Annual report pursuant to Section 13 and 15(d)

Note 9 - Stock-based Compensation

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Note 9 - Stock-based Compensation
12 Months Ended
Mar. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 9 – Stock-based Compensation


The Company has adopted an incentive stock plan (the “Plan”) that is intended to attract and retain directors, officers and employees of the Company and to motivate these individuals to achieve the overall goal of increasing stockholder value. The Plan was adopted to ensure that the Company has a mechanism for long-term, equity-based incentive compensation for its non-employee directors and certain employees. Awards granted under the Plan may be in the form of qualified or non-qualified stock options, restricted stock, stock appreciation rights, long-term incentive compensation units consisting of a combination of cash and shares of the Company’s common stock, or any combination thereof within the limitations set forth in the Plan. The Plan is administered by the compensation committee of the Board, which selects eligible employees and non-employee directors to participate in the Plan and determines the type, amount, duration and other terms of such awards. At March 31, 2013, 523,750 shares of the Company’s common stock were available for future issuance under the Plan.


Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires a stock-based compensation to be accounted for using a fair-value-based measurement. The Company recorded $652,000 and $545,000 of stock-based compensation during fiscal years 2013 and 2012, respectively. The Company records the compensation expense associated with stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals. No stock-based compensation costs were capitalized as part of the cost of an asset as of March 31, 2013.


Stock Options: The following table represents stock option activity for fiscal years 2013 and 2012:


 

Fiscal Year Ended March 31, 2013

Fiscal Year Ended April 1, 2012

 

Weighted-Average

Exercise Price

Number of Options

Outstanding

Weighted-Average

Exercise Price

Number of Options

Outstanding

Outstanding at Beginning of Period

  $ 3.57     573,000   $ 3.31     747,000

Granted

    5.42     110,000     4.81     100,000

Exercised

    3.46     (521,750 )     3.30     (274,000 )

Expired

    0.71     (1,250 )     -     -

Forfeited

    5.22     (15,000 )     -     -

Outstanding at End of Period

    5.23     145,000     3.57     573,000

Exercisable at End of Period

    -     -     3.20     423,000

The total intrinsic value of the stock options exercised during fiscal years 2013 and 2012 was $1.2 million and $399,000, respectively. As of March 31, 2013, the intrinsic value of the outstanding stock options was $112,000.


The Company received cash in the amount of $98,000 and $29,000 from the exercise of stock options during fiscal years 2013 and 2012, respectively. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash of $437,000 and $158,000 to remit the required income tax withholding amounts from “cashless” option exercises during fiscal years 2013 and 2012, respectively. The Company’s net outflow of cash upon the exercise of stock options was $339,000 and $129,000 during fiscal years 2013 and 2012, respectively.


To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine that fair value, and the resulting grant-date fair value per option, of the non-qualified stock options which were awarded to certain employees during fiscal years 2013 and 2012, which options vest over a two-year period, assuming continued service.


 

2013

2012

Options issued

    110,000     100,000

Grant Date

June 13, 2012

June 10, 2011

Dividend yield

    5.90 %     2.49 %

Expected volatility

    65.00 %     60.00 %

Risk free interest rate

    0.55 %     1.84 %

Contractual term (years)

    10.00     10.00

Expected term (years)

    4.00     5.75

Forfeiture rate

    5.00 %     5.00 %

Exercise price (grant-date closing price)

  $ 5.42   $ 4.81

Fair value

  $ 1.84   $ 2.16

Although the Company’s historical stock option exercise experience provided a reasonable basis upon which to estimate the expected life of the stock options granted during fiscal years 2013, that was not the case for the stock options granted during fiscal year 2012. In that period, the Company elected to use the simplified method to estimate the expected life of the stock options granted, as allowed by SEC Staff Accounting Bulletin No. 107 and the continued acceptance of the simplified method indicated in SEC Staff Accounting Bulletin No. 110.


For the fiscal years ended March 31, 2013 and April 1, 2012, the Company recognized compensation expense associated with stock options as follows (in thousands):


 

Fiscal Year Ended March 31, 2013

Options Granted in Fiscal Year

Cost of

Products

Sold

Marketing &

Administrative

Expenses

Total

Expense

2011

  $ 13   $ 13   $ 26

2012

    54     46     100

2013

    34     34     68
                         

Total stock option compensation

  $ 101   $ 93   $ 194

 

Fiscal Year Ended April 1, 2012

Options Granted in Fiscal Year

Cost of

Products

Sold

Marketing &

Administrative

Expenses

Total

Expense

2010

  $ 15   $ 32   $ 47

2011

    47     47     94

2012

    41     41     82
                         

Total stock option compensation

  $ 103   $ 120   $ 223

A summary of stock options outstanding and exercisable at March 31, 2013 is as follows:


Exercise

Price

Number

of Options

Outstanding

Weighted

Avg. Remaining

Contractual

Life in Years

Weighted

Avg. Exercise

Price of

Options

Outstanding

Number

of Options

Exercisable

Weighted

Avg. Exercise

Price of

Options

Exercisable

  $ 4.81     45,000     8.19   $ 4.81     -   $ -
  $ 5.42     100,000     9.20   $ 5.42     -   $ -
            145,000     8.89   $ 5.23     -   $ -

As of March 31, 2013, total unrecognized stock-option compensation costs amounted to $140,000, which will be recognized as the underlying stock options vest over a period of up to two years. The amount of future stock-option compensation expense could be affected by any future stock option grants and by the separation from the Company of any employee or director who has stock options that are unvested as of such individual’s separation date.


Non-vested Stock: The Board granted 42,000 shares of non-vested stock with a fair value of $5.62 per share to the Company’s non-employee directors during the three-month period ended September 30, 2012 and granted 30,000 shares of non-vested stock to the Company’s non-employee directors during each of the three-month periods ended October 2, 2011, September 26, 2010 and September 27, 2009 with a weighted-average fair value of $4.44, $4.36 and $3.02, respectively. These shares vest over a two-year period, assuming continued service. The fair value of non-vested stock granted was determined based on the number of shares granted multiplied by the closing price of the Company’s common stock on the date of grant.


During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock in a series of three grants to each of certain employees. Pursuant to its terms, each such grant will vest if both (i) the closing price per share of the Company’s common stock is at or above target levels of $5.00, $6.00 and $7.00, respectively, for any ten trading days out of any period of 30 consecutive trading and (ii) the respective employee remains employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the awards amounted to $1.2 million.


On November 30, 2012, the Board approved an amendment to the grant subject to the $5.00 per share closing price condition that had been awarded to E. Randall Chestnut, Chairman, Chief Executive Officer and President of the Company. With the closing price condition having been met for this award, the grant was amended to provide for the immediate vesting of 62,000 of the 75,000 shares awarded in order to preserve the deductibility of the associated compensation expense by the Company for income tax purposes. As a result of the acceleration of the vesting, the Company recognized the remaining compensation expense associated with the 62,000 shares vested of $99,000 during fiscal year 2013, which amount would otherwise have been recognized by the Company ratably through July 29, 2015. To satisfy the income tax withholding obligations that arose from the vesting of the non-vested stock, Mr. Chestnut surrendered 26,319 shares to the Company, and the Company paid $153,000 to the appropriate taxing authorities on his behalf.


For the fiscal years ended March 31, 2013 and April 1, 2012, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):


 

Fiscal Year Ended March 31, 2013

Stock Granted in Fiscal Year

Employees

Non-employee

Directors

Total

Expense

2011

  $ 295   $ 18   $ 313

2012

    -     66     66

2013

    -     79     79
                         

Total stock grant compensation

  $ 295   $ 163   $ 458

 

Fiscal Year Ended April 1, 2012

Stock Granted in Fiscal Year

Employees

Non-employee

Directors

Total

Expense

2010

  $ -   $ 11   $ 11

2011

    208     58     266

2012

    -     45     45
                         

Total stock grant compensation

  $ 208   $ 114   $ 322

As of March 31, 2013, total unrecognized compensation expense related to the Company’s non-vested stock grants was $579,000, which will be recognized over the remaining portion of the respective vesting periods associated with each block of grants as indicated above, such grants having a weighted average vesting term of 2.0 years. The amount of future compensation expense related to non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has unvested grants as of such individual’s separation date.