Note 6 - Share-based Compensation

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(6) SHARE-BASED COMPENSATION

We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur. We refer to our restricted stock awards as “non-vested” stock in these consolidated financial statements.

Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3,000,000 shares of our Common Stock. The 2004 Director Plan provides for grants of nonqualified stock options to each of our directors who we do not employ. Beginning in 2018, on the date of each annual meeting of shareholders, options to purchase shares of Common Stock equal to an aggregate grant date fair value of $100,000 are granted to each non-employee director that is elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the outside director’s service.

Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of our Common Stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant.

During the six-month periods ended June 30, 2022 and 2021, we granted options to purchase 127,227 and 101,091 shares of Common Stock, respectively. Options to purchase shares of Common Stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:

	2022			2021
Expected dividend yield at date of grant		3.39	%		2.15	%
Expected stock price volatility		35.52	%		34.85	%
Risk-free interest rate		2.33	%		0.91	%
Expected life of options (in years)		6.0			7.0

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes stock option activity under the 2006 Equity Incentive Plans and the 2004 Director Plan for the six-month periods ended June 30, 2022:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2021		477,640	$	30.88		5.97	$	6,337
Granted		127,227	$	36.67
Exercised		-	$	-			$	-
Forfeited		-	$	-				-
Outstanding at June 30, 2022		604,867	$	32.10		5.96	$	5,672
Exercisable at June 30, 2022		346,721	$	26.03		4.21	$	5,195

As of June 30, 2022, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.7 million which was expected to be recognized over a weighted average period of 2.68 years.

There was $162,000 cash received from stock options exercised for the six months ended June 30, 2021. There was no cash received from stock options exercised for the same period in 2022. We recognized $307,000 and $176,000 of non-cash compensation for three months ended June 30, 2022 and 2021, respectively, and $564,000 and $186,000 of non-cash compensation for the six-month periods ended June 30, 2022 and 2021, respectively, related to options, which is included in direct fixed and selling, general and administrative expenses.

We granted 12,698 non-vested shares of Common Stock under the 2006 Equity Incentive Plan during the six months ended June 30, 2021. No shares were granted during the six months ended June 30, 2022. As of June 30, 2022, we had 12,698 non-vested shares of Common Stock outstanding under the 2006 Equity Incentive Plan. These shares vest over five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. We recognized $27,000 of non-cash compensation for each of the three months ended June 30, 2022 and 2021, respectively, and $54,000 and ($37,000) of non-cash compensation for the six-month periods ended June 30, 2022 and 2021, respectively, related to this non-vested stock, which is included in direct fixed and selling, general and administrative expenses. The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan for the three months ended June 30, 2022:

	Common Shares Outstanding		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2021		12,698	$	42.92
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding at June 30, 2022		12,698	$	42.92

As of June 30, 2022, the total unrecognized compensation cost related to non-vested stock awards was approximately $382,000 and is expected to be recognized over a weighted average period of 3.5 years.