Note 10 - Share-Based Compensation
|12 Months Ended|
Jun. 30, 2014
|Disclosure of Compensation Related Costs, Share-based Payments [Abstract]|
|Disclosure of Compensation Related Costs, Share-based Payments [Text Block]||
(10) Share-Based Compensation
For the twelve months ended June 30, 2014, 2013, and 2012, share-based compensation expense totaled $1.3 million, $1.4 million, and $1.7 million respectively. These amounts have been included in the Consolidated Statements of Operations within selling, general and administrative expenses. During the twelve months ended June 30, 2014, 2013, and 2012, we recognized related tax benefits associated with our share-based compensation arrangements totaling $0.5 million, $0.5 million and $0.6 million, respectively (before valuation allowances). Such amounts have been included in the Consolidated Statements of Operations within income tax expense.
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 for the term closest 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:
At June 30, 2014, we had 1,360,878 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. Following is a description of grants made under the Plan.
Stock Option Awards
The Plan provides for the grant of non-compensatory stock options to eligible employees and non-employee directors. Stock options granted 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 as of June 30, 2014. 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. Option awards 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. In fiscal 2014 the service period was 5 years for awards to employees (as further described below), and 3 years for awards to independent directors.
Effective October 1, 2011, the Company and M. Farooq Kathwari, our President and Chief Executive Officer, entered into a new employment agreement (the "Agreement"). Pursuant to the terms of the Agreement, Mr. Kathwari was awarded on October 1, 2011, options to purchase 300,000 shares of our common stock at an exercise price of $13.61 which vest ratably over a 5-year period on each June 30, unless earlier vested, in certain circumstances, in accordance with the terms of the Agreement. During fiscal 2014 the Company granted to certain executives of the Company other than Mr. Kathwari, options to purchase an aggregate of 149,000 shares of our common stock, which vest provided certain performance and service conditions are met. 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, 2014, the first tranche achieved the performance conditions, and consequently 49,667 shares will vest ratably in three equal tranches on the grant date anniversary in years three, four and five provided service conditions are also met.
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, 2014 is presented below:
The weighted average grant-date fair value of options granted during fiscal 2014, 2013, and 2012 was $11.42, $9.96 and $5.98 respectively. The total intrinsic value of options exercised during 2014, 2013 and 2012 was $0.2 million, $0.8 million, and $0.1 million, respectively. As of June 30, 2014, there was $2.2 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 3.2 years. A summary of the nonvested shares as of June 30, 2014 and changes during the year then ended is presented below:
Restricted Stock Awards
On July 26, 2011, as a result of the Company’s performance, the Compensation Committee of the Company’s board of directors awarded Mr. Kathwari 30,000 service-based restricted shares, which vest in three equal annual installments on the grant date anniversary. Effective October 1, 2011, pursuant to the terms of the Agreement, Mr. Kathwari was awarded 105,000 shares of restricted stock, which vest ratably over a 5-year period on each June 30, unless earlier vested, in certain circumstances, in accordance with the terms of the Agreement.
A summary of nonvested restricted share activity occurring during the fiscal year ended June 30, 2014 is presented below.
As of June 30, 2014, there was $0.6 million of total unrecognized compensation cost related to restricted shares granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.8 years. The total fair value of restricted shares vested during the fiscal years ending June 30, 2014 and 2013 was $0.9 million and $1.4 million respectively.
Stock Unit Awards
In connection with previous employment agreements, Mr. Kathwari was deemed to have earned 126,000 stock units. In the event of the termination of his employment, regardless of the reason for termination, Mr. Kathwari will receive shares of common stock equal to the number of stock units earned.
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