Crown Crafts, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Stock-based Compensation

Note 6 - Stock-based Compensation

3 Months Ended

Jul. 01, 2012

Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Restricted Stock Units, Vested and Expected to Vest [Table Text Block]

Note 6 – Stock-based Compensation

The Company has two incentive stock plans, the 1995 Stock Option Plan (“1995 Plan”) and the 2006 Omnibus Incentive Plan (“2006 Plan”). The Company granted non-qualified stock options to employees and non-employee directors from the 1995 Plan through the fiscal year ended April 2, 2006. In conjunction with the approval of the 2006 Plan by the Company’s stockholders at its Annual Meeting in August 2006, options may no longer be issued from the 1995 Plan.

The 2006 Plan is intended to attract and retain directors, officers and employees of the Company and to motivate these persons to achieve performance objectives related to the Company’s overall goal of increasing stockholder value. The principal reason for adopting the 2006 Plan was to ensure that the Company has a mechanism for long-term, equity-based incentive compensation to directors, officers and employees. Awards granted under the 2006 Plan may be in the form of qualified or non-qualified stock options, restricted stock, stock appreciation rights, long-term incentive compensation units consisting of a combination of cash and shares of the Company’s common stock, or any combination thereof within the limitations set forth in the 2006 Plan. The 2006 Plan is administered by the compensation committee of the Company’s Board of Directors (the “Board”), which selects eligible employees and non-employee directors to participate in the 2006 Plan and determines the type, amount, duration and other terms of individual awards. At July 1, 2012, 99,500 shares of the Company’s common stock were available for future issuance under the 2006 Plan.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. The Company recorded $147,000 and $137,000 of stock-based compensation expense during the three-months ended July 1, 2012 and July 3, 2011, respectively. The Company records the compensation expense related to stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals. No stock-based compensation costs have been capitalized as part of the cost of an asset as of July 1, 2012.

Stock Options: The following table represents stock option activity for the three-month periods ended July 1, 2012 and July 3, 2011:

	Three-Month Period Ended July 1, 2012					Three-Month Period Ended July 3, 2011
	Weighted-Average Exercise Price		Number of Options Outstanding			Weighted-Average Exercise Price		Number of Options Outstanding
Outstanding at Beginning of Period	$	3.57		573,000		$	3.31		747,000
Granted		5.42		110,000			4.81		100,000
Exercised		3.05		(261,250	)		3.24		(193,500	)
Outstanding at End of Period		4.38		421,750			3.56		653,500
Exercisable at End of Period		3.86		261,750			3.28		423,500

The total intrinsic value of the stock options exercised during the three-month periods ended July 1, 2012 and July 3, 2011 was $645,000 and $332,000 respectively. As of July 1, 2012, the intrinsic value of the outstanding and exercisable stock options was $490,000 and $440,000, respectively.

The Company received cash in the amount of $64,000 and $27,000 from the exercise of stock options during the three months ended July 1, 2012 and July 3, 2011, respectively. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy their income tax withholding obligations that arise from the option exercise and, in the case of the 2006 Plan, the exercise amount as well. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy their income tax withholding obligations. The Company used cash of $268,000 and $134,000 to remit the required income tax withholding amounts from “cashless” option exercises during the three-month periods ended July 1, 2012 and July 3, 2011, respectively. The Company’s net outflow of cash upon the exercise of stock options was $204,000 and $107,000 during the three-month periods ended July 1, 2012 and July 3, 2011, respectively.

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine the fair value, and the resulting grant-date fair value per option, of the non-qualified stock options which were awarded to certain employees during the three-month periods ended July 1, 2012 and July 3, 2011, which options vest over a two-year period, assuming continued service.

	Three-Month Periods Ended
	July 1, 2012			July 3, 2011
Options issued		110,000			100,000
Grant Date	June 13, 2012			June 10, 2011
Dividend yield		5.90	%		2.49	%
Expected volatility		65.00	%		60.00	%
Risk free interest rate		0.55	%		1.84	%
Contractual term (years)		10.00			10.00
Expected term (years)		4.00			5.75
Forfeiture rate		5.00	%		5.00	%
Exercise price (grant-date closing price)	$	5.42		$	4.81
Fair value	$	1.84		$	2.16

Although the Company’s historical stock option exercise experience provided a reasonable basis upon which to estimate the expected term for the stock options granted during the three-month period ended July 1, 2012, this was not the case for the stock options granted during the three-month period ended July 3, 2011. In that period, the Company elected to use the simplified method to estimate the expected term of the stock options granted, as allowed by SEC Staff Accounting Bulletin No. 107 and the continued acceptance of the simplified method indicated in SEC Staff Accounting Bulletin No. 110.

For the three-month periods ended July 1, 2012 and July 3, 2011, the Company recognized compensation expense associated with stock options as follows (in thousands):

	Three-Month Period Ended July 1, 2012						Three-Month Period Ended July 3, 2011
Options Granted in Fiscal Year	Cost of Products Sold		Marketing & Administrative Expenses		Total Expense		Cost of Products Sold		Marketing & Administrative Expenses		Total Expense
2010	$	-	$	-	$	-	$	9	$	19	$	28
2011		14		13		27		14		15		29
2012		17		16		33		3		3		6
2013		2		3		5		-		-		-

Total stock option compensation	$	33	$	32	$	65	$	26	$	37	$	63

As of July 1, 2012, total unrecognized stock option compensation expense amounted to $299,000, which will be recognized as the underlying stock options vest over a weighted-average period of 1.29 years. The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock: The Board granted 30,000 shares of non-vested stock to its non-employee directors during each of the three-month periods ended October 2, 2011, September 26, 2010 and September 27, 2009 with a weighted-average fair value of $4.44, $4.36 and $3.02, respectively. These shares vest over a two-year period, assuming continued service. The fair value of the non-vested stock granted to the Company’s non-employee directors was determined based on the number of shares granted multiplied by the closing price of the Company’s common stock on the date of the grant.

During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock to certain employees in a series of grants, each of which will vest only if (i) the closing price of the Company’s common stock is at or above certain target levels for any ten trading days out of any period of 30 consecutive trading days and (ii) the respective employees remain employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the awards amounted to $1.2 million.

For the three-month periods ended July 1, 2012 and July 3, 2011, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

	Three-Month Period Ended July 1, 2012						Three-Month Period Ended July 3, 2011
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2010	$	-	$	-	$	-	$	-	$	6	$	6
2011		52		14		66		52		16		68
2012		-		16		16		-		-		-

Total stock grant compensation	$	52	$	30	$	82	$	52	$	22	$	74

As of July 1, 2012, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $719,000, which will be recognized over the respective vesting terms associated with each block of grants as indicated above, such grants having an aggregate weighted-average vesting term of 2.76 years. The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has received non-vested stock grants that remain non-vested as of such individual’s separation date.