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

Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Stock-based Compensation

Note 5 - Stock-based Compensation

3 Months Ended

Jul. 03, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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– Stock-based Compensation

The Company has two incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”). As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting, grants may no longer be issued under the 2006 Plan.

The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 2014 Plan may be in the form of incentive stock options, non-qualified stock options, shares of restricted or unrestricted stock, stock units, stock appreciation rights or other stock-based awards. Awards may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The 2014 Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”), which selects eligible employees, non-employee directors and other individuals to participate in the 2014 Plan and determines the type, amount, duration and other terms of individual awards. Grants under the 2014 Plan are settled primarily through the issuance of new shares of the Company’s common stock, 842,000 shares of which were available for future issuance under the 2014 Plan as of July 3, 2016.

Stock-based compensation expense is calculated according to FASB ASC Topic 718,

Compensation – Stock Compensation

, which requires stock-based compensation expense to be accounted for using a fair-value-based measurement. The Company recorded stock-based compensation expense of $161,000 and $256,000 during the three-month periods ended July 3, 2016 and June 28, 2015, respectively. The Company records the compensation expense related to stock-based awards granted to individuals in the same 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 3, 2016.

Stock Options:

The following table represents stock option activity for

the three-month periods ended July 3, 2016 and June 28, 2015

	Three-Month Period Ended					Three-Month Period Ended
	July 3, 2016					June 28, 2015
	Weighted- Average Exercise Price		Number of Options Outstanding			Weighted- Average Exercise Price		Number of Options Outstanding
Outstanding at Beginning of Period	$	7.64		305,000		$	6.83		330,000
Granted		9.60		120,000			8.38		110,000
Exercised		7.64		(25,000	)		-		-
Outstanding at End of Period		8.22		400,000			7.22		440,000
Exercisable at End of Period		7.45		225,000			6.47		247,500

As of July 3, 2016, the intrinsic value of the outstanding and exercisable stock options was $623,000 and $524,000, respectively. The intrinsic value of the stock options exercised during the three-months ended July 3, 2016 was $45,000. The Company received no cash from the exercise of stock options during the three-month periods ended July 3, 2016. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. 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 his or her income tax withholding obligations. The Company used cash of $20,000 to remit the required income tax withholding amounts from “cashless” option exercises during the three-month period ended July 3, 2016.

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 of the non-qualified stock options which were awarded to certain employees during the three-month periods ended July 3, 2016 and June 28, 2015, which options vest over a two-year period, assuming continued service.

	Three-Month Periods Ended
	July 3, 2016			June 28, 2015
Options issued		120,000			110,000
Grant date		June 8, 2016			June 12, 2015
Dividend yield		3.33	%		3.82	%
Expected volatility		20.00	%		20.00	%
Risk free interest rate		0.93	%		1.12	%
Contractual term (years)		10.00			10.00
Expected term (years)		3.00			3.00
Forfeiture rate		5.00	%		5.00	%
Exercise price (grant-date closing price) per option	$	9.60		$	8.38
Fair value per option	$	0.94		$	0.77

For the three-month periods ended July 3, 2016 and June 28, 2015, the Company recognized compensation expense associated with stock options as follows (in thousands):

	Three-Month Period Ended July 3, 2016						Three-Month Period Ended June 28, 2015
Options Granted in Fiscal Year	Cost of Products Sold		Marketing & Administrative Expenses		Total Expense		Cost of Products Sold		Marketing & Administrative Expenses		Total Expense
2014	$	-	$	-	$	-	$	7	$	7	$	14
2015		14		12		26		16		13		29
2016		7		6		13		1		1		2
2017		2		1		3		-		-		-

Total stock option compensation	$	23	$	19	$	42	$	24	$	21	$	45

As of July 3, 2016, total unrecognized stock option compensation expense amounted to $149,000, which will be recognized as the underlying stock options vest over a weighted-average period of 11.9 months. 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

Granted to Non-Employee Directors:

The Board granted the following shares of non-vested stock to the Company’s non-employee directors:

Number of Shares	Fair Value per Share		Three-Month Period Ended
28,000	$	8.20	September 27, 2015
28,000	$	7.97	September 28, 2014
28,000	$	6.67	September 29, 2013

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 based on the closing price of the Company’s common stock on the date of each grant.

Non-vested Stock

Granted to Employees:

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 was to vest only if (i) the closing price of the Company’s common stock was 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 remained 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.

With the closing price conditions having been met for these awards, the Board at various times approved amendments to provide for the immediate vesting of all or a portion of several of the grants. The vesting of these awards was accelerated in order to maximize the deductibility of the associated compensation expense by the Company for income tax purposes.

Performance Bonus Plan:

The Company maintains a performance bonus plan for certain executive officers that provides for awards of shares of common stock in the event that the aggregate average market value of the common stock during the relevant fiscal year, plus the amount of cash dividends paid in respect of the common stock during such period, increases.

These individuals

may instead be awarded cash, if and to the extent that insufficient shares of common stock are available for issuance from all shareholder-approved, equity-based plans or programs of the Company in effect. The performance bonus plan also imposes individual limits on awards and

provides that shares of common stock that may be awarded will vest over a two-year period. Compensation expense associated with performance bonus plan awards are recognized over a three-year period – the fiscal year in which the award is earned, plus the two-year vesting period.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2016, awarded 41,205 shares of common stock with a fair value of $7.865 per share during the three-month period ended July 3, 2016. In connection with these awards, the Company recognized compensation expense of $108,000 during fiscal year 2016, and will recognize, on a straight-line basis, $108,000 in compensation expense during each of fiscal years 2017 and 2018.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2015, awarded 58,532 shares of common stock with a fair value of $7.18 per share during the three-month period ended June 28, 2015. In connection with these awards, the Company recognized compensation expense of $140,000 during each of fiscal years 2015 and 2016, and will recognize, on a straight-line basis, $140,000 in compensation expense during fiscal year 2017.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2014, awarded 188,232 shares of common stock with a fair value of $5.65 per share during the three-month period ended June 29, 2014. In connection with these awards, the Company recognized compensation expense of $354,000 during each of fiscal years 2014, 2015 and 2016. During the three-month period ended June 28, 2015, 94,116 of these shares vested, with such shares having an aggregate value of $735,000. Each of the individuals holding shares that vested surrendered to the Company the number of shares necessary to satisfy the income tax withholding obligations that arose from the vesting of the shares, and the Company remitted $360,000 to the appropriate taxing authorities on behalf of such individuals.

For the three-month periods ended July 3, 2016 and June 28, 2015, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, as follows (in thousands):

	Three-Month Period Ended July 3, 2016						Three-Month Period Ended June 28, 2015
Stock Granted in Fiscal Year	Employees		Non-employee Directors		Total Expense		Employees		Non-employee Directors		Total Expense
2011	$	-	$	-	$	-	$	36	$	-	$	36
2014		-		-		-		-		23		23
2015		-		28		28		89		28		117
2016		35		29		64		35		-		35
2017		27		-		27		-		-		-

Total stock grant compensation	$	62	$	57	$	119	$	160	$	51	$	211

As of July 3, 2016, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $428,000, which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 9.7 months. 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 non-vested stock grants as of such individual’s separation date.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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