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Note 17 - Share-based Compensation | 12 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] |
( 17 ) | Share-Bas ed Compensation
Share-based compensation expense totaled $0.1 million, $1.0 million, and $1.3 million in fiscal 2019, 2018 and 2017, respectively. These amounts have been included in the consolidated statements of comprehensive income within selling, general and administrative expenses. During fiscal 2019, 2018, and 2017, we recognized related tax benefits associated with our share-based compensation arrangements totaling $0.1 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. There was no stock-based compensation capitalized as of June 30, 2019 and 2018, respectively. At June 30, 2019, we had 1,586,906 shares of common stock available for future issuance pursuant to the Ethan Allen Interiors Inc. Stock Incentive Plan (the “Plan”). Under this Plan, the aggregate number of shares of common stock that may be issued through awards of any form 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 option awards are approved 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 three year service vesting condition. The following is a description of equity grants made under the Plan. Stock Option Awards A summary of stock option activity during the fiscal year ended June 30, 2019 is presented below.
|  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Weighted |  |  | Average |  |  |  |  |
|  |  |  |  |  | Average |  |  | Remaining |  |  | Aggregate |
|  |  |  |  |  | Exercise |  |  | Contractual |  |  | Intrinsic Value |
|  | Options |  |  | Price |  |  | Term (yrs) |  |  | ($ in thousands) |
Outstanding - June 30, 2018 |  |  | 561,595 |  |  | $ | 21.70 |  |  |  |  |  |  |  |  |
Granted |  |  | 25,590 |  |  | $ | 23.45 |  |  |  |  |  |  |  |  |
Exercised |  |  | (52,250 | ) |  | $ | 15.73 |  |  |  |  |  |  |  |  |
Canceled (forfeited/expired) |  |  | (156,024 | ) |  | $ | 23.36 |  |  |  |  |  |  |  |  |
Outstanding - June 30, 2019 |  |  | 378,911 |  |  | $ | 21.95 |  |  |  | 4.4 |  |  | $ | 990 |
Exercisable - June 30, 2019 |  |  | 319,024 |  |  | $ | 21.04 |  |  |  | 3.7 |  |  | $ | 990 |
The aggregate intrinsic value of options exercised during fiscal 2019, 2018 and 2017 was $0.3 million, $0.1 million, and $0.8 million, respectively. As of June 30, 2019, $0.2 million of total unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.5 years. A summary of the nonvested shares as of June 30, 2019 and changes during the year then ended is presented below.
|  |  |  |  |  | Weighted Average |
|  | Options |  |  | Exercise Price |
Nonvested June 30, 2018 |  |  | 108,172 |  |  | $ | 27.74 |
Granted |  |  | 25,590 |  |  | $ | 23.45 |
Vested |  |  | (63,436 | ) |  | $ | 27.16 |
Canceled (forfeited/expired) |  |  | (10,439 | ) |  | $ | 25.95 |
Nonvested at June 30, 2019 |  |  | 59,887 |  |  | $ | 26.84 |
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 United States 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. There were no stock option awards granted to employees during each of the past three fiscal years. Non-employee (independent) directors were granted stock options each year and valued using the Black-Scholes option pricing model with the following weighted average assumptions:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Volatility |  |  | 31.3 | % |  |  | 31.5 | % |  |  | 36.8 | %
Risk-free rate of return |  |  | 2.80 | % |  |  | 1.76 | % |  |  | 1.03 | %
Dividend yield |  |  | 3.24 | % |  |  | 2.47 | % |  |  | 1.96 | %
Expected average life (years) |  |  | 5.0 |  |  |  | 4.6 |  |  |  | 5.0 |
Grant date fair value ($) |  | $ | 5.30 |  |  | $ | 6.93 |  |  | $ | 8.30 |
Fair value as a % of exercise price |  |  | 22.6 | % |  |  | 22.5 | % |  |  | 23.9 | %
Stock Unit Awards Under the Plan, the Compensation Committee of the Board of Directors was authorized to award common shares to certain employees based on the attainment of certain financial goals over a given performance period. The awards are offered at no cost to the employees. In the event of an employee's termination during the vesting period, the potential right to earn shares under this program is generally forfeited. Payout of these grants 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 peer companies ( 20% ). The performance award opportunity ranges from 50% of the employee's target award if minimum performance requirements are met to a maximum of 125% of the target award based on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years. The number of awards that will vest, as well as unearned and canceled awards, depend on the achievement of certain financial and shareholder-return goals over the three -year performance periods, and will be settled in shares if service conditions are met, requiring employees to remain employed with us through the end of the three -year performance periods. We account for stock unit awards as equity-based awards because upon vesting, they will be settled in common shares. 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, considering the probability that we will satisfy the performance goals. The following table summarizes the performance-based stock units’ activity during fiscal 2019 at the maximum award amounts based upon the respective performance share agreements:
|  |  |  |  |  | Weighted Average |
|  |  |  |  |  | Grant Date |
|  | Units |  |  | Fair Value |
Outstanding at June 30, 2018 |  |  | 330,369 |  |  | $ | 26.15 |
Granted |  |  | 105,644 |  |  | $ | 18.33 |
Vested |  |  | (7,654 | ) |  | $ | 26.79 |
Canceled (forfeited/expired) |  |  | (114,477 | ) |  | $ | 28.02 |
Outstanding at June 30, 2019 |  |  | 313,882 |  |  | $ | 22.82 |
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 following table.
|  | 2019 |  |  | 2018 |  |  | 2017 |
Volatility |  |  | 32.1 | % |  |  | 32.9 | % |  |  | 30.8 | %
Risk-free rate of return |  |  | 2.72 | % |  |  | 1.41 | % |  |  | 0.92 | %
Dividend yield |  |  | 3.24 | % |  |  | 2.47 | % |  |  | 1.97 | %
Expected average life (years) |  |  | 3.0 |  |  |  | 1.9 |  |  |  | 2.0 |
Share-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).
|  | 2019 |  |  | 2018 |  |  | 2017 |
Fiscal 2016 grants |  | $ | 5 |  |  | $ | 92 |  |  | $ | 794 |
Fiscal 2017 grants |  |  | - |  |  |  | (12 | ) |  |  | 12 |
Fiscal 2018 grants |  |  | (457 | ) |  |  | 457 |  |  |  | - |
Fiscal 2019 grants |  |  | 321 |  |  |  | - |  |  |  | - |
Total expense |  | $ | (131 | ) |  | $ | 537 |  |  | $ | 806 |
As of June 30, 2019, we estimate $0.7 million of total unrecognized compensation cost related to outstanding stock units granted under the Plan. That cost is expected to be recognized over a weighted average period of 2.0 years. Restricted Stock Awards There was no restricted stock award activity during fiscal 2019. As of June 30, 2019 or 2018, there were no restricted stock awards outstanding, respectively.

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