Stock-Based Compensation

9 Months Ended

Mar. 31, 2023

8. STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation plans in accordance with ASC 718, Stock Compensation, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period. Restricted shares and restricted stock units (“RSUs”) generally vest over 1 to 3 years. Stock options are granted at an exercise price equal to the fair value of the Company’s common stock price at the grant date and are exercisable for up to 10 years upon vesting. Stock-based compensation is included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. Forfeitures are recognized as incurred.

The following table is a summary of total stock-based compensation expenses for the three and nine months ended March 31, 2023.



	Three Months Ended				Nine Months Ended
	March 31,				March 31,
(in thousands)	2023		2022		2023		2022
Total stock-based compensation expense	$	802	$	(631)	$	2,472	$	1,551

On December 14, 2022, the Company’s shareholders approved the Flexsteel Industries, Inc. 2022 Equity Incentive Plan (“2022 Plan”).

The 2022 Plan replaces the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”). No further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.

(1)2022 Equity Incentive Plan

The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards. Awards for 3,791 shares were granted under the 2022 Plan in the quarter ended March 31, 2023 with a fair value per share of $19.25. These shares remain unvested and have no forfeitures as of March 31, 2023. These shares are included in the Restricted Share and RSUs table below.

(2) Long-Term Incentive Compensation Plan

The LTIP provided for performance stock units (“PSUs”) to be awarded to officers and key employees based on performance goals set by the Compensation Committee of the Board of Directors (the “Committee”). For awards under the LTIP for the three year performance periods ending June 30, 2023, 2024, and 2025, participants may earn one-third of the award in each of the three years based on meeting performance goals for that year. The Committee selected Adjusted Earnings Before Interest and Tax based on a defined percentage growth as the performance metric for the performance periods ending June 30, 2023, 2024, and 2025. In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vest at the end of three years.

The table below sets forth, as of March 31, 2023, the number of unvested PSUs granted at the target performance level for the 2021-2023, 2022-2024 and 2023-2025 performance periods under the LTIP and the number of unvested RSUs granted in conjunction with the PSUs:


	Time-Based Vest (RSUs)			Performance-Based Vest (PSUs)			Total
		Weighted Average			Weighted Average			Weighted Average
		Fair Value			Fair Value			Fair Value
(shares in thousands)	Shares	Per Share		Shares	Per Share		Shares	Per Share
Unvested as of June 30, 2022	86	$	19.53	174	$	18.87	260	$	19.09
Granted	63		19.27	91		19.27	154		19.27
Vested	(1)		19.23	(44)		17.23	(45)		17.28
Forfeited	(2)		26.62	(3)		26.62	(5)		26.62
Unvested as of March 31, 2023	146	$	19.32	218	$	19.26	364	$	19.29

Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs was $2.7 million as of March 31, 2023, which is expected to be recognized over a weighted-average period of 1.2 years.

(3) 2013 Omnibus Stock Plan

The 2013 Omnibus Stock Plan was for key employees, officers and directors and provides for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and performance units. No further stock units will be issued under this plan.

Restricted Shares and RSUs

A summary of the activity in the Company’s unvested restricted shares and unvested RSUs (not granted in conjunction with PSUs) during the nine months ended March 31, 2023, is as follows:



		Weighted Average
	Shares	Fair Value
	(in thousands)	Per Share
Unvested as of June 30, 2022	35	$	26.72
Granted	59		19.17
Vested	(17)		23.62
Forfeited	(2)		27.84
Unvested as of March 31, 2023	75	$	21.45

Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.9 million as of March 31, 2023, which is expected to be recognized over a weighted-average period of 1.2 years.

Options

A summary of the activity of the Company’s stock option plans as of March 31, 2023, is presented below:



		Weighted
	Shares	Average
	(in thousands)	Exercise Price
Outstanding at June 30, 2022	215	$	21.50
Granted	—		—
Exercised	—		—
Canceled	(13)		30.20
Outstanding at March 31, 2023	202	$	20.95

The following table summarizes information for options outstanding at March 31, 2023:



		Options	Weighted Average
Range of		Outstanding	Remaining	Exercise
Prices		(in thousands)	Life (Years)	Price
$	9.97 - 15.14	97	6.9	$	12.64
	18.30 - 19.72	6	8.2		18.30
	21.96 - 27.57	57	4.1		24.18
	31.06 - 32.80	29	3.0		32.27
	43.09 - 47.45	13	3.5		45.28
$	9.97 - 47.45	202	5.4	$	20.95

The total unrecognized stock-based compensation expense related to options was $0.01 million as of March 31, 2023, which is expected to be recognized over a weighted-average period of 0.02 years.

Stock-Based Compensation Granted Outside a Plan

During the quarter ended June 30, 2020, the Company awarded its Chief Financial Officer/Chief Operating Officer 79,000 options outside of any Company stock plans. All 79,000 options remain outstanding as of March 31, 2023, with an exercise price of $9.97 and a remaining life of 7.0 years. There is no remaining unrecognized stock-based compensation expense related to these options.

During the quarter ended December 31, 2018, the Company awarded its Chief Executive Officer 55,000 options outside of any Company stock plans. All 55,000 options remain outstanding as of March 31, 2023, with an exercise price of $21.96 and a remaining life of 5.7 years. There is no remaining unrecognized stock-based compensation expense related to these options.