Note 10 - Equity Compensation

12 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 10 — EQUITY COMPENSATION

In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan (“2019 Omnibus Plan”). The purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The 2019 Omnibus Plan replaced the 2012 Stock Incentive Plan (“2012 Stock Plan”). The number of shares of common stock authorized for issuance under the 2019 Omnibus Plan is 2,650,000 which were combined with the remaining shares available under the 2012 Stock Plan. The number of shares reserved for issuance under the 2019 Omnibus Plan is 1,411,321 shares, all of which are available for future grant or award as of June 30, 2022. The Plan contains a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (RSU’s), performance stock units (PSU’s), and other stock-based awards. The Company also awards Inducement awards are granted by the Company to attract and retain key executives. Inducement awards are separately registered securities and are not part of the 2019 Omnibus Plan.

In fiscal 2022, 146,281 RSUs and 190,980 PSUs were granted. In fiscal 2021, 75,000 inducement options, 30,626 RSUs and 122,509 PSUs were granted.

Stock Options

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to value the stock options granted in the periods indicated. There were no options granted in fiscal 2022.

Stock Options
	2022		2021
Dividend yield		-		2.9	%
Expected volatility		-		50	%
Risk-free interest rate		-		0.3	%
Expected life (in years)		-		6.0
Fair value per share		-	$	2.40

Stock option expense is recorded on a straight-line basis, or sooner if the grantee is retirement eligible as defined in the 2019 Omnibus Plan, net of forfeitures. The forfeiture rate is based on historical rates and reduces the compensation expense recognized. The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants. The risk-free interest rate is the rate of a five-year Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised. It is the Company’s policy that when stock options are exercised, new common shares shall be issued.    

Service-based options have a three-year ratable vesting period beginning one year after the date of grant. Inducement stock options have a term of ten years only if the employee is employed for three years from the date of grant. The maximum exercise period of service-based and performance-based stock options granted under the 2019 Omnibus Plan is ten years. There were no service - based or inducement stock options awarded in fiscal 2022.

The Company recorded $0.7 million and $0.8 million of expense related to stock options in fiscal years 2022 and 2021, respectively.

A summary of stock option activity as of June 30, 2022, and changes during the period from July 1, 2021 through June 30, 2022 are as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at June 30, 2021		2,327,148		$	6.07		6.7	$	5,320,456
Granted		-		$	-
Exercised		(4,833	)	$	5.48
Forfeited		(7,024	)	$	6.80
Expired		(14,500	)	$	9.27
Outstanding at June 30, 2022		2,300,791		$	6.05		5.7	$	2,287,764
Exercisable at June 30, 2022		1,730,964		$	6.31		5.2	$	1,608,413
Vested and expected to vest at June 30, 2022		2,286,311		$	6.05		5.7	$	2,282,521

The aggregate intrinsic value of options exercised during the years ended June 30, 2022, and June 30, 2021, was nominal as of June 30, 2022, and $0.2 million as of June 30, 2021. The Company received a nominal amount of proceeds from the exercise of stock options in fiscal 2022 and $1.0 million of proceeds from stock options exercises in fiscal 2021.

As of June 30, 2022, there was $0.7 million of unrecognized compensation cost, net of forfeitures, related to stock options, which is expected to be recognized over a weighted-average remaining period of 1.2 years.

For fiscal year 2022, the Company recognized a current income tax benefit of $0.2 million for tax deductions related to equity compensation. A discrete tax expense of 0.1 million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions.

For fiscal year 2021, the Company recognized a current income tax benefit of $0.1 million for tax deductions related to equity compensation. A discrete tax expense of $0.1 million was recognized to reduce deferred tax assets for cancelled awards and detriments in excess of the tax deductions.

Restricted Stock Units

A total of 146,281 RSUs with a weighted average fair value of $8.13 per share were awarded to employees during fiscal 2021. The RSUs awarded during fiscal 2022 have a three-year vesting period, with one-third vesting on each of the anniversary dates. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSUs were awarded. The unvested RSUs are non-voting but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSUs in the amount of $65,743 were accrued as of June 30, 2022. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.

The Company recorded $0.9 million and $0.6 million of expense related to RSUs during fiscal years 2022, and 2021, respectively.

A summary of outstanding and unvested RSU activity as of June 30, 2022, and changes during the period from July 1, 2021, through June 30, 2022, are as follows:

	Shares			Weighted- Average Grant Date Fair Value
Unvested at June 30, 2021		200,721		$	6.42
Granted		146,281		$	8.13
Vested		(96,671	)	$	6.26
Forfeited		(3,059	)	$	6.96
Unvested at June 30, 2022		247,272		$	7.48

As of June 30, 2022, there was $0.9 million of unrecognized compensation cost, net of forfeitures, related to RSUs, which is expected to be recognized over a weighted-average remaining period of 1.9 years. The total fair value of RSUs that became fully vested during fiscal 2022 was $0.7 million.

Performance Stock Units

A total of 190,980 PSUs with a weighted average fair value of $8.12 per share were awarded to employees during fiscal 2022. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the PSUs were awarded. PSUs vest if the Company meets certain financial metrics over a three-year period. The PSUs are non-voting but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. This applies to PSUs granted under the 2012 Stock Plan only. Dividends on PSUs in the amount of $104,978 and $86,196 were accrued as of June 30, 2022, and 2021, respectively. Accrued dividends are paid to the holder upon vesting of the PSUs and issuance of shares.

The Company recorded $1.6 million and $0.6 million of expense related to PSUs during fiscal years 2022, and 2021, respectively.

A summary of outstanding and unvested PSU activity as of June 30, 2022, and changes during the period from July 1, 2021 through June 30, 2022 are as follows:

	Shares			Weighted- Average Grant Date Fair Value
Unvested at June 30, 2021		456,887		$	5.96
Granted		190,980		$	8.12
Vested		(27,350	)	$	4.94
Forfeited		(23,950	)	$	7.50
Unvested at June 30, 2022		596,567		$	6.63

As of June 30, 2022, there was $2.4 million of unrecognized compensation cost, net of forfeitures, related to PSUs, which is expected to be recognized over a weighted-average remaining period of 1.91 years.

Director and Employee Stock Compensation Awards

The Company awarded a total of 42,420 and 43,049 common shares as stock compensation awards in fiscal years 2022, and 2021, respectively. These common shares were valued at their approximate $0.3 million fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

Deferred Compensation Plan

The Company has a non-qualified deferred compensation plan providing for both Company matching contributions and participant funded deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of June 30, 2022, there were 32 participants, all with fully vested account balances. A total of 821,876 common shares with a cost of $5.9 million, and 345,875 common shares with a cost of $2.5 million, both of which included the Company contributions and the participant deferrals, were held in the plan as of June 30, 2022, and 2021, respectively, and, accordingly, have been recorded as treasury shares. 

The change in the number of shares held by this plan is the net result of newly issued shares as compensation deferred into the plan offset by distributions to terminated employees. The Company issued 494,047 and 193,510 new common shares for purposes of the non-qualified deferred compensation plan during fiscal 2022, and during fiscal 2021, respectively.