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Note 6 - Stock-based Compensation | 12 Months Ended
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Mar. 25, 2023
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] | NOTE 6 – STOCK-BASED COMPENSATION In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At March 25, 2023, 0.7 million shares of common stock were available for future grant under the 2021 Plan. The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete benefits related to share-based compensation and stock option activity in fiscal years 2023, 2022 and 2021 were $0.4 million, $1.4 million and $0.3 million, respectively. Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period. The Company’s non-employee directors receive an annual grant of restricted stock units valued at $50,000 that vest after one year. The fiscal year 2023, fiscal year 2022 and fiscal year 2021 restricted stock unit grants to non-employee directors were made in September 2022, September 2021 and September 2020, respectively. Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award. During fiscal year 2023, 19,000 shares of time-vested restricted stock units were granted and 11,000 shares of performance-based restricted stock units were granted. During fiscal year 2022, 30,000 shares of time-vested restricted stock units were granted and 15,000 shares of performance-based restricted stock units were granted. During fiscal year 2021, 80,000 shares of time-vested restricted stock units were granted. The following table summarizes the restricted stock units vested and shares issued during fiscal years 2023, 2022 and 2021 (amounts in thousands, except per unit data):
|  |  | Total |  |  | Grant Date |  |  |  |  |  |  | Number |  |
|  |  | Number |  |  | Fair |  |  | Target |  |  | Of |  | Date
Date | Measurement |  | of Units |  |  | Value |  |  | Level |  |  | Shares |  | Shares
Granted | Period |  | Granted |  |  | Per Unit |  |  | Achieved |  |  | Issued |  | Issued
April 2018 | April 2018 – March 2020 |  |  | 1 |  |  | $ | 15.65 |  |  | Time Vested |  |  | 1 |  | April 2020
April 2017 | April 2017 – March 2020 |  |  | 62 |  |  | $ | 12.90 |  |  | 79% |  |  | 49 |  | May 2020
July 2020 | July 2020 |  |  | 1 |  |  | $ | 27.08 |  |  | Time Vested |  |  | 1 |  | July 2020
September 2019 | September 2019 – September 2020 |  |  | 18 |  |  | $ | 22.77 |  |  | Time Vested |  |  | 18 |  | September 2020
October 2018 | October 2018 – September 2020 |  |  | 1 |  |  | $ | 20.81 |  |  | Time Vested |  |  | 1 |  | October 2020
January 2021 | January 2021 |  |  | 3 |  |  | $ | 34.68 |  |  | Time Vested |  |  | 3 |  | January 2021
May 2018 | April 2018 – March 2021 |  |  | 29 |  |  | $ | 15.30 |  |  | Time Vested |  |  | 29 |  | March 2021
April 2018 | April 2018 – March 2021 |  |  | 1 |  |  | $ | 15.65 |  |  | Time Vested |  |  | 1 |  | April 2021
May 2018 | April 2018 – March 2021 |  |  | 29 |  |  | $ | 15.30 |  |  | 64% |  |  | 19 |  | May 2021
September 2020 | September 2020 – September 2021 |  |  | 14 |  |  | $ | 28.52 |  |  | Time Vested |  |  | 14 |  | September 2021
October 2018 | October 2018 – September 2021 |  |  | 1 |  |  | $ | 20.81 |  |  | Time Vested |  |  | 1 |  | October 2021
April 2019 | April 2019 – March 2022 |  |  | 20 |  |  | $ | 23.50 |  |  | Time Vested |  |  | 20 |  | March 2022
April 2019 | April 2019 – March 2022 |  |  | 20 |  |  | $ | 23.50 |  |  | 82% |  |  | 16 |  | May 2022
July 2022 | July 2022 |  |  | 1 |  |  | $ | 59.33 |  |  | Time Vested |  |  | 1 |  | July 2022
September 2021 | September 2021 – September 2022 |  |  | 7 |  |  | $ | 66.09 |  |  | Time Vested |  |  | 7 |  | September 2022
September 2022 | September 2022 |  |  | 1 |  |  | $ | 73.30 |  |  | Time Vested |  |  | 1 |  | September 2022
October 2018 | October 2018 – September 2022 |  |  | 1 |  |  | $ | 20.81 |  |  | Time Vested |  |  | 1 |  | October 2022
The following table summarizes the non-vested restricted stock units outstanding as of March 25, 2023 (amounts in thousands, except per unit data):
|  |  | Total |  |  | Grant Date |  | Estimated
|  |  | Number |  |  | Fair |  | Level of
Date | Measurement |  | of Units |  |  | Value |  | Achievement at
Granted | Period |  | Granted |  |  | Per Unit |  | March 25, 2023
October 2018 | October 2018 – September 2027 |  | 6 |  |  | $ | 20.81 |  | Time Vested
April 2020 | April 2020 – March 2023 |  | 2 |  |  | $ | 26.25 |  | Time Vested
July 2020 | July 2020 – July 2023 |  | 26 |  |  | $ | 27.08 |  | Time Vested
September 2020 | September 2020 – July 2023 |  | 4 |  |  | $ | 28.54 |  | Time Vested
September 2020 | September 2020 – July 2023 |  | 5 |  |  | $ | 29.76 |  | Time Vested
September 2020 | September 2020 – September 2023 |  | 3 |  |  | $ | 29.76 |  | Time Vested
May 2021 | May 2021 – May 2024 |  | 1 |  |  | $ | 54.21 |  | Time Vested
June 2021 | June 2021 – March 2024 |  | 10 |  |  | $ | 53.17 |  | 133% of target level
June 2021 | June 2021 – March 2024 |  | 11 |  |  | $ | 53.17 |  | Time Vested
September 2021 | September 2021 – September 2024 |  | 4 |  |  | $ | 67.76 |  | Time Vested
January 2022 | January 2022 – March 2024 |  | 1 |  |  | $ | 90.92 |  | 133% of target level
January 2022 | January 2022 – March 2024 |  | 1 |  |  | $ | 90.92 |  | Time Vested
January 2022 | January 2022 – January 2025 |  | 1 |  |  | $ | 90.41 |  | Time Vested
March 2022 | March 2022 – March 2025 |  | 1 |  |  | $ | 76.31 |  | Time Vested
May 2022 | May 2022 - March 2025 |  | 11 |  |  | $ | 63.17 |  | 52% of target level
May 2022 | May 2022 - March 2025 |  | 12 |  |  | $ | 63.17 |  | Time Vested
August 2022 | August 2022 - August 2025 |  | 1 |  |  | $ | 78.04 |  | Time Vested
September 2022 | September 2022 – September 2023 |  | 5 |  |  | $ | 73.80 |  | Time Vested
December 2022 | December 2022 - December 2025 |  | 1 |  |  | $ | 81.26 |  | Time Vested
December 2022 | December 2022 - December 2025 |  | 1 |  |  | $ | 67.48 |  | Time Vested
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $2.0 million, $1.6 million and $1.4 million in fiscal years 2023, 2022 and 2021, respectively. Unearned compensation totaled $1.9 million as of March 25, 2023 which is expected to be realized over a period of three years. Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-lined basis over the requisite service period for each award. Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant. We calculate the fair value of the stock options granted using the Black-Scholes model. The following weighted-average assumptions were used to value options granted during fiscal years 2023, 2022 and 2021:
|  | FY 2023 |  |  | FY 2022 |  |  | FY 2021 |
Risk-Free Interest Rate |  |  | 2.65 | % |  |  | 1.01 | % |  |  | 0.22 | %
Volatility Factor |  |  | 37.62 | % |  |  | 30.22 | % |  |  | 25.83 | %
Expected Term (in Years) |  |  | 4.58 |  |  |  | 6.25 |  |  |  | 3.25 |
Annual Dividend Rate |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | %
We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur. During fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a new member of the Board of Directors that vests over five years. During fiscal year 2022, the Company granted an option for 10,000 shares of common stock each to two new members (20,000 shares in the aggregate) of the Board of Directors that vest over five years, an option for 2,000 shares of common stock each to five employees (10,000 shares in the aggregate) that vests over three years, an option for 90,000 shares of common stock in the aggregate to employees during an acquisition that vests over five years and an option for 6,000 shares of common stock to a Company employee that vests over three years. During fiscal year 2021, the Company granted an option for 5,000 shares of common stock to a Company employee that vests over three years and an option for 15,000 shares of common stock to an employee that immediately vested. The expense related to all stock option awards was $1.4 million in fiscal year 2023, $0.7 million in fiscal year 2022 and $0.1 million in fiscal year 2021. The following table summarizes the Company’s options for fiscal years 2023, 2022 and 2021 (amounts in thousands, except per option data):
|  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Weighted |  |  | Average |  |  |  |  |
|  |  |  |  |  | Average |  |  | Remaining |  |  |  |  |
|  | Number |  |  | Exercise |  |  | Contractual |  |  | Aggregate |
|  | Of |  |  | Price Per |  |  | Term |  |  | Intrinsic |
|  | Options |  |  | Option |  |  | (in Years) |  |  | Value |
Outstanding as of March 28, 2020 |  |  | 150 |  |  | $ | 14.63 |  |  |  |  |  |  |  |  |
Granted |  |  | 20 |  |  |  | 27.48 |  |  |  |  |  |  |  |  |
Exercised |  |  | (45 | ) |  |  | 18.01 |  |  |  |  |  |  |  |  |
Outstanding as of March 27, 2021 |  |  | 125 |  |  |  | 15.47 |  |  |  |  |  |  |  |  |
Granted |  |  | 131 |  |  |  | 61.29 |  |  |  |  |  |  |  |  |
Exercised |  |  | (85 | ) |  |  | 12.00 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (6 | ) |  |  | 24.10 |  |  |  |  |  |  |  |  |
Outstanding as of March 26, 2022 |  |  | 165 |  |  |  | 53.27 |  |  |  |  |  |  |  |  |
Granted |  |  | 56 |  |  |  | 62.46 |  |  |  |  |  |  |  |  |
Exercised |  |  | (4 | ) |  |  | 6.19 |  |  |  |  |  |  |  |  |
Forfeited |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Outstanding as of March 25, 2023 |  |  | 217 |  |  |  | 56.25 |  |  |  | 7 |  |  | $ | 6,628 |
Exercisable as of March 25, 2023 |  |  | 30 |  |  | $ | 56.23 |  |  |  | 8 |  |  | $ | 917 |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2023 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on March 25, 2023. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock. Total unrecognized compensation cost related to non-vested stock options as of March 25, 2023 was $1.9 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised in fiscal years 2023, 2022 and 2021 was $0.3 million, $5.3 million and $1.6 million, respectively. Cash received from the exercise of options in fiscal years 2023, 2022 and 2021 was $0.1 million, $1.0 million and $0.8 million, respectively.

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