Quarterly report pursuant to Section 13 or 15(d)

Note 11 - Share-based Compensation

v3.20.1
Note 11 - Share-based Compensation
9 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]
(
11
)
Share-Based Compensation
 
During the
nine
months ended
March 31, 2020
and
2019,
we recognized total share-based compensation expense of
$0.2
million and
$1.0
million, respectively. These amounts have been included in the consolidated statements of comprehensive income within selling, general and administrative expenses. As of
March 31, 2020,
$1.2
million of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a weighted average period of
2.8
years. There was
no
share-based compensation capitalized for the
nine
months ended
March 31, 2020
and
2019,
respectively.
 
At
March 31, 2020,
there were
1,394,808
shares of common stock available for future issuance pursuant to the Ethan Allen Interiors Inc. Stock Incentive Plan. Stock options are 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. Grants to independent directors have a
three
-year service vesting condition.
 
Stock Option Activity
 
A summary of stock option activity during the
nine
months ended
March 31, 2020
is presented below.
 
           
Weighted
 
           
Average
 
   
Options
   
Exercise Price
 
Outstanding at June 30, 2019
   
378,911
    $
21.95
 
Granted
   
59,188
    $
17.27
 
Exercised
   
(4,500
)   $
11.74
 
Canceled (forfeited/expired)
   
(23,495
)   $
23.30
 
Outstanding at March 31, 2020
   
410,104
    $
21.31
 
Exercisable at March 31, 2020
   
314,151
    $
21.56
 
 
Stock options granted to employees during fiscal
2020
were valued using the Black-Scholes option pricing model with the following weighted average assumptions. There were
no
stock option awards granted to employees during fiscal
2019.
 
   
FY 2020
 
Volatility
   
30.8
%
Risk-free rate of return
   
1.62
%
Dividend yield
   
4.42
%
Expected average life (years)
   
5.9
 
 
Non-employee (independent) directors were granted stock options during the
first
quarter of each fiscal year presented and valued using the Black-Scholes option pricing model with the following assumptions.
 
   
FY 2020
   
FY 2019
 
Volatility
   
30.8
%    
31.3
%
Risk-free rate of return
   
1.55
%    
2.80
%
Dividend yield
   
3.97
%    
3.24
%
Expected average life (years)
   
5.3
     
5.0
 
 
Restricted Stock Unit Activity
 
A summary of restricted stock unit activity during the
nine
months ended
March 31, 2020
is presented below.
 
           
Weighted
 
   
Restricted
Stock Units
   
Average
Fair Value
 
                 
Outstanding at June 30, 2019
   
-
    $
-
 
Granted
   
57,000
    $
9.15
 
Vested
   
-
    $
-
 
Canceled (forfeited/expired)
   
-
    $
-
 
Outstanding at March 31, 2020
   
57,000
    $
9.15
 
 
During the
third
quarter of fiscal
2020,
we granted 
57,000
non-performance based restricted stock units ("RSUs"), with a weighted average grant date fair value of
$9.15.
The RSUs granted to employees entitle the holder to receive the underlying shares of common stock as the unit vests over the relevant vesting period. The RSUs do
not
entitle the holder to receive dividends declared on the underlying shares while the RSUs remain unvested. We account for these RSUs as equity-based awards because when they vest, they will be settled in shares of our common stock. The grant date fair value of RSUs is measured by reducing the grant date price of the Company's common stock by the present value of the dividends expected to be paid on the underlying stock during the requisite service period, discounted at the appropriate risk-free interest rate. The RSUs vest 
25%
annually on the anniversary date of grant and become fully vested after 
four
years. There were
no
RSUs granted to employees during fiscal
2019.
 
Performance Stock Units
 
A summary of performance units activity during the
nine
months ended
March 31, 2020
is presented below.
 
           
Weighted Average
 
   
Units
   
Grant Date Fair Value
 
Outstanding at June 30, 2019
   
313,882
    $
22.80
 
Granted
   
99,405
    $
12.72
 
Vested
   
-
    $
-
 
Canceled (forfeited/expired)
   
-
    $
-
 
Outstanding at March 31, 2020
   
413,287
    $
20.37
 
 
During the
first
quarter of fiscal
2020,
we granted
99,405
performance-based units. Payout of these units depends on our financial performance (
80%
) and a market-based condition based on the total return our shareholders receive on their investment in our stock relative to returns earned through investments in other public companies (
20%
) over a specific performance period of
three
years. 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 the Chaffe model. The weighted average assumptions used for the stock units granted during fiscal
2020
and
2019,
respectively, is presented below.
 
   
FY 2020
   
FY 2019
 
Volatility
   
30.5
%    
32.1
%
Risk-free rate of return
   
1.72
%    
2.72
%
Dividend yield
   
3.97
%    
3.24
%
Expected average life (years)
   
3.0
     
3.0