Note K - Stock-based Compensation

12 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

K. STOCK-BASED COMPENSATION

In fiscal 2022, the Company adopted the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”). Benefits under the 2021 LTI Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. There is reserved for issuance under the Plan an aggregate of 715,000 shares of the Company’s common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.

In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”) a plan to grant non-employee directors equity-based awards. Benefits under the 2020 Directors’ Plan may be granted, awarded or paid in any one or a combination of stock options, restricted stock awards, or cash-settled restricted stock units. Under the 2020 Directors’ Plan, non-employee directors may elect to receive all or a portion of their base cash retainer in the form of restricted stock. There is reserved for issuance under the 2020 Directors’ Plan an aggregate of 750,000 shares of the Company's common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.

In fiscal 2019, the Company adopted the Twin Disc, Incorporated 2018 Long-Term Incentive Plan (the “2018 LTI Plan”). Benefits under the 2018 LTI Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. There is reserved for issuance under the Plan an aggregate of 850,000 shares of the Company’s common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.

Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are issued at the target level of performance):

	2022		2021
2020 Directors' Plan		612,981		666,913
2021 LTI Plan		551,901		-

Performance Stock Awards (“PSA”)

In fiscal 2022 and 2021, the Company granted a target number of 103,575 and 265,256 PSAs, respectively, to various employees of the Company, including executive officers.

The PSAs granted in fiscal 2022 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual earnings per share (“EPS”) or average free cashflow (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2024. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS or average free cashflow for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 146,562. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

The PSAs granted in fiscal 2021 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average free cash flow (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2023. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and free cash flow for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 397,884. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

There were 320,779 and 388,433 unvested PSAs outstanding at June 30, 2022 and 2021, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. The compensation expense for the year ended June 30, 2022 and 2021, related PSAs, was $883 and $491, respectively. The tax expense from compensation expense for the year ended June 30, 2022 and 2021, related PSAs, was $207 and $116, respectively. The weighted average grant date fair value of the unvested awards at June 30, 2022 was $8.37. At June 30, 2022, the Company had $1,322 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2022 and 2021 awards. The total fair value of performance stock awards vested in fiscal 2022 and fiscal 2021 was $0.

Restricted Stock Awards (“RS”)

The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years. During fiscal 2022 and 2021, the Company granted 57,204 and 251,804 service based restricted shares, respectively, to employees and non-employee directors in each year. A total of 29,810 and 6,809 shares of restricted stock were forfeited during fiscal 2022 and 2021, respectively. There were 272,438 and 379,095 unvested shares outstanding at June 30, 2022 and 2021, respectively. Compensation expense of $1,223 and $1,335 was recognized during the year ended June 30, 2022 and 2021, respectively, related to these service-based awards. The tax benefit from compensation expense for the year ended June 30, 2022 and 2021, related to these service-based awards, was $287 and $315, respectively. The total fair value of restricted stock grants vested in fiscal 2022 and 2021 was $1,711 and $533, respectively. As of June 30, 2022, the Company had $618 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards (“RSU”)

The RSUs entitle the employee to shares of common stock of the Company if the employee remains employed by the Company through a specified date, generally three years from the date of grant. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. There were 62,119 and 34,822 unvested RSUs outstanding at June 30, 2022 and June 30, 2021, respectively. Compensation expense of $321 and $328 was recognized during the year ended June 30, 2022 and 2021, respectively. The tax benefit from compensation expense for the year ended June 30, 2022 and 2021, related to these service-based awards, was $75 and $78, respectively. The weighted average grant date fair value of the unvested awards at June 30, 2022 was $14.18. As of June 30, 2022, the Company had $585 of unrecognized compensation expense related to RSUs which will be recognized over the next year.