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

6 Months Ended

Sep. 30, 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 September 30, 2012, 508,750 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 $141,000 and $288,000 of stock-based compensation expense during the three and six months ended September 30, 2012, respectively, and recorded $150,000 and $287,000 of stock-based compensation expense during the three and six months ended October 2, 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 September 30, 2012.

Stock Options: The following table represents stock option activity for the six-month periods ended September 30, 2012 and October 2, 2011:

	Six-Month Period Ended September 30, 2012					Six-Month Period Ended October 2, 2011
	Weighted-Average		Number of Options			Weighted-Average		Number of Options
	Exercise Price		Outstanding			Exercise Price		Outstanding
Outstanding at Beginning of Period	$	3.57		573,000		$	3.31		747,000
Granted		5.42		110,000			4.81		100,000
Exercised		3.12		(296,250	)		3.24		(193,500	)
Forfeited		0.71		(1,250	)		-		-
Outstanding at End of Period		4.46		385,500			3.56		653,500
Exercisable at End of Period		3.91		225,500			3.24		503,500

The total intrinsic value of the stock options exercised was $70,000 and $715,000 during the three and six-month periods ended September 30, 2012, respectively, and was $332,000 during both the three months ended July 3, 2011 and the six months ended October 2, 2011. As of September 30, 2012, the intrinsic value of the outstanding and exercisable stock options was $668,000 and $515,000, respectively.

The Company received cash in the amount of $95,000 and $27,000 from the exercise of stock options during the six months ended September 30, 2012 and October 2, 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 $285,000 and $134,000 to remit the required income tax withholding amounts from “cashless” option exercises during the six months ended September 30, 2012 and October 2, 2011, respectively. The Company’s net outflow of cash upon the exercise of stock options was $190,000 and $107,000 during the six months ended September 30, 2012 and October 2, 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 six months ended September 30, 2012 and October 2, 2011, which options vest over a two-year period, assuming continued service.

	Six-Month Periods Ended
	September 30, 2012			October 2, 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 six-month period ended September 30, 2012, this was not the case for the stock options granted during the six-month period ended October 2, 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 and six-month periods ended September 30, 2012, the Company recognized compensation expense associated with stock options as follows (in thousands):

	Three-Month Period						Six-Month Period
	Cost of		Marketing &				Cost of		Marketing &
	Products		Administrative		Total		Products		Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2011	$	-	$	-	$	-	$	14	$	13	$	27
2012		12		13		25		29		29		58
2013		11		12		23		13		15		28

Total stock option compensation	$	23	$	25	$	48	$	56	$	57	$	113

For the three and six-month periods ended October 2, 2011, the Company recognized compensation expense associated with stock options as follows (in thousands):

	Three-Month Period						Six-Month Period
	Cost of		Marketing &				Cost of		Marketing &
	Products		Administrative		Total		Products		Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2010	$	6	$	14	$	20	$	15	$	33	$	48
2011		11		11		22		25		26		51
2012		13		12		25		16		15		31

Total stock option compensation	$	30	$	37	$	67	$	56	$	74	$	130

As of September 30, 2012, total unrecognized stock option compensation expense amounted to $251,000, which will be recognized as the underlying stock options vest over a weighted-average period of 1.04 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 42,000 shares of non-vested stock with a fair value of $5.62 per share to the Company’s non-employee directors during the three-month period ended September 30, 2012 and granted 30,000 shares of non-vested stock to the Company’s 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 per share 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 and six-month periods ended September 30, 2012, 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						Six-Month Period
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2011	$	52	$	4	$	56	$	104	$	18	$	122
2012		-		17		17		-		33		33
2013		-		20		20		-		20		20

Total stock grant compensation	$	52	$	41	$	93	$	104	$	71	$	175

For the three and six-month periods ended October 2, 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						Six-Month Period
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2010	$	-	$	5	$	5	$	-	$	11	$	11
2011		52		15		67		104		31		135
2012		-		11		11		-		11		11

Total stock grant compensation	$	52	$	31	$	83	$	104	$	53	$	157

As of September 30, 2012, total unrecognized compensation expense related to the Company’s non-vested stock grants was $862,000, 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 2.60 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.