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Note 17 - Share-based Compensation | 12 Months Ended
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Jun. 30, 2022
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] |
(17) | Share-Based Compensation
We recognized total share-based compensation expense of $1.1 million, $1.3 million, and $0.3 million in fiscal 2022, 2021 and 2020, respectively. These amounts have been included in the consolidated statements of comprehensive income within SG&A expenses. As of June 30, 2022, $2.1 million of total unrecognized compensation expense related to non-vested equity awards is expected to be recognized over a weighted average period of 2.2 years. There was no share-based compensation capitalized as of June 30, 2022 and 2021, respectively. At June 30, 2022, there were 1,465,543 shares of common stock available for future issuance pursuant to the Ethan Allen Interiors Inc. Stock Incentive Plan (the “Plan”). Under this Plan, the initial aggregate number of shares of common stock that may be issued through awards of any form was 6,487,867 shares. The Plan provides for the grant of stock options, restricted stock and stock units. The Plan also provides for the issuance of stock appreciation rights (“SARs”) on issued options, however no SARs have been issued to date. All share-based awards are approved by the Compensation Committee of the Board of Directors after consideration of recommendations proposed by the Chief Executive Officer. Stock options are granted with an exercise price equal to the market price of our common stock at the date of grant, vest ratably over a specified service period and have a contractual term of 10 years. Equity awards can also include performance vesting conditions. Company policy further requires an additional one-year holding period beyond the service vest date for certain executives. Grants to independent directors have a three-year service vesting condition. Stock Option Activity A summary of stock option activity is presented below.
|  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  | Weighted |  |  | Average |  |  |  |  |
|  |  |  |  |  | Average |  |  | Remaining |  |  | Aggregate |
|  |  |  |  |  | Exercise |  |  | Contractual |  |  | Intrinsic Value |
|  | Options |  |  | Price |  |  | Term (yrs) |  |  | ($ in thousands) |
Outstanding at June 30, 2019 |  |  | 378,911 |  |  | $ | 21.95 |  |  |  | 4.4 |  |  | $ | 990 |
Granted |  |  | 59,188 |  |  | $ | 17.27 |  |  |  | n/a |  |  |  | n/a |
Exercised |  |  | (4,500 | ) |  | $ | 11.74 |  |  |  | n/a |  |  | $ | 34 |
Canceled (forfeited/expired) |  |  | (30,493 | ) |  | $ | 23.81 |  |  |  | n/a |  |  |  | n/a |
Outstanding at June 30, 2020 |  |  | 403,106 |  |  | $ | 21.24 |  |  |  | 4.4 |  |  | $ | - |
Granted |  |  | 37,008 |  |  | $ | 12.97 |  |  |  | n/a |  |  |  | n/a |
Exercised |  |  | (174,662 | ) |  | $ | 16.95 |  |  |  | n/a |  |  | $ | 667 |
Canceled (forfeited/expired) |  |  | (11,497 | ) |  | $ | 18.62 |  |  |  | n/a |  |  |  | n/a |
Outstanding at June 30, 2021 |  |  | 253,955 |  |  | $ | 23.10 |  |  |  | 5.6 |  |  | $ | 1,368 |
Granted |  |  | 25,410 |  |  | $ | 23.61 |  |  |  | n/a |  |  |  | n/a |
Exercised |  |  | (55,220 | ) |  | $ | 20.23 |  |  |  | n/a |  |  | $ | 287 |
Canceled (forfeited/expired) |  |  | (117,105 | ) |  | $ | 23.98 |  |  |  | n/a |  |  |  | n/a |
Outstanding at June 30, 2022 |  |  | 107,040 |  |  | $ | 23.75 |  |  |  | 4.4 |  |  | $ | 120 |
Exercisable at June 30, 2022 |  |  | 86,548 |  |  | $ | 25.05 |  |  |  | 3.5 |  |  | $ | 50 |
The aggregate intrinsic value of stock options exercised during fiscal 2022, 2021 and 2020 was $0.3 million, $0.7 million and less than $0.1 million, respectively. We received proceeds from employee stock option exercises of $1.1 million, $3.0 million, and $0.1 million during fiscal 2022, 2021, and 2020, respectively. A summary of the nonvested shares as of June 30, 2022 and changes during the fiscal year then ended is presented below.
|  |  |  |  |  | Weighted Average |
|  | Options |  |  | Exercise Price |
Nonvested at June 30, 2021 |  |  | 79,584 |  |  | $ | 16.18 |
Granted |  |  | 25,410 |  |  | $ | 23.61 |
Vested |  |  | (36,018 | ) |  | $ | 17.47 |
Canceled (forfeited) |  |  | (48,484 | ) |  | $ | 18.25 |
Nonvested at June 30, 2022 |  |  | 20,492 |  |  | $ | 18.22 |
As of June 30, 2022, less than $0.1 million of total unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average remaining period of 1.7 years. Employee Stock Option Grants. There were no stock option awards granted to employees during fiscal 2022 or fiscal 2021. Non-Employee Stock Option Grants. The Plan also provides for the grant of share-based awards to non-employee directors of the Company. During the first quarter of fiscal 2022, we granted 25,410 stock options at an exercise price of $23.61 to our existing non-employee directors. These stock options vest in three annual installments beginning on the first anniversary of the date of grant so long as the director continues to serve on our Board. All options granted to directors have an exercise price equal to the fair market value of our common stock on the date of grant and remain exercisable for a period of up to ten years, subject to continuous service on our Board. 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:
|  | 2022 |  |  | 2021 |  |  | 2020 |
Volatility |  |  | 39.3 | % |  |  | 38.2 | % |  |  | 30.8 | %
Risk-free rate of return |  |  | 0.73 | % |  |  | 0.35 | % |  |  | 1.55 | %
Dividend yield |  |  | 3.79 | % |  |  | 3.26 | % |  |  | 3.97 | %
Expected average life (years) |  |  | 5.5 |  |  |  | 5.5 |  |  |  | 5.3 |
Grant date fair value |  | $ | 5.04 |  |  | $ | 3.20 |  |  | $ | 3.30 |
Fair value as a % of exercise price |  |  | 21.3 | % |  |  | 24.7 | % |  |  | 18.8 | %
There were no other non-employee stock option grants during fiscal 2022 or 2021. Restricted Stock Unit Activity A summary of restricted stock unit activity is presented below.
|  |  |  |  |  | Weighted |
|  | Restricted |  |  | Average |
|  | Stock Units |  |  | Fair Value |
Outstanding at June 30, 2019 |  |  | - |  |  |  | n/a |
Granted |  |  | 58,000 |  |  | $ | 9.15 |
Vested |  |  | - |  |  |  | n/a |
Canceled (forfeited) |  |  | (2,000 | ) |  | $ | 9.15 |
Outstanding at June 30, 2020 |  |  | 56,000 |  |  | $ | 9.15 |
Granted |  |  | 38,000 |  |  | $ | 9.58 |
Vested |  |  | (12,375 | ) |  | $ | 9.15 |
Canceled (forfeited) |  |  | (10,625 | ) |  | $ | 9.15 |
Outstanding at June 30, 2021 |  |  | 71,000 |  |  | $ | 9.38 |
Granted |  |  | 51,100 |  |  | $ | 20.71 |
Vested |  |  | (29,000 | ) |  | $ | 9.43 |
Canceled (forfeited) |  |  | (17,000 | ) |  | $ | 12.66 |
Outstanding at June 30, 2022 |  |  | 76,100 |  |  | $ | 16.23 |
During fiscal 2022 we granted 51,100 non-performance based restricted stock units (“RSUs”), with a weighted average grant date fair value of $20.71. 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 and vest in four equal annual installments on the anniversary of the date of grant. During fiscal 2021, we granted 38,000 RSUs with a weighted average grant date fair value of $9.58. The fiscal 2021 RSUs vest in two equal annual installments on the first and second anniversary date of the grant. 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. As of June 30, 2022, $0.9 million of total unrecognized compensation expense related to non-vested restricted stock units is expected to be recognized over a weighted average remaining period of 2.8 years. Performance Stock Unit Activity The following table summarizes PSU activity at the maximum award amounts:
|  |  |  |  |  | Weighted Average |
|  |  |  |  |  | Grant Date |
|  | Units |  |  | Fair Value |
Outstanding at June 30, 2019 |  |  | 313,882 |  |  | $ | 22.82 |
Granted |  |  | 99,405 |  |  | $ | 12.72 |
Vested |  |  | - |  |  |  | n/a |
Canceled (forfeited) |  |  | (88,180 | ) |  | $ | 25.27 |
Outstanding at June 30, 2020 |  |  | 325,107 |  |  | $ | 19.05 |
Granted |  |  | 117,338 |  |  | $ | 8.76 |
Vested |  |  | - |  |  |  | n/a |
Canceled (forfeited) |  |  | (64,578 | ) |  | $ | 18.29 |
Outstanding at June 30, 2021 |  |  | 377,867 |  |  | $ | 15.98 |
Granted |  |  | 90,367 |  |  | $ | 17.15 |
Vested |  |  | (35,124 | ) |  | $ | 18.19 |
Canceled (forfeited) |  |  | (112,975 | ) |  | $ | 11.86 |
Outstanding at June 30, 2022 |  |  | 320,135 |  |  | $ | 17.53 |
Share-based compensation expense related to PSUs recognized in our consolidated statements of comprehensive income are presented in the following table (in thousands).
|  | Fiscal Year Ended June 30, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Fiscal 2019 grants |  | $ | - |  |  | $ | 335 |  |  | $ | 101 |
Fiscal 2020 grants |  |  | 107 |  |  |  | 234 |  |  |  | 59 |
Fiscal 2021 grants |  |  | 143 |  |  |  | 301 |  |  |  | - |
Fiscal 2022 grants |  |  | 413 |  |  |  | - |  |  |  | - |
Total expense |  | $ | 663 |  |  | $ | 870 |  |  | $ | 160 |
As of June 30, 2022, $1.1 million of total unrecognized compensation expense related to non-vested PSUs is expected to be recognized over a weighted average remaining period of 1.8 years. Under the Plan, the Compensation Committee of the Board of Directors is 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 performance period, the right to earn shares under this program is forfeited. Payout of performance stock unit (“PSU”) grants depend 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 PSU 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 PSUs 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. During fiscal 2022 we granted 90,367 PSUs compared with 117,338 PSUs in fiscal 2021. We estimate, as of the date of grant, the fair value of PSUs 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 PSUs granted during fiscal 2022, 2021 and 2020, respectively, are presented below.
|  | Fiscal Year Ended June 30, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Volatility |  |  | 43.3 | % |  |  | 56.0 | % |  |  | 30.5 | %
Risk-free rate of return |  |  | 0.62 | % |  |  | 0.14 | % |  |  | 1.72 | %
Dividend yield |  |  | 3.79 | % |  |  | 3.26 | % |  |  | 3.97 | %

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