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

9 Months Ended

Jan. 01, 2017

Notes to Financial Statements

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

ote

– 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,

814,000

shares of which were available for future issuance under the

2014

Plan as of

January

2017.

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

$149,000

and

$212,000

for the

three

-month periods ended

January

2017

and

December

27,

2015,

respectively, and recorded

$456,000

and

$691,000

for the

nine

-month periods ended

January

2017

and

December

27,

2015,

respectively.

The Company classifies the compensation expense associated with stock-based awards granted to individuals in the same classifications as the cash compensation paid to those same individuals.

stock-based compensation costs have been capitalized as part of the cost of an asset as of

January

2017.

Stock Options:

The following table represents stock option activity for

the

nine

-month periods ended

January

2017

and

December

27,

2015

	Nine-Month Period Ended					Nine-Month Period Ended
	January 1, 2017					December 27, 2015
	Weighted-					Weighted-
	Average		Number of			Average		Number of
	Exercise		Options			Exercise		Options
	Price		Outstanding			Price		Outstanding
Outstanding at Beginning of Period	$	7.64		305,000		$	6.83		330,000
Granted		9.60		120,000			8.38		110,000
Exercised		7.67		(102,500	)		6.30		(55,000	)
Outstanding at End of Period		8.35		322,500			7.35		385,000
Exercisable at End of Period		7.33		147,500			6.52		192,500

As of

January

2017,

the intrinsic value of both the outstanding and exercisable stock options was

94,000

The intrinsic value of the stock options exercised during the

three

and

nine

-month periods ended

January

2017

was

$45,000

and

$214,000,

respectively. The Company did

not

receive any cash from the exercise of stock options during the

three

and

nine

-month periods ended

January

2017

and

December

27,

2015.

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 to remit the required income tax withholding amounts from “cashless” option exercises of

$14,000

and

$75,000

during the

three

and

nine

-month periods ended

January

2017,

respectively, and

$25,000

and

$37,000

during the

three

and

nine

-month periods ended

December

27,

2015,

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 of the non-qualified stock options which were awarded to certain employees during the

nine

-month periods ended

January

2017

and

December

27,

2015,

which options vest over a

two

-year period, assuming continued service.

	Nine-Month Periods Ended
	January 1, 2017			December 27, 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

January

2017

and

December

27,

2015,

the Company recognized compensation expense associated with stock options as follows (in thousands):

	Three-Month Period Ended January 1, 2017						Three-Month Period Ended December 27, 2015
	Cost of		Marketing &				Cost of		Marketing &
	Products		Administrative		Total		Products		Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2015	$	-	$	-	$	-	$	12	$	10	$	22
2016		5		5		10		5		4		9
2017		8		5		13		-		-		-

Total stock option compensation	$	13	$	10	$	23	$	17	$	14	$	31

For the

nine

-month periods ended

January

2017

and

December

27,

2015,

the Company recognized compensation expense associated with stock options as follows (in thousands):

	Nine-Month Period Ended January 1, 2017						Nine-Month Period Ended December 27, 2015
	Cost of		Marketing &				Cost of		Marketing &
	Products		Administrative		Total		Products		Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2014	$	-	$	-	$	-	$	7	$	7	$	14
2015		14		12		26		40		34		74
2016		17		15		32		11		9		20
2017		18		12		30		-		-		-

Total stock option compensation	$	49	$	39	$	88	$	58	$	50	$	108

As of

January

2017,

total unrecognized stock option compensation expense amounted to

$103,000,

which will be recognized as the underlying stock options vest over a weighted-average period of

9.3

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		$10.08	October 2, 2016
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. In

August

2016,

28,000

shares vested that had been granted to the Company’s non-employee directors, with such shares having an aggregate value of

$281,000.

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

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.

During the

three

-month period ended

September

27,

2015,

the remaining

240,000

of these shares vested, with such shares having an aggregate value of

$1.9

million. 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

$948,000

to the appropriate taxing authorities on behalf of such individuals.

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

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

January

2017

and

December

27,

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 January 1, 2017						Three-Month Period Ended December 27, 2015
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2015	$	-	$	-	$	-	$	89	$	28	$	117
2016		35		29		64		35		29		64
2017		27		35		62		-		-		-

Total stock grant compensation	$	62	$	64	$	126	$	124	$	57	$	181

For the

nine

-month periods ended

January

2017

and

December

27,

2015,

	Nine-Month Period Ended January 1, 2017						Nine-Month Period Ended December 27, 2015
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2011	$	-	$	-	$	-	$	48	$	-	$	48
2014		-		-		-		-		31		31
2015		-		37		37		267		84		351
2016		105		86		191		105		48		153
2017		81		59		140		-		-		-

Total stock grant compensation	$	186	$	182	$	368	$	420	$	163	$	583

As of

January

2017,

total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to

$460,000,

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

8.2

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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