Note 12 - Stock Incentive Plans

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

12. STOCK INCENTIVE PLANS

Under the Company’s stock incentive plan, stock options, restricted stock, stock-settled stock appreciation rights, performance share units and other awards may be granted to officers, employees, consultants, and non-employee directors.

2011 Incentive Award Plan

On June 10, 2011, Alaska Communications shareholders approved the 2011 Incentive Award Plan, which was amended and restated on June 30, 2014 and June 25, 2018, and which terminates in 2021. Following termination, all shares granted under this plan, prior to termination, will continue to vest under the terms of the grant when awarded. All remaining unencumbered shares of common stock previously allocated to the Prior Plans were transferred to the 2011 Incentive Award Plan. In addition, to the extent that any outstanding awards under the Prior Plans are forfeited or expire or such awards are settled in cash, such shares will again be available for future grants under the 2011 Incentive Award Plan. The Company grants Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”) as the primary equity-based incentive for executive and certain non union-represented employees. The disclosures below are primarily associated with RSU and PSU grants awarded in 2018, 2019 and 2020.

Restricted Stock Units

The Company measures the fair value of RSUs based on the number of shares granted and the quoted closing market price of the Company’s common stock on the date of grant. RSUs granted in 2020 vest ratably over three years. Expense associated with RSUs is recognized utilizing the graded vesting methodology.

The following table summarizes the RSU, LTIP and non-employee director stock compensation activity for the six-month period ended June 30, 2020.

				Weighted
				Average
				Grant Date
	Number			Fair
	of Units			Value
Nonvested at December 31, 2019		792		$	1.74
Granted		501			2.59
Vested		(406	)		1.79
Canceled or expired		-			-
Nonvested at June 30, 2020		887		$	2.20

Performance Stock Units

In the second quarter of 2020, PSUs were issued to the Company’s officers and certain other employees. Vesting of a portion of these PSUs is subject to the Company’s achievement of a cumulative performance target for the years 2020, 2021 and 2022, and vesting of another portion is subject to the Company’s achievement of specified stock price thresholds between June 16, 2020 and June 15, 2023. Vesting of the 2020 PSUs is also subject to the provision of requisite service by the recipient.

The fair value of PSUs subject to the performance targets is based on the number of shares granted and the quoted closing market price of the Company’s common stock on the date of grant. They will vest over a three-year period. Share-based compensation expense will be recorded based on the Company’s assessment of the probability of those targets being met and recorded over the three-year vesting period as required. At June 30, 2020, the targets were deemed probable of achievement and the relevant stock compensation expense was recorded in the three-month period ended June 30, 2020.

The Company measured the fair value of the 2020 PSUs for which vesting of each of three tranches is subject to achievement of specified stock price thresholds using a Monte Carlo simulation model as more fully described below. Share-based compensation expense subject to a market condition is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided.

The table below sets forth the average grant date fair value assumptions used in the Monte Carlo simulation model for the 2020 PSUs.

Valuation (grant) date	June 17, 2020
Number of units granted		135
Fair market value of the Company's Common Stock	$	2.61
Risk-free interest rate		0.23	%
Expected dividend yield		0	%
Expected volatility		40.71	%
Simulation period (in years)		3
Estimated fair value per award:
Vesting Tranche 1	$	1.19
Vesting Tranche 2	$	1.28
Vesting Tranche 3	$	1.32

● Fair Market Value - based on the quoted closing price of the Company’s common stock.

● Risk-free interest rate - based on the 3-year term-matched zero-coupon risk-free interest rate derived from the U.S. Treasury constant maturities yield curve on the valuation date.

● Dividend Yield - based on the fact that the Company, with the exception of a one-time dividend paid in the second quarter of 2020, has not paid cash dividends since 2012 and does not anticipate paying cash dividends in the foreseeable future.

● Expected Volatility - Based on the historical volatility of the Company’s common stock over the 3-year period preceding the grant date.

● Stock price vesting hurdles:

Tranche 1     $3.25

Tranche 2     $3.75

Tranche 3     $4.25

● Performance Period - based on the period of time from the valuation date through the end of the performance period.

Vesting of all 2020 PSUs is subject to approval by the Compensation and Personnel Committee of the Board of Directors.

Shares associated with PSUs granted in 2017, vesting of which were subject to achievement of certain performance conditions and approval of the Compensation and Personnel Committee of the Board of Directors, were issued in the first quarter of 2020.The PSUs granted in 2018 will vest in three equal installments, or tranches, if certain stock price thresholds and service thresholds are achieved. As of June 30, 2020, the stock price thresholds had not been met. PSUs granted in the third quarter of 2019 will vest at the end of the three-year period ending in March 2022 subject to the achievement of certain Company performance targets. As of June 30, 2020, achievement of the Company performance target was deemed to be probable.

The following table summarizes the PSU activity for the six-month period ended June 30, 2020.

				Weighted
				Average
				Grant Date
	Number			Fair
	of Units			Value
Nonvested at December 31, 2019		1,629		$	1.07
Granted		478			2.18
Vested		(297	)		1.76
Canceled or expired		(268	)		1.43
Nonvested at June 30, 2020		1,542		$	1.22

The following table provides selected information about the Company’s share-based compensation as of and for the three and six-month periods ended June 30, 2020 and 2019:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020		2019			2020		2019
Total compensation cost for share-based payments	$	409	$	(9	)	$	718	$	489
Weighted average grant-date fair value of equity instruments granted (per share)	$	2.41	$	0.53		$	2.41	$	0.53
Total fair value of shares vested during the period	$	370	$	436		$	1,618	$	1,427
At June 30:
Unamortized share-based payments						$	2,740	$	293
Weighted average period (in years) to be recognized as expense							2.0		0.9

Alaska Communications Systems Group, Inc. 2012 Employee Stock Purchase Plan

On June 16, 2020 the Company’s shareholders approved the Amended 2012 Employee Stock Purchase Plan (the “Amended 2012 ESPP”). The amendments extended the term of the plan to December 31, 2030 and increased the number of shares of common stock reserved for future issuance under the plan by 600 shares.

On July 24, 2020, the Company registered an additional 600 shares which may offered or issued to eligible individuals under the Amended 2012 ESPP.