Stock-Based Compensation

12 Months Ended

Jun. 30, 2023

11. 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 the fair value as of grant date 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. Stock-based compensation is included in selling, general and administrative, and restructuring expenses on the consolidated statements of income. The stock-based compensation expense included in restructuring expense were for retention RSUs in connection with the Company’s restructuring plan. Forfeitures are recognized as incurred.

Total stock-based compensation expense was $3.2 million, $1.0 million and $3.7 million for fiscal years 2023, 2022 and 2021, respectively.

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”) and 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 10,925 shares were granted under the 2022 Plan in the year ended June 30, 2023 with a fair value per share of $19.95. These shares remain unvested and have no forfeitures as of June 30, 2023. These shares are included in the Restricted Shares and RSUs table below.

(2) Long-Term Incentive Compensation Plan (“LTIP”)

The LTIP provides 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 June 30, 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			Performance Based Vest			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, 2021	107	$	13.89	142	$	13.36	249	$	13.59
Granted	27		42.35	41		42.35	68		42.35
Vested	(42)		17.23	—		—	(42)		17.23
Forfeited	(6)		38.62	(9)		38.61	(15)		38.61
Unvested as of June 30, 2022	86	$	19.53	174	$	18.87	260	$	19.09
Granted	62		19.27	91		19.27	153		19.27
Vested	(63)		12.64	(44)		17.23	(107)		14.53
Forfeited	(6)		23.02	(10)		23.02	(16)		23.02
Unvested as of June 30, 2023	79	$	24.56	211	$	19.19	290	$	20.65

Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs was $2.2 million as of June 30, 2023, which is expected to be recognized over a period of 1.2 years.

(3) 2013 Omnibus Stock Plan, and 2009 Stock Option Plan

The 2013 Omnibus Stock Plan and 2009 Stock Option Plan were 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 granted under the 2013 Omnibus Stock Plan and the 2009 stock option 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, as of June 30, 2023, is presented below:


		Weighted average
	Shares	fair value
	(in thousands)	per share
Unvested as of June 30, 2021	56	$	26.81
Granted	5		33.78
Vested	(20)		29.46
Forfeited	(6)		24.12
Unvested as of June 20, 2022	35	$	26.72
Granted	66		19.30
Vested	(21)		23.58
Forfeited	(6)		18.41
Unvested as of June 20, 2023	74	$	21.67

Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.8 million as of June 30, 2023, which is expected to be recognized over a weighted average period of 1.2 years.

Options

The weighted average grant date fair value of stock options granted during fiscal years 2023, 2022, and 2021 were none, none, and $6.77, respectively. The weighted average assumptions used to estimate these fair values were as follows:



	For the years ended June 30,
	2023		2022		2021
Dividend yield		—		—		3.4%
Expected volatility		—		—		43.2%
Risk-free interest rate		—		—		0.6%
Expected life (in years)		—		—		5

The expected volatility and expected life are determined based on historical data. The interest rate is based on U.S. Treasury risk-free rate in affect at the date of grant for the periods corresponding with the expected term of options.

A summary of the activity of the Company’s stock option plans during the years ended June 30, 2023, 2022, and 2021, is presented below:


		Weighted
	Shares	Average
	(in thousands)	Exercise Price
Outstanding at June 30, 2021	232	$	21.91
Granted	—		—
Exercised	(8)		15.75
Cancelled	(9)		36.58
Outstanding at June 30, 2022	215	$	21.50
Granted	—		—
Exercised	—		—
Cancelled	(13)		30.20
Outstanding at June 30, 2023	202	$	20.98

The following table summarizes information for options outstanding at June 30, 2023:


		Options	Weighted Average
Range of		Outstanding	Remaining	Exercise
Prices		(in thousands)	Life (Years)	Price
$	9.97 - 15.14	97	6.7	$	12.64
	18.30 - 19.72	6	7.9		18.30
	21.96 - 27.57	57	3.9		24.18
	31.06 - 32.80	29	2.8		32.27
	43.09 - 47.45	13	3.2		45.28
$	9.97 - 47.45	202	5.1	$	20.98

The Company does not have any unrecognized stock-based compensation expense related to options.

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 June 30, 2023, with an exercise price of $9.97 and a remaining life of 6.8 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 5.5 years. There is no remaining unrecognized stock-based compensation expense related to these options.