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Note 17 - Share-based Compensation | 12 Months Ended
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Jun. 30, 2020
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] |
( 17 ) | Share-Based Compensation
We recognized total share-based compensation expense of $0.3 million, $0.1 million, and $1.0 million in fiscal 2020, 2019 and 2018, respectively. These amounts have been included in the consolidated statements of comprehensive income within selling, general and administrative expenses. As of June 30, 2020, $1.0 million of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a weighted average period of 2.6 years. There was no stock-based compensation capitalized as of June 30, 2020 and 2019, respectively. At June 30, 2020, there were 1,490,986 shares of common stock available for future issuance pursuant to the Ethan Allen Interiors Inc. Stock Incentive Plan (the “Plan”). Under this Plan, the initial aggregate number of shares of common stock that may be issued through awards of any form was 6,487,867 shares. The Plan provides for the grant of stock options, restricted stock and stock units. The Plan also provides for the issuance of stock appreciation rights (“SARs”) on issued options, however no SARs have been issued to date. All share-based awards are approved by the Compensation Committee of the Board of Directors after consideration of recommendations proposed by the Chief Executive Officer. Stock options are granted with an exercise price equal to the market price of our common stock at the date of grant, vest ratably over a specified service period and have a contractual term of 10 years. Equity awards can also include performance vesting conditions. Company policy further requires an additional one year holding period beyond the service vest date for certain executives. Grants to independent directors have a three -year service vesting condition. Stock Option A ctivity A summary of stock option activity during fiscal 2020 is presented below.
|  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Weighted |  |  | Average |  |  |  |  |
|  |  |  |  |  | Average |  |  | Remaining |  |  | Aggregate |
|  |  |  |  |  | Exercise |  |  | Contractual |  |  | Intrinsic Value |
|  | Options |  |  | Price |  |  | Term (yrs) |  |  | ($ in thousands) |
Outstanding at June 30, 2019 |  |  | 378,911 |  |  | $ | 21.95 |  |  |  |  |  |  |  |  |
Granted |  |  | 59,188 |  |  | $ | 17.27 |  |  |  |  |  |  |  |  |
Exercised |  |  | (4,500 | ) |  | $ | 11.74 |  |  |  |  |  |  |  |  |
Canceled (forfeited/expired) |  |  | (30,493 | ) |  | $ | 23.81 |  |  |  |  |  |  |  |  |
Outstanding at June 30, 2020 |  |  | 403,106 |  |  | $ | 21.24 |  |  |  | 4.4 |  |  | $ | - |
Exercisable at June 30, 2020 |  |  | 320,368 |  |  | $ | 21.66 |  |  |  | 3.2 |  |  | $ | - |
The aggregate intrinsic value of stock options exercised during fiscal 2020, 2019 and 2018 was less than $0.1 million, $0.3 million, and $0.1 million, respectively. A summary of the nonvested shares as of June 30, 2020 and changes during the fiscal year then ended is presented below.
|  |  |  |  |  | Weighted Average |
|  | Options |  |  | Exercise Price |
Nonvested at June 30, 2019 |  |  | 59,887 |  |  | $ | 26.84 |
Granted |  |  | 59,188 |  |  | $ | 17.27 |
Vested |  |  | (33,339 | ) |  | $ | 27.86 |
Canceled (forfeited) |  |  | (2,998 | ) |  | $ | 26.19 |
Nonvested at June 30, 2020 |  |  | 82,738 |  |  | $ | 19.61 |
As of June 30, 2020, $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 2.2 years. 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. 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 and 2018.
|  | 2020 |
Volatility |  |  | 30.8 | %
Risk-free rate of return |  |  | 1.62 | %
Dividend yield |  |  | 4.42 | %
Expected average life (years) |  |  | 5.9 |
Grant date fair value |  | $ | 2.85 |
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:
|  | 2020 |  |  | 2019 |  |  | 2018 |
Volatility |  |  | 30.8 | % |  |  | 31.3 | % |  |  | 31.5 | %
Risk-free rate of return |  |  | 1.55 | % |  |  | 2.80 | % |  |  | 1.76 | %
Dividend yield |  |  | 3.97 | % |  |  | 3.24 | % |  |  | 2.47 | %
Expected average life (years) |  |  | 5.3 |  |  |  | 5.0 |  |  |  | 4.6 |
Grant date fair value |  | $ | 3.30 |  |  | $ | 5.30 |  |  | $ | 6.93 |
Fair value as a % of exercise price |  |  | 18.8 | % |  |  | 22.6 | % |  |  | 22.5 | %
Restricted Stock Unit Activity A summary of restricted stock unit activity during fiscal 2020 is presented below.
|  |  |  |  |  | Weighted |
|  | Restricted |  |  | Average |
|  | Stock Units |  |  | Fair Value |
Outstanding at June 30, 2019 |  |  | - |  |  | $ | - |
Granted |  |  | 58,000 |  |  | $ | 9.15 |
Vested |  |  | - |  |  | $ | - |
Canceled (forfeited) |  |  | (2,000 | ) |  | $ | 9.15 |
Outstanding at June 30, 2020 |  |  | 56,000 |  |  | $ | 9.15 |
During fiscal 2020, we granted 58,000 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 during fiscal 2019 and 2018. As of June 30, 2020, $0.5 million of total unrecognized compensation expense related to non-vested restricted stock units is expected to be recognized over a weighted average period of 3.7 years. Performance Stock Units 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 performance 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 2020 at the maximum award amounts based upon the respective performance units agreements:
|  |  |  |  |  | Weighted Average |
|  |  |  |  |  | Grant Date |
|  | Units |  |  | Fair Value |
Outstanding at June 30, 2019 |  |  | 313,882 |  |  | $ | 22.82 |
Granted |  |  | 99,405 |  |  | $ | 12.72 |
Vested |  |  | - |  |  | $ | - |
Canceled (forfeited) |  |  | (88,180 | ) |  | $ | 25.27 |
Outstanding at June 30, 2020 |  |  | 325,107 |  |  | $ | 19.05 |
During fiscal 2020 we granted 99,405 performance-based units. 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, 2019 and 2018, respectively, is presented below.
|  | 2020 |  |  | 2019 |  |  | 2018 |
Volatility |  |  | 30.5 | % |  |  | 32.1 | % |  |  | 32.9 | %
Risk-free rate of return |  |  | 1.72 | % |  |  | 2.72 | % |  |  | 1.41 | %
Dividend yield |  |  | 3.97 | % |  |  | 3.24 | % |  |  | 2.47 | %
Expected average life (years) |  |  | 3.0 |  |  |  | 3.0 |  |  |  | 1.9 |
Share-based compensation expense 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).
|  | 2020 |  |  | 2019 |  |  | 2018 |
Fiscal 2016 grants |  | $ | - |  |  | $ | 5 |  |  | $ | 92 |
Fiscal 2017 grants |  |  | - |  |  |  | - |  |  |  | (12 | )
Fiscal 2018 grants |  |  | - |  |  |  | (457 | ) |  |  | 457 |
Fiscal 2019 grants |  |  | 101 |  |  |  | 321 |  |  |  | - |
Fiscal 2020 grants |  |  | 59 |  |  |  | - |  |  |  | - |
Total expense |  | $ | 160 |  |  | $ | (131 | ) |  | $ | 537 |
Our unrecognized compensation expense at June 30, 2020, related to performance-based units was $0.3 million based on the current estimates of the number of awards that will vest, and is expected to be recognized over a weighted-average remaining period of 1.4 years.

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