized in our consolidated statements of comprehensive income are presented in the following table for the fiscal years ended
June 30 (
in thousands).
 
Granted within fiscal years ending June 30,
 
2018
   
2017
 
2016
  $
92
    $
794
 
2017
   
(12
)    
12
 
2018
   
457
     
-
 
Total expense
  $
537
    $
806
 
 
A summary of stock unit activity occurring during the fiscal year ended
June 30, 2018
is presented below.
 
           
Weighted
 
           
Average
 
           
Grant Date
 
   
Units
   
Fair Value
 
Nonvested June 30, 2017
   
308,330
    $
25.92
 
Granted
   
162,500
     
25.18
 
Vested
   
(59,211
)    
23.96
 
Canceled (forfeited/expired)
   
(81,250
)    
24.94
 
Nonvested at June 30, 2018
   
330,369
    $
26.15
 
 
As of
June 30, 2018,
there was
$0.6
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
year.
 
Restricted Stock Awards
 
A summary of stock unit activity occurring during the fiscal year ended
June 30, 2018
is presented below.
 
           
Weighted
 
           
Average
 
           
Grant Date
 
   
Units
   
Fair Value
 
Nonvested June 30, 2017
   
-
    $
-
 
Granted
   
16,234
     
25.62
 
Vested
   
-
     
-
 
Canceled (forfeited/expired)
   
(16,234
)    
(25.62
)
Nonvested at June 30, 2018
   
-
    $
-
 
 
During fiscal
2018
16,234
restricted stock awards were granted and then subsequently voided. There was
no
unrecognized compensation cost related to restricted shares granted under the Plan for fiscal
2018.