e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March
29, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File
No. 1-7604
Crown Crafts, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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58-0678148
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(State of
Incorporation)
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(I.R.S. Employer
Identification No.)
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916 S. Burnside Ave.
Gonzales, Louisiana
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70737
(Zip Code)
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(Address of principal executive
offices)
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Registrants Telephone Number, including area code:
(225) 647-9100
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Exchange on Which Registered
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Common Stock, $0.01 par value
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The NASDAQ Capital Market
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Common Share Purchase Rights
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The NASDAQ Capital Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company þ
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The approximate aggregate market value of the voting stock held
by non-affiliates of the Registrant as of September 28,
2008 (the last business day of the Companys most recently
completed second fiscal quarter) was $20.8 million.
As of June 5, 2009, 9,209,390 shares of the
Companys common stock were outstanding.
Documents Incorporated by Reference:
Crown Crafts, Inc. Proxy Statement in connection with its 2009
Annual Meeting of Stockholders (Part III hereof).
PART I
Cautionary
Notice Regarding Forward-Looking Statements
Certain of the statements made herein under the caption
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere,
including information incorporated herein by reference to other
documents, are forward-looking statements within the
meaning of, and subject to the protections of, Section 27A
of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the
Exchange Act). Forward-looking statements include
statements with respect to our beliefs, plans, objectives,
goals, expectations, anticipations, assumptions, estimates,
intentions and future performance and involve known and unknown
risks, uncertainties and other factors, many of which may be
beyond our control and which may cause the actual results,
performance or achievements of Crown Crafts, Inc. to be
materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements.
All statements other than statements of historical fact are
statements that could be forward-looking statements. You can
identify these forward-looking statements through our use of
words such as may, anticipate,
assume, should, indicate,
would, believe, contemplate,
expect, estimate, continue,
plan, point to, project,
predict, could, intend,
target, potential and other similar
words and expressions of the future. These forward-looking
statements may not be realized due to a variety of factors,
including, without limitation, those described in Part I,
Item 1A. Risk Factors, and elsewhere in this
report and those described from time to time in our future
reports filed with the Securities and Exchange Commission (the
SEC) under the Exchange Act.
All written or oral forward-looking statements that are made by
or are attributable to us are expressly qualified in their
entirety by this cautionary notice. Our forward-looking
statements apply only as of the date of this report or the
respective date of the document from which they are incorporated
herein by reference. We have no obligation and do not undertake
to update, revise or correct any of the forward-looking
statements after the date of this report, or after the
respective dates on which such statements otherwise are made,
whether as a result of new information, future events or
otherwise.
Description
of Business
Crown Crafts, Inc. (the Company) operates indirectly
through its wholly-owned subsidiaries, Crown Crafts Infant
Products, Inc. and Hamco, Inc., in the infant and toddler
products segment within the consumer products industry. The
infant and toddler products segment consists of infant and
toddler bedding, bibs, soft goods and accessories. Sales of the
Companys products are generally made directly to
retailers, which are primarily mass merchants, chain stores,
juvenile specialty stores, internet accounts, wholesale clubs
and catalogue and direct mail houses. The Companys
products are manufactured primarily in China and marketed under
a variety of Company-owned trademarks, under trademarks licensed
from others and as private label goods. In response to changing
business conditions in the consumer products industry, the
Company has made significant changes in its business operations
over the last three years. In addition to a program of cost
reductions, the Company has outsourced virtually all of its
manufacturing to foreign contract manufacturers.
The Companys fiscal year ends on the Sunday nearest
March 31. References to the Companys fiscal years
herein represent the 52 weeks ended March 29, 2009 for
fiscal year 2009 and March 30, 2008 for fiscal year 2008.
Through April 2007, the Companys operations included those
of an additional subsidiary, Churchill Weavers, Inc.
(Churchill). On February 2, 2007, the Company
announced that it would liquidate Churchill. In accordance with
accounting guidelines, in fiscal years 2008 and 2009, the real
property that continues to be held in Churchill, which has no
other material assets, is classified as held for sale in the
Companys consolidated balance sheets, and the operations
of Churchill are classified as discontinued operations in the
Companys consolidated statements of income.
2
Products
The Companys primary focus is on infant, toddler and
juvenile products. Infant products include crib bedding,
blankets, nursery accessories, room décor, bibs, burp
cloths, bathing accessories and other infant soft goods. Toddler
and juvenile products consist primarily of bedding and
bedding-related items.
Sales and
Marketing
The Companys products are marketed through a national
sales force consisting of salaried sales executives and
employees located in Compton, California; Gonzales, Louisiana;
Rogers, Arkansas; and Roslyn Heights, New York. Products
are also marketed by independent commissioned sales
representatives located throughout the United States, who
are used most significantly in sales to juvenile specialty
stores. Sales outside the United States are made primarily
through distributors.
Substantially all products are sold to retailers for resale to
consumers. The Companys subsidiaries introduce new
products throughout the year and participate at the annual ABC
Kids Expo.
International
Sales
Sales to customers in countries other than the United States are
not currently material to the Companys business.
Seasonality
and Inventory Management
In fiscal year 2009, the Companys sales were lowest in the
third quarter and highest in the fourth fiscal quarter, although
there is some variation in the seasonal demand for the
Companys products from year to year. Sales are generally
higher in periods when customers take initial shipments of new
products, as these orders typically include enough product for
each store and additional quantities for the customers
distribution centers. The timing of these initial shipments
varies by customer and depends on when the customer finalizes
store layouts for the upcoming year and whether the customer has
any mid-year introductions of products. Sales may also be higher
or lower, as the case may be, in periods when customers are
opening new stores or closing existing stores. Consistent with
the expected introduction of specific product offerings, the
Company carries necessary levels of inventory to meet the
anticipated delivery requirements of its customers. Customer
returns of merchandise shipped are historically less than 1% of
gross sales.
Product
Design and Styling
Research and development expenditures by the Company are focused
primarily on product design and styling. The Company believes
styling and design are key components to its success. The
Companys designers and stylists research trends in color,
fashion and design and stay abreast of current and future market
influences. They also work closely with licensors to develop new
designs. These designs, which are developed internally and
obtained from numerous additional sources, including graphic
artists, decorative fabric manufacturers, apparel designers and
employees, include traditional, contemporary, textured and
whimsical patterns across a broad spectrum of retail price
points. Utilizing state of the art computer technology, the
Company is continually developing new designs throughout the
year for all of its product groups. This continual development
cycle affords the Company design flexibility, multiple
opportunities to present new products to customers and the
ability to provide timely responses to customer demands and
changing market trends. The Company also creates designs for
exclusive sale by certain of its customers under the
Companys brands, as well as the customers private
label brands.
Raw
Materials
The principal raw materials used in the manufacture of
comforters, sheets and accessories are printed, woven and solid
color cotton and polycotton fabrics, with polyester fibers used
as filling material. The principal raw materials used in the
production of infant bibs are cotton-polyester knit-terry,
cotton woven terry and water-resistant fabrications. Although
the Company normally maintains relationships with a limited
number of suppliers, the
3
Company believes that these raw materials are readily available
from alternative sources in quantities sufficient to meet the
Companys requirements.
The Company uses significant quantities of cotton, either in the
form of cotton fabric or cotton-polyester fabric. Cotton is
subject to ongoing price fluctuations because it is an
agricultural product impacted by changing weather patterns,
disease and supply and demand considerations, both domestically
and internationally. In addition, the price of oil affects key
components of the raw material prices in our products (e.g.,
100% polyester fill, polyester fabrics and packaging).
Significant increases in the prices of cotton and oil could
adversely affect the Companys operations.
Product
Sourcing
The Companys products are produced by foreign
manufacturers, with the largest concentration being in China.
The Company makes sourcing decisions on the basis of quality,
timeliness of delivery and price, including the impact of quotas
and duties. The Companys management and quality assurance
personnel visit the third-party facilities regularly to monitor
product quality and to ensure compliance with labor
requirements. Subsequent to the elimination of quotas in certain
product categories as of January 1, 2005, safeguards have
been implemented which have had a limited impact on the Company.
However, the additional implementation of safeguards, if any, in
China may result in strategic shifts in the Companys
sourcing plan in the future. In addition, the Company closely
monitors the currency exchange rate. The impact of future
fluctuations in the exchange rate or changes in safeguards
cannot be predicted with certainty at this time.
In March 2008, the Company opened a foreign representative
office in China. The office, located in Shanghai, is responsible
for the coordination of production, purchases and shipments,
seeking out new vendors and inspections for social compliance
and quality.
Products are warehoused and distributed from facilities located
in Compton, California.
Customers
The Companys customers consist principally of mass
merchants, chain stores, juvenile specialty stores, internet
accounts, wholesale clubs and catalogue and direct mail houses.
The Company does not generally enter into long-term or other
purchase agreements with its customers. The table below
indicates customers representing more than 10% of gross sales in
fiscal years 2008 and 2009.
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Fiscal Year
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2009
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2008
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Wal-Mart Stores, Inc.
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47
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%
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44
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%
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Toys R Us
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21
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%
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18
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%
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Target Corporation
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10
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%
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15
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%
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Order
Backlog
Management estimates the backlog of unfilled customer orders was
$3.5 million and $3.6 million at May 29, 2009 and
May 30, 2008, respectively. Historically the majority of
these unfilled orders are shipped within approximately four
weeks. There is no assurance that the backlog at any point in
time will translate into sales in any particular subsequent
period. Due to the prevalence of quick-ship programs adopted by
its customers, the Company does not believe that its backlog is
a meaningful or material indicator of future business.
Competition
The infant and toddler consumer products industry is highly
competitive. The Company competes with a variety of distributors
and manufacturers (both branded and private label), including
large infant and juvenile product companies and specialty infant
and juvenile product manufacturers, on the basis of quality,
design, price, brand name recognition, service and packaging.
The Companys ability to compete depends principally on
styling, price, service to the retailer and continued high
regard for the Companys products and trade names.
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Government
Regulation and Environmental Control
The Company is subject to various federal, state and local
environmental laws and regulations, which regulate, among other
things, product safety and the discharge, storage, handling and
disposal of a variety of substances and wastes, and to laws and
regulations relating to employee safety and health, principally
the Occupational Safety and Health Administration Act and
regulations thereunder. The Company believes that it currently
complies in all material respects with applicable environmental,
health and safety laws and regulations and that future
compliance with such existing laws or regulations will not have
a material adverse effect on its capital expenditures, earnings
or competitive position. However, there is no assurance that
such requirements will not become more stringent in the future
or that the Company will not have to incur significant costs to
comply with such requirements.
Employees
At June 1, 2009, the Company had approximately
160 employees, none of whom is represented by a labor union
or is otherwise a party to a collective bargaining agreement.
The Company attracts and maintains qualified personnel by paying
competitive salaries and benefits and offering opportunities for
advancement. The Company considers its relationship with its
employees to be good.
Trademarks,
Copyrights and Patents
The Company considers its trademarks to be of material
importance to its business. Sales of products marketed under the
Companys trademarks, primarily
NoJo®,
Kimberly
Grant®
and Making
Miracles®,
accounted for 17% of the Companys total gross sales during
fiscal year 2009. Protection for these trademarks is obtained
through domestic and foreign registrations. The Company also
markets designs which are subject to copyrights and design
patents owned by the Company.
Licensed
Products
Certain products are manufactured and sold pursuant to licensing
agreements for trademarks, primarily
Disney®.
The licensing agreements are generally for an initial term of
one to three years and may or may not be subject to renewal or
extension. Sales of licensed products represented 51% of the
Companys gross sales in fiscal year 2009, which included
33% of sales under the Companys license agreements with
Disney Enterprises, Inc. The Companys infant and toddler
license agreements with Disney Enterprises, Inc. expire
December 31, 2010 and December 31, 2009, respectively.
Many of the designs used by the Company are copyrighted by other
parties, including trademark licensors, and are available to the
Company through copyright license agreements.
The Companys commitment for minimum guaranteed royalty
payments under its license agreements as of March 29, 2009
is $5.1 million, including $2.8 million and
$2.3 million for fiscal years 2010 and 2011, respectively.
The Company believes that future sales of royalty products will
exceed amounts required to cover the minimum royalty guarantees.
The Companys total royalty expense, net of royalty income,
was $6.9 million and $4.9 million for fiscal years
2009 and 2008, respectively.
The following risk factors as well as the other information
contained in this report and other filings with the SEC should
be considered in evaluating the Companys business.
Additional risks and uncertainties not presently known to us or
that we currently consider immaterial may also impair our
business operations. If any of the following risks actually
occur, operating results may be affected in future periods.
The
loss of one or more of the Companys key customers could
result in a material loss of revenues.
The Companys top three customers represented approximately
78% of gross sales in fiscal year 2009. Although we do not enter
into contracts with our key customers, we expect them to
continue to be a significant portion of our gross sales in the
future. The loss of one or more of these customers could result
in a material decrease in our revenue and operating income.
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The
loss of one or more of the Companys licenses could result
in a material loss of revenues.
Sales of licensed products represented 51% of the Companys
gross sales in fiscal year 2009, which included 33% of sales
associated with the Companys license agreements with
Disney Enterprises, Inc. The Company could experience a material
loss of revenues if it is unable to renew its major license
agreements or obtain new licenses.
Economic
conditions could adversely affect the Companys raw
material prices.
The Company uses significant quantities of cotton, either in the
form of cotton fabric or cotton-polyester fabric. Cotton is
subject to ongoing price fluctuations because it is an
agricultural product impacted by changing weather patterns,
disease and other factors, such as supply and demand
considerations, both domestically and internationally. In
addition, increased oil prices affect key components of the raw
material prices in our products. Significant increases in the
prices of cotton and oil could adversely affect the material
prices in our products (e.g., 100% polyester fill, polyester
fabrics and packaging).
The
Companys inability to anticipate and respond to
consumers tastes and preferences could adversely affect
the Companys revenues.
Sales are driven by consumer demand for the Companys
products. There can be no assurance that the demand for the
Companys products will not decline or that the Company
will be able to anticipate and respond to changes in demand. The
Companys failure to adapt to these changes could lead to
lower sales and excess inventory, which could have a material
adverse effect on the Companys financial condition and
operating results.
The
Companys success is dependent upon retaining key
management personnel.
The Companys ability to retain qualified executive
management and other key personnel is vital to the
Companys success. If the Company were unable to retain or
attract qualified individuals, the Companys growth and
operating results could be materially impacted.
The
Companys business is impacted by general economic
conditions and related uncertainties affecting markets in which
the Company operates.
Current economic conditions, including the credit crisis
affecting global financial markets and the possibility of an
extended global recession, could adversely impact the
Companys business. These conditions could result in
reduced demand for some of the Companys products,
increased order cancellations and returns, an increased risk of
excess and obsolete inventories, increased pressure on the
prices of the Companys products, and greater difficulty in
obtaining necessary financing on favorable terms. Also, although
the Companys use of a commercial factor significantly
reduces the risk associated with collecting accounts receivable,
the factor may at any time terminate or limit its approval of
shipments to a particular customer, and the likelihood of the
factor doing so may increase as a result of current economic
conditions. Such an action by the factor would result in the
loss of future sales to the affected customer.
Currency
exchange rate fluctuations and other supplier-related risks
could increase the Companys expenses.
The Companys products are manufactured by foreign contract
manufacturers, with the largest concentration being in China.
Difficulties encountered by these suppliers, such as fire,
accident, natural disasters, outbreaks of contagious diseases or
economic and political instability could halt or disrupt
production of the Companys products. Also, the prices paid
by the Company to these suppliers could increase if raw
materials, labor or other costs increase. In addition,
restrictive actions by foreign governments, a strengthening of
the Chinese currency versus the U.S. dollar or changes in
import duties or import or export restrictions could increase
the prices at which the Company purchases finished goods. If the
Company is unable to pass these cost increases along to its
customers, profitability could be adversely affected.
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Changes
in international trade regulations and other risks associated
with foreign trade could adversely affect the Companys
sourcing.
The Company sources all of its products from foreign contract
manufacturers, with the largest concentration being in China.
The adoption of regulations related to the importation of
product, including quotas, duties, taxes and other charges or
restrictions on imported goods, and changes in U.S. customs
procedures could result in an increase in the cost of the
Companys products. Delays in customs clearance of goods or
the disruption of international transportation lines used by the
Company could result in the Company being unable to deliver
goods to customers in a timely manner or the potential loss of
sales altogether.
The
Companys ability to comply with its financing agreement is
subject to future performance and other factors.
The Companys ability to make scheduled payments of
principal, to pay the interest on or to refinance its maturing
indebtedness, to fund capital expenditures or to comply with its
debt covenants will depend upon future performance. The
Companys future performance is, to a certain extent,
subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control.
The breach of any of these covenants could result in a default
under the Companys financing agreement. Upon the
occurrence of an event of default, the Companys lenders
could declare all amounts outstanding under such credit
facilities to be immediately due and payable. If a default were
to occur, there can be no assurance that the Companys
assets would be sufficient to repay in full that indebtedness.
The
Companys debt covenants may affect its liquidity or limit
its ability to pursue acquisitions, incur debt, make
investments, sell assets or complete other significant
transactions.
The Companys financing agreement contains usual and
customary covenants regarding significant transactions,
including limitations on other indebtedness, liens, transfers of
assets, investments and acquisitions, merger or consolidation
transactions, dividends, transactions with affiliates and
changes in or amendments to the organizational documents for the
Company and its subsidiaries. Unless waived by the
Companys primary lender, these covenants could restrict
the Companys ability to pursue opportunities to expand its
business operations, respond to changes in business and economic
conditions and obtain additional financing. The Company also may
be prevented from engaging in transactions that might otherwise
be considered beneficial to it.
Increases
in interest rates could cause the Companys expenses to
increase.
The Company is exposed to interest rate risk related to the
Companys floating-rate debt, of which there was
$21.7 million outstanding at March 29, 2009. At this
level of floating-rate debt, each 1.0 percentage point
increase in the prime interest rate would adversely impact
pre-tax earnings by $217,000.
The
strength of the Companys competitors may impact the
Companys ability to maintain and grow its sales, which
could decrease the Companys revenues.
The infant and toddler consumer products industry is highly
competitive. The Company competes with a variety of distributors
and manufacturers, both branded and private label. The
Companys ability to compete successfully depends
principally on styling, price, service to the retailer and
continued high regard for the Companys products and trade
names. Several of these competitors are larger than the Company
and have greater financial resources than the Company. Increased
competition could result in a material decrease in the
Companys revenues.
Recalls
or product liability claims could increase costs or reduce
sales.
The Company must comply with the Consumer Product Safety
Improvement Act of 2008, which imposes strict standards to
protect children from potentially harmful products and which
requires that the Companys products be tested to ensure
that they are within acceptable levels for lead and phthalates.
The Company must also comply with related regulations developed
by the Consumer Product Safety Commission and similar state
regulatory authorities. The Companys products could be
subject to involuntary recalls and other actions by these
authorities, and concerns
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about product safety may lead the Company to voluntarily recall,
accept returns or discontinue the sale of selected products.
Product liability claims could exceed or fall outside the scope
of the Companys insurance coverage. Recalls or product
liability claims could result in decreased consumer demand for
the Companys products, damage to the Companys
reputation, a diversion of managements attention from its
business, and increased customer service and support costs, any
or all of which could adversely affect the Companys
operating results.
Customer
pricing pressures could result in lower selling prices, which
could negatively affect the Companys operating
results.
The Companys customers constantly place pressure on the
Company to reduce its prices, partially due to the removal of
quotas on certain of the Companys products. The Company
continuously strives to stay ahead of our competition in
sourcing, which allows us to obtain lower cost end products,
while maintaining our high standards for quality. There can be
no assurance that the Company can continue to reduce its costs
to the same extent that sales prices decrease, which could
adversely affect the Companys operating results.
The Companys headquarters are located in Gonzales,
Louisiana. The Company rents approximately 17,761 square
feet at this location under a lease that expires
January 31, 2012.
The following table summarizes certain information regarding the
Companys principal real property as of June 5, 2009:
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Approximate
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Owned/
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Location
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Use
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Square Feet
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Leased
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Gonzales, Louisiana
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Administrative and sales office
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17,761
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Leased
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Berea, Kentucky(*)
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Vacant
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53,056
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Owned
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Compton, California
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Offices, warehouse and distribution center
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157,400
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Leased
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Compton, California
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Warehouse and distribution
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35,217
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Leased
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Rogers, Arkansas
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Sales office
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1,625
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Leased
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* |
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This property is classified as held for sale in the
Companys consolidated balance sheet (see
Business in Item 1). |
Management believes that its properties are suitable for the
purposes for which they are used, are in generally good
condition and provide adequate capacity for current and
anticipated future operations. The Companys business is
somewhat seasonal so that during certain times of the year these
facilities are fully utilized, while at other times of the year
the Company has excess capacity in these facilities.
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ITEM 3.
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Legal
Proceedings
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From time to time, the Company is involved in various legal
proceedings relating to claims arising in the ordinary course of
its business. Neither the Company nor any of its subsidiaries is
a party to any such legal proceeding the outcome of which,
individually or in the aggregate, is expected to have a material
adverse effect on the Companys financial condition,
results of operations or cash flows.
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PART II
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ITEM 5.
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Market
For Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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The Company is authorized to issue up to 75,000,000 shares
of capital stock, 74,000,000 of which are classified as common
stock, par value $0.01 per share, and 1,000,000 of which are
classified as preferred stock, par value $0.01 per share.
The Companys common stock (together with the associated
common share purchase rights) is traded on the NASDAQ Capital
Market under the symbol CRWS. The following table
presents quarterly information on the range of the high and low
closing price per share of the Companys common stock for
fiscal years 2009 and 2008.
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Quarter
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High
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Low
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Fiscal Year 2009
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First Quarter
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$
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4.08
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$
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3.23
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Second Quarter
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3.97
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3.29
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Third Quarter
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|
3.35
|
|
|
|
2.15
|
|
Fourth Quarter
|
|
|
2.65
|
|
|
|
1.77
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
4.81
|
|
|
$
|
3.65
|
|
Second Quarter
|
|
|
4.65
|
|
|
|
3.71
|
|
Third Quarter
|
|
|
4.11
|
|
|
|
3.33
|
|
Fourth Quarter
|
|
|
3.90
|
|
|
|
3.12
|
|
As of June 5, 2009, there were 9,209,390 shares of the
Companys common stock issued and outstanding, held by
approximately 450 registered holders, and the closing stock
price was $2.05. The Company has not paid a dividend since
December 26, 1999, and its credit facility currently
prohibits the Companys payment of cash dividends.
Equity
Compensation Plans
The following table sets forth information regarding shares of
the Companys common stock that may be issued upon the
exercise of options, warrants and other rights granted to
employees, consultants or directors under all of the
Companys existing equity compensation plans as of
March 29, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities to be
|
|
|
|
|
|
Number of
|
|
|
|
Issued Upon
|
|
|
Weighted-Average
|
|
|
Securities
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Remaining Available
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
for Future Issuance
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Under Equity
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Omnibus Incentive Plan
|
|
|
516,000
|
|
|
$
|
3.51
|
|
|
|
275,000
|
|
9
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion is a summary of certain factors that
management considers important in reviewing the Companys
results of operations, liquidity, capital resources and
operating results. This discussion should be read in conjunction
with the consolidated financial statements and related notes
included elsewhere in this report.
Results
of Operations
The following table contains results of operations for fiscal
years 2009 and 2008 and the dollar and percentage changes for
those periods (in thousands, except percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Net sales by category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedding, blankets and accessories
|
|
$
|
71,892
|
|
|
$
|
57,765
|
|
|
$
|
14,127
|
|
|
|
24.5
|
%
|
Bibs and bath
|
|
|
15,506
|
|
|
|
17,122
|
|
|
|
(1,616
|
)
|
|
|
(9.4
|
)%
|
Total net sales
|
|
|
87,398
|
|
|
|
74,887
|
|
|
|
12,511
|
|
|
|
16.7
|
%
|
Cost of products sold
|
|
|
68,488
|
|
|
|
56,281
|
|
|
|
12,207
|
|
|
|
21.7
|
%
|
Gross profit
|
|
|
18,910
|
|
|
|
18,606
|
|
|
|
304
|
|
|
|
1.6
|
%
|
% of net sales
|
|
|
21.6
|
%
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
10,954
|
|
|
|
10,698
|
|
|
|
256
|
|
|
|
2.4
|
%
|
% of net sales
|
|
|
12.5
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
22,884
|
|
|
|
|
|
|
|
22,884
|
|
|
|
100.0
|
%
|
Interest expense
|
|
|
1,089
|
|
|
|
775
|
|
|
|
314
|
|
|
|
40.5
|
%
|
Other income (expense)
|
|
|
108
|
|
|
|
126
|
|
|
|
(18
|
)
|
|
|
(14.3
|
)%
|
Income tax expense
|
|
|
1,133
|
|
|
|
2,828
|
|
|
|
(1,695
|
)
|
|
|
(59.9
|
)%
|
(Loss) income from continuing operations after taxes
|
|
|
(17,042
|
)
|
|
|
4,431
|
|
|
|
(21,473
|
)
|
|
|
(484.6
|
)%
|
Discontinued operations net of taxes
|
|
|
(44
|
)
|
|
|
(78
|
)
|
|
|
34
|
|
|
|
(43.6
|
)%
|
Net (loss) income
|
|
|
(17,086
|
)
|
|
|
4,353
|
|
|
|
(21,439
|
)
|
|
|
(492.5
|
)%
|
% of net sales
|
|
|
(19.5
|
)%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
Net Sales: Sales of bedding, blankets and
accessories increased in fiscal year 2009 as compared to the
prior year. Sales increased by $12.8 million due to the
acquisition of the baby products line of Springs Global and
increased by $12.0 million due to shipments of new bedding
and blanket programs. These increases were offset by
$2.9 million in lower replenishment orders and
$7.8 million in discontinued programs.
Bib and bath sales decreased in fiscal year 2009 as compared to
the prior year. Sales decreased by $2.3 million due to
programs that were discontinued and $1.1 million in lower
replenishment orders and lower sales of seasonal products.
Offsetting this decrease was an increase of $1.8 million
related to sales of new designs and promotions and initial
program shipments.
Gross Profit: Gross profit increased slightly
in amount but decreased as a percentage of net sales for fiscal
year 2009 as compared to fiscal year 2008. The decrease in the
percentage is due primarily to increased amortization costs of
$733,000 in the current year associated with the acquisition of
the baby products line of Springs Global as well as costs of
$345,000 related to the establishment in late fiscal year 2008
of a foreign representative office in China, increased product
development and design costs of $153,000 and increased testing
costs of $283,000. In addition, the Company has experienced an
increase in product costs from Asia. Offsetting these increased
costs were charges in the prior year of $225,000 related to
vinyl bibs and $683,000 related to the warehousing and shared
services agreement entered into in conjunction with the Springs
Global acquisition.
Marketing and Administrative
Expenses: Marketing and administrative expenses
for fiscal year 2009 increased in amount but decreased as a
percentage of net sales as compared to fiscal year 2008. In the
current year, the Company incurred increased costs for
amortization of approximately $229,000 related to the
acquisition of the baby products line of Springs Global and
$195,000 in expenses associated with the governance and
standstill
10
agreement entered into on July 1, 2008 with the Wynnefield
Group. These increases were partially offset by the
non-recurrence of $476,000 of costs incurred in fiscal year 2008
associated with the Companys proxy contest.
Goodwill Impairment Charge: The market
capitalization of the Company was below its net book value for
most of the second half of fiscal year 2009, which the Company
concluded was a triggering event that required the Company to
perform an interim impairment test of the goodwill of its
reporting units. As a result of step one of this interim
impairment test, the Company concluded that the fair values of
its two reporting units were below their carrying values,
indicating that the goodwill within these reporting units had
been impaired. In step two of the interim impairment test, the
goodwill of the reporting units was determined to have no
implied value. Accordingly, during fiscal year 2009, the Company
recorded a pre-tax charge of $22.9 million, which
represented the aggregate carrying value of the goodwill of the
Companys reporting units. This impairment charge did not
have any effect on the cash expenditures of the Company and did
not have an adverse effect on the covenant calculations under
the Companys financing agreement or the Companys
overall compliance with those covenants.
Interest Expense: The increase in interest
expense for fiscal year 2009 as compared to fiscal year 2008 is
due to higher revolving line of credit balances and a new term
loan executed in conjunction with the acquisition of the baby
products line of Springs Global in November 2007.
Management does not believe that inflation has had a material
effect on the Companys operations. The Company has
traditionally attempted to increase its prices to offset
inflation. There is no assurance, however, that the Company will
be able to adequately increase its prices in response to
inflation.
Financial
Position, Liquidity and Capital Resources
Net cash provided by operating activities was $8.4 million
for the year ended March 29, 2009, compared to
$2.7 million for the year ended March 30, 2008. The
change in cash provided by operating activities was primarily
due to changes in accounts receivable and inventory balances,
offset by changes in accounts payable and accrued liability
balances. Net cash used in investing activities was
$0.3 million in 2009 compared $0.5 million in the
prior year. Net cash used in financing activities was
$0.8 million in 2009 compared to net cash provided by
financing activities of $5.7 million in the prior year. Net
cash used in the current year was primarily for common stock
repurchases. Cash provided in the prior year was primarily for
net borrowings on the revolving line of credit, offset by
payments on long-term debt and common stock repurchases. The
Companys cash increased from $7.9 million at
March 30, 2008 to $15.2 million at March 29,
2009, due to managements decision to build up its cash
reserves rather than pay down its revolving line of credit. This
decision was made to preserve the Companys ability to meet
its working capital needs in the event that the Companys
primary lender should suffer an adverse liquidity event that
would jeopardize the Companys ability to draw on its
revolving line of credit. As of March 29, 2009, letters of
credit of $0.5 million were outstanding against the
$1.5 million sub-limit for letters of credit associated
with the Companys $26 million revolving line of
credit. Based on eligible accounts receivable and inventory
balances as of March 29, 2009, the Company had revolving
credit availability of $2.5 million.
The Companys ability to make scheduled payments of
principal, to pay the interest on or to refinance its maturing
indebtedness, to fund capital expenditures or to comply with its
debt covenants will depend upon future performance. The
Companys future performance is, to a certain extent,
subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control.
Based upon the current level of operations, the Company believes
that cash flow from operations, together with revolving credit
availability and cash on hand, will be adequate to meet its
liquidity needs.
11
At March 29, 2009 and March 30, 2008, the
Companys long-term debt consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revolving line of credit
|
|
$
|
20,062
|
|
|
$
|
17,383
|
|
Term loan
|
|
|
1,667
|
|
|
|
4,167
|
|
Non-interest bearing notes
|
|
|
4,000
|
|
|
|
4,000
|
|
Original issue discount
|
|
|
(494
|
)
|
|
|
(739
|
)
|
Capital leases
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,235
|
|
|
|
24,815
|
|
Less current maturities
|
|
|
1,667
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,568
|
|
|
$
|
22,311
|
|
|
|
|
|
|
|
|
|
|
The Companys credit facilities at March 29, 2009
consisted of the following:
Revolving Line of Credit of up to $26.0 million,
including a $1.5 million sub-limit for letters of credit,
with an interest rate of prime minus 1.00% (2.25% at
March 29, 2009) for base rate borrowings or LIBOR plus
2.25% (2.75% at March 29, 2009), maturing on July 11,
2010 and secured by a first lien on all assets of the Company.
There was a balance of $20.1 million on the revolving line
of credit at March 29, 2009, and the Company had
$2.5 million available under the revolving line of credit
based on eligible accounts receivable and inventory balances as
of March 29, 2009. As of March 29, 2009, letters of
credit of $0.5 million were outstanding against the
$1.5 million sub-limit for letters of credit.
The financing agreement for the $26.0 million revolving
line of credit contains usual and customary covenants for
agreements of that type, including limitations on other
indebtedness, liens, transfers of assets, investments and
acquisitions, merger or consolidation transactions, dividends,
transactions with affiliates and changes in or amendments to the
organizational documents for the Company and its subsidiaries.
The Company was in compliance with these covenants as of
March 29, 2009.
Term Loan of an original amount of $5.0 million,
with an interest rate of prime plus 0.5% (3.75% at
March 29, 2009) and requiring equal monthly
installments of principal until final maturity on
November 1, 2009.
Subordinated Notes of $4.0 million. The notes do not
bear interest and are due in two equal installments of
$2.0 million each, the first of which is payable on
July 11, 2010, and the second of which is payable on
July 11, 2011. The original issue discount of
$1.1 million on this non-interest bearing obligation at a
market interest rate of 7.25% is being amortized over the life
of the notes. The remaining unamortized balance of
$0.5 million is included in the consolidated balance sheet
as of March 29, 2009.
Annual maturities of the Companys credit facilities are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Revolver
|
|
|
Term Loan
|
|
|
Sub Notes
|
|
|
Total
|
|
|
2010
|
|
$
|
|
|
|
$
|
1,667
|
|
|
$
|
|
|
|
$
|
1,667
|
|
2011
|
|
|
20,062
|
|
|
|
|
|
|
|
2,000
|
|
|
|
22,062
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,062
|
|
|
$
|
1,667
|
|
|
$
|
4,000
|
|
|
$
|
25,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To reduce its exposure to credit losses, the Company assigns the
majority of its trade accounts receivable to a commercial
factor. The Companys factor approves customer accounts and
credit lines and collects the Companys accounts receivable
balances. Under the terms of the factoring agreement, which
expires on July 11, 2010, the factor remits payments to the
Company on the average due date of each group of invoices
assigned. If a customer fails to pay the factor by the due date,
the Company is charged interest at prime less 1.0%, which was
2.25% at March 29, 2009, until payment is received. The
Company incurred interest expense of $106,000 and $170,000 in
fiscal years
12
2009 and 2008, respectively, as a result of the failure of the
Companys customers to pay the factor by the due date. The
factor bears credit losses with respect to assigned accounts
receivable from approved customers that are within approved
credit limits. The Company bears the responsibility for
adjustments from customers related to returns, allowances,
claims and discounts. The Companys factor may at any time
terminate or limit its approval of shipments to a particular
customer. If such a termination occurs, the Company must either
assume the credit risks for shipments after the date of such
termination or cease shipments to such customer.
Critical
Accounting Policies and Estimates
The listing below, while not inclusive of all of the
Companys accounting policies, sets forth those accounting
policies which the Companys management believes embody the
most significant judgments due to the uncertainties affecting
their application and the likelihood that materially different
amounts would be reported under different conditions or using
different assumptions.
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated balance sheets and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates are made with respect to the allowances related to
accounts receivable for customer deductions for returns,
allowances and disputes. The Company also has a certain amount
of discontinued finished goods which necessitates the
establishment of inventory reserves that are highly subjective.
The Companys impairment test for goodwill is based on
comparing the fair value of each reporting unit of the Company
to such reporting units carrying value. Fair value is
measured using a combination of the income approach, utilizing
the discounted cash flow method that incorporates the
Companys estimates of future revenues and costs, and the
public company comparables approach, utilizing multiples of
profit measures. The estimates that the Company uses to measure
goodwill are consistent with the plans and estimates that the
Company uses to manage its operations and are based on the best
information available as of the date of the measurement. Actual
results could differ from those estimates.
Revenue Recognition: Sales are recorded when
goods are shipped to customers and are reported net of
allowances for estimated returns and allowances in the
consolidated statements of income. Allowances for returns are
estimated based on historical rates. Allowances for returns,
advertising allowances, warehouse allowances and volume rebates
are netted against sales. These allowances are recorded
commensurate with sales activity and the cost of such allowances
is netted against sales in reporting the results of operations.
Shipping and handling costs, net of amounts reimbursed by
customers, are relatively insignificant and are included in net
sales.
Allowances Against Accounts Receivable: The
Companys allowances against accounts receivable are
primarily contractually agreed upon deductions for items such as
advertising and warehouse allowances and volume rebates. These
deductions are recorded throughout the year commensurate with
sales activity. Funding of the majority of the Companys
allowances occurs on a per-invoice basis.
The allowances for customer deductions, which are netted against
accounts receivable in the consolidated balance sheets, consist
of agreed upon advertising support, markdowns and warehouse and
other allowances. Consistent with the guidance provided in Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products)
(EITF 01-9),
released by the Emerging Issues Task Force of the Financial
Accounting Standards Board (FASB), all such
allowances are recorded as direct offsets to sales and such
costs are accrued commensurate with sales activities. When a
customer requests deductions, the allowances are reduced to
reflect such payments.
The Company analyzes the components of the allowances for
customer deductions monthly and adjusts the allowances to the
appropriate levels. The timing of the customer initiated funding
requests for advertising support can cause the net balance in
the allowance account to fluctuate from period to period. The
timing of such funding requests should have no impact on the
consolidated statements of income since such costs are accrued
commensurate with sales activity.
13
The Company factors the majority of its receivables. In the
event a factored receivable becomes uncollectible due to credit
worthiness, the factor bears the risk of loss. The
Companys management must make estimates of the
uncollectiblity of its non-factored accounts receivable.
Management specifically analyzes accounts receivable, historical
bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in its customers
payment terms when evaluating the adequacy of its allowance for
doubtful accounts. The Companys accounts receivable at
March 29, 2009 totaled $19.0 million, net of
allowances of $1.6 million.
Royalty Payments: The Company has entered into
agreements that provide for royalty payments based on a
percentage of sales with certain minimum guaranteed amounts.
These royalty amounts are accrued based upon historical sales
rates adjusted for current sales trends by customers. Total
royalty expenses, net of royalty income, included in cost of
sales amounted to $6.9 million and $4.9 million for
fiscal years 2009 and 2008, respectively.
Inventory Valuation: The preparation of the
Companys financial statements requires careful
determination of the appropriate dollar amount of the
Companys inventory balances. Such amount is presented as a
current asset in the Companys consolidated balance sheets
and is a direct determinant of cost of goods sold in the
consolidated statements of income and, therefore, has a
significant impact on the amount of net income reported in an
accounting period. The basis of accounting for inventories is
cost, which is the sum of expenditures and charges, both direct
and indirect, incurred to bring inventory to its existing
condition and location. The Companys inventories are
stated at the lower of cost or market, with cost determined
using the
first-in,
first-out (FIFO) method, which assumes that
inventory quantities are sold in the order in which they are
manufactured or purchased. The determination of the indirect
charges and their allocation to the Companys finished
goods inventories is complex and requires significant management
judgment and estimates. Differences would result in the
valuation of the Companys inventories and in the amount
and timing of the Companys cost of goods sold and
resulting net income for any period if management made different
judgments or utilized different estimates.
On a periodic basis, management reviews its inventory quantities
on hand for obsolescence, physical deterioration, changes in
price levels and the existence of quantities on hand which may
not reasonably be expected to be used or sold within the normal
operating cycles of the Companys operations. To the extent
that any of these conditions is believed to exist or the market
value of the inventory expected to be realized in the ordinary
course of business is no longer as great as its carrying value,
an allowance against the inventory valuation is established. To
the extent that this allowance is established or increased
during an accounting period, an expense is recorded in cost of
goods sold in the Companys consolidated statements of
income. When inventory for which an allowance has been
established is later sold or is otherwise disposed, the
allowance is reduced accordingly. Significant management
judgment is required in determining the amount and adequacy of
this allowance. In the event that actual results differ from
managements estimates or these estimates and judgments are
revised in future periods, the Company may need to establish
additional allowances which could materially impact the
Companys financial position and results of operations.
As of March 29, 2009, the Companys inventories
totaled $11.8 million, net of allowances for discontinued,
irregular, slow moving and obsolete inventories of
$0.4 million. Management believes that the Companys
inventory allowances are sufficient to result in a net valuation
of the carrying amount of the inventory at lower of cost or
market.
Provisions for Income Taxes: The provisions
for income taxes include all currently payable federal, state
and local taxes that are based upon the Companys taxable
income and the change during the fiscal year in net deferred
income tax assets and liabilities. The Company provides for
deferred income taxes based on the difference between the
financial statement and tax bases of assets and liabilities
using enacted tax rates that will be in effect when the
differences are expected to reverse.
The Companys provision for income taxes on continuing
operations is based upon an effective tax rate, excluding the
effect of the goodwill impairment charge, of 39.4% and 38.6% in
fiscal years 2009 and 2008, respectively. These effective tax
rates are the sum of the top U.S. statutory federal income
tax rate and a composite rate for state income taxes (net of
federal tax benefit) in the various states in which the Company
operates.
Beginning with the Companys adoption on April 2, 2007
of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement of Financial Accounting Standards
(SFAS)
14
No. 109 (FIN 48), the Company
recognizes the effect of income tax positions only if those
positions are more likely than not to be sustained. Recognized
income tax positions are measured at the largest amount that has
a greater than 50% likelihood of being realized. Changes in
recognition or measurement are reflected in the period in which
the change in judgment occurs. Based on its recent evaluation,
the Company has concluded that there are no significant
uncertain tax positions requiring recognition in the
Companys consolidated financial statements. Tax years
still open to federal or state general examination or other
adjustment as of March 29, 2009 include tax years ended
April 2, 2006, April 1, 2007, March 30, 2008 and
March 29, 2009, as well as the tax year ended April 3,
2005 for several states. The Companys policy is to accrue
interest expense and penalties as appropriate on any estimated
unrecognized tax benefits as a charge to interest expense in the
Companys consolidated statements of income. Prior to the
adoption of FIN 48, the Company recognized the effect of
income tax positions only if it was probable that such positions
would be sustained.
Valuation of Long-Lived Assets, Identifiable Intangibles and
Goodwill: The Company reviews for impairment
long-lived assets and certain identifiable intangible assets
whenever events or changes in circumstances indicate that the
carrying amount of any asset may not be recoverable. In the
event of impairment, the asset is written down to its fair
market value. Assets to be disposed of, if any, are recorded at
the lower of net book value or fair market value, less cost to
sell at the date management commits to a plan of disposal, and
are classified as assets held for sale on the consolidated
balance sheets.
The Company reported goodwill of $22.9 million at
March 30, 2008. The Company tests the fair value of the
goodwill of its reporting units annually in a two-step approach.
The first step is the estimation of the fair value of each
reporting unit to ensure that its fair value exceeds its
carrying value. If step one indicates that a potential
impairment exists, the second step is performed to measure the
amount of an impairment charge, if any. In the second step,
these estimated fair values are used as the hypothetical
purchase price for the reporting units, and an allocation of
such hypothetical purchase price is made to the identifiable
tangible and intangible assets and assigned liabilities of the
reporting units. The impairment charge is calculated as the
amount, if any, that the carrying value of the goodwill exceeds
the implied amount of goodwill that results from this
hypothetical purchase price allocation. An impairment test must
be performed more frequently if an event or change in
circumstances occurs that suggest that the fair value of the
goodwill of either of the reporting units of the Company has
more likely than not fallen below its carrying value.
The market capitalization of the Company was below its net book
value for most of the second half of fiscal year 2009, which the
Company concluded was a triggering event that required the
Company to perform an interim impairment test of the goodwill of
its reporting units. As a result of step one of this interim
impairment test, the Company concluded that the fair values of
its two reporting units were below their carrying values,
indicating that the goodwill within these reporting units had
been impaired. In step two of the interim impairment test, the
goodwill of the reporting units was determined to have no
implied value. Accordingly, during fiscal year 2009, the Company
recorded a pre-tax charge of $22.9 million, which
represented the aggregate carrying value of the goodwill of the
Companys reporting units. This impairment charge did not
result in any cash expenditures, did not have an adverse effect
on the covenant calculations under the Companys financing
agreement or the Companys overall compliance with those
covenants and did not affect the Companys cash position,
cash flows from operating activities or availability under its
revolving line of credit.
Recently-Issued
Accounting Standards
Recently Issued Accounting Standards: In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS No. 157),
which defines fair value, establishes a framework for a
reporting entity to measure fair value in GAAP, and expands
disclosure requirements related to fair value measurements. This
statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and for
interim periods within those fiscal years. In February 2008, the
FASB issued FASB Staff Position (FSP)
No. 157-2,
which delayed the effective date of SFAS No. 157 for
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis, to fiscal years
beginning after November 15, 2008. The Company has not yet
determined the impact that the adoption of
SFAS No. 157 will have on its non-financial assets and
liabilities which are not recognized on a recurring basis;
15
however, the Company does not anticipate that the adoption of
SFAS No. 157 will materially impact the Companys
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159). This statement
provides companies an option to report selected financial assets
and liabilities at fair value. SFAS No. 159 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007. Accordingly, on
March 31, 2008, the Company adopted the provisions of
SFAS No. 159. Upon adoption, the Company did not elect
the fair value option for any items within the scope of
SFAS No. 159; therefore, the adoption of
SFAS No. 159 did not have an impact on the
Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS No. 141(R)), which establishes
principles and requirements for the reporting entity in a
business combination, including recognition and measurement in
the financial statements of the identifiable assets acquired,
the liabilities assumed and any non-controlling interest in the
acquiree. This statement also establishes disclosure
requirements to enable financial statement users to evaluate the
nature and financial effects of the business combination.
SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited.
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
See pages 18 and F-1 through F-21 hereof.
|
|
ITEM 9A(T).
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported within the time period specified in the
SECs rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports
filed under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. As of the end of the period
covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the
Companys management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design
and operation of the Companys disclosure controls and
procedures. Based upon and as of the date of that evaluation,
the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and
procedures are effective.
Managements
Annual Report on Internal Control Over Financial
Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) for the Company. With the participation
of the Chief Executive Officer and the Chief Financial Officer,
management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework
and the criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation, management has concluded that internal control over
financial reporting was effective as of March 29, 2009.
The Companys internal control system was designed to
provide reasonable assurance to the Companys management
and board of directors regarding the reliability of financial
reporting and the preparation and fair presentation of financial
statements in accordance with GAAP. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can
provide only a reasonable, rather than absolute, assurance that
the Companys financial statements are free of any material
misstatement, whether caused by error or fraud.
16
This annual report does not include an attestation report of the
Companys registered public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by the companys
registered public accounting firm pursuant to temporary rules of
the SEC that permit the Company to provide only
managements report in this annual report.
Changes
in Internal Control Over Financial Reporting
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the Companys internal
control over financial reporting as required by
Rule 13a-15(d)
and, in connection with such evaluation determined that no
changes occurred during the Companys fourth fiscal quarter
ended March 29, 2009 that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information with respect to the Companys directors and
executive officers will be set forth in the Companys Proxy
Statement for the Annual Meeting of Stockholders to be held in
2009 (the Proxy Statement) under the captions
Election of Directors and Executive
Officers and is incorporated herein by reference. The
information with respect to Item 405 of
Regulation S-K
will be set forth in the Proxy Statement under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance and is incorporated herein by reference. The
information with respect to Item 406 of
Regulation S-K
will be set forth in the Proxy Statement under the caption
Code of Ethics and is incorporated herein by
reference. The information with respect to Item 407 of
Regulation S-K
will be set forth in the Proxy Statement under the captions
Board Committees and Meetings and Report of
the Audit Committee and is incorporated herein by
reference.
|
|
ITEM 11.
|
Executive
Compensation
|
The information set forth under the caption Executive
Compensation in the Proxy Statement is incorporated herein
by reference.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information set forth under the caption Security
Ownership of Certain Beneficial Owners and Management in
the Proxy Statement is incorporated herein by reference.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information set forth under the caption Certain
Relationships and Related Transactions in the Proxy
Statement is incorporated herein by reference.
|
|
ITEM 14.
|
Principal
Accounting Fees and Services
|
The information set forth under the captions Audit
Fees, Audit-Related Fees, Tax
Fees, All Other Fees, and Pre-Approval
Policies and Procedures in the Proxy Statement is
incorporated herein by reference.
17
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1).
Financial Statements
The following consolidated financial statements of the Company
are filed with this report and included in Part II,
Item 8:
- Reports of Independent Registered Public Accounting Firms
- Consolidated Balance Sheets as of March 29, 2009 and
March 30, 2008
|
|
|
|
-
|
Consolidated Statements of Income for the Fiscal Years Ended
March 29, 2009 and March 30, 2008
|
|
|
-
|
Consolidated Statements of Changes in Shareholders Equity
for the Fiscal Years Ended March 29, 2009 and
March 30, 2008
|
|
|
-
|
Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 29, 2009 and March 30, 2008
|
|
|
-
|
Notes to Consolidated Financial Statements
|
(a)(2).
Financial Statement Schedule
The following financial statement schedule of the Company is
filed with this report:
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
Page 19
|
|
All other schedules not listed above have been omitted because
they are not applicable, or the required information is included
in the financial statements or notes thereto.
18
SCHEDULE II
CROWN
CRAFTS, INC. AND SUBSIDIARIES
ANNUAL
REPORT ON
FORM 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
(Reversed from)
|
|
|
|
|
|
End of
|
|
|
|
of Period
|
|
|
Expenses
|
|
|
Deductions(1)
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Accounts Receivable Valuation Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
20
|
|
|
$
|
28
|
|
|
$
|
12
|
|
|
$
|
4
|
|
Allowance for customer deductions
|
|
$
|
969
|
|
|
$
|
4,387
|
|
|
$
|
4,682
|
|
|
$
|
1,264
|
|
Year Ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
4
|
|
|
$
|
(5
|
)
|
|
$
|
1
|
|
|
$
|
0
|
|
Allowance for customer deductions
|
|
$
|
1,264
|
|
|
$
|
5,002
|
|
|
$
|
4,685
|
|
|
$
|
1,581
|
|
Inventory Valuation Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discontinued and irregulars
|
|
$
|
344
|
|
|
$
|
(19
|
)
|
|
$
|
|
|
|
$
|
325
|
|
Year Ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discontinued and irregulars
|
|
$
|
325
|
|
|
$
|
86
|
|
|
$
|
|
|
|
$
|
411
|
|
|
|
|
(1) |
|
Deductions from the allowance for doubtful accounts represent
the amount of accounts written off reduced by any subsequent
recoveries. |
19
(a)(3).
Exhibits
Exhibits required to be filed by Item 601 of SEC
Regulation S-K
are included as Exhibits to this report as follows:
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
2
|
.1
|
|
|
|
Asset Purchase Agreement dated as of November 5, 2007 by and
between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(8)
|
|
3
|
.1
|
|
|
|
Amended and Restated Certificate of Incorporation of the
Company.(3)
|
|
3
|
.2
|
|
|
|
Bylaws of the Company.(3)
|
|
4
|
.1
|
|
|
|
Instruments defining the rights of security holders are
contained in the Amended and Restated Certificate of
Incorporation of the Company.(3)
|
|
4
|
.2
|
|
|
|
Instruments defining the rights of security holders are
contained in the Bylaws of the Company(3)
|
|
4
|
.3
|
|
|
|
Amended and Restated Rights Agreement dated as of August 6, 2003
between the Company and SunTrust Bank, as Rights Agent,
including the Form of Right Certificate (Exhibit A) and the
Summary of Rights to Purchase Common Shares (Exhibit B).(2)
|
|
4
|
.4
|
|
|
|
Amendment No. 1 to Amended and Restated Rights Agreement dated
as of July 12, 2006 between the Company and Computershare
Investor Services, LLC.(5)
|
|
4
|
.5
|
|
|
|
Crown Crafts, Inc. 2006 Omnibus Incentive Plan.(6)
|
|
4
|
.6
|
|
|
|
Form of Incentive Stock Option Agreement.(6)
|
|
4
|
.7
|
|
|
|
Form of Non-Qualified Stock Option Agreement (Employees).(6)
|
|
4
|
.8
|
|
|
|
Form of Non-Qualified Stock Option Agreement (Directors).(6)
|
|
4
|
.9
|
|
|
|
Form of Restricted Stock Grant Agreement (Form A).(6)
|
|
4
|
.10
|
|
|
|
Form of Restricted Stock Grant Agreement (Form B).(6)
|
|
4
|
.11
|
|
|
|
Amendment No. 2 to Amended and Restated Rights Agreement dated
as of August 30, 2006 between the Company and Computershare
Investor Services, LLC.(7)
|
|
4
|
.12
|
|
|
|
Amendment No. 3 to Amended and Restated Rights Agreement dated
as of April 14, 2009 between the Company and Computershare Trust
Company, N.A.(13)
|
|
10
|
.1
|
|
|
|
Employment Agreement dated July 23, 2001 by and between the
Company and E. Randall Chestnut.(1)
|
|
10
|
.2
|
|
|
|
Amended and Restated Severance Protection Agreement dated April
20, 2004 by and between the Company and E. Randall Chestnut.(4)
|
|
10
|
.3
|
|
|
|
Amended and Restated Employment Agreement dated April 20, 2004
by and between the Company and Amy Vidrine Samson.(4)
|
|
10
|
.4
|
|
|
|
Amended and Restated Employment Agreement dated April 20, 2004
by and between the Company and Nanci Freeman.(4)
|
|
10
|
.5
|
|
|
|
Financing Agreement dated as of July 11, 2006 by and among the
Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts
Infant Products, Inc. and The CIT Group/Commercial Services,
Inc.(5)
|
|
10
|
.6
|
|
|
|
Stock Pledge Agreement dated as of July 11, 2006 by and among
the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts
Infant Products, Inc. and The CIT Group/Commercial Services,
Inc.(5)
|
|
10
|
.7
|
|
|
|
Mortgage, Assignment of Leases and Rents, Fixture Filing and
Security Agreement dated July 11, 2006 from Churchill Weavers,
Inc. to The CIT Group/Commercial Services, Inc.(5)
|
|
10
|
.8
|
|
|
|
Secured Subordinated Promissory Note dated July 11, 2006 issued
by the Company to Wachovia Bank, National Association.(5)
|
|
10
|
.9
|
|
|
|
Secured Subordinated Promissory Note dated July 11, 2006 issued
by the Company to Banc of America Strategic Solutions, Inc.(5)
|
|
10
|
.10
|
|
|
|
Secured Subordinated Promissory Note dated July 11, 2006 issued
by the Company to The Prudential Insurance Company of America.(5)
|
|
10
|
.11
|
|
|
|
Security Agreement dated as of July 11, 2006 by and among the
Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts
Infant Products, Inc. and Wachovia Bank, National Association,
as Agent.(5)
|
20
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
10
|
.12
|
|
|
|
Mortgage, Assignment of Leases and Rents, Fixture Filing and
Security Agreement dated July 11, 2006 from Churchill Weavers,
Inc. to Wachovia Bank, National Association, as Agent.(5)
|
|
10
|
.13
|
|
|
|
Noncompetition and Non-Disclosure Agreement dated as of November
5, 2007 by and between Springs Global US, Inc. and Crown Crafts
Infant Products, Inc.(8)
|
|
10
|
.14
|
|
|
|
Warehousing Agreement dated as of November 5, 2007 by and
between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(8)
|
|
10
|
.15
|
|
|
|
Transition Services Agreement dated as of November 5, 2007 by
and between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(8)
|
|
10
|
.16
|
|
|
|
First Amendment to Financing Agreement dated as of November 5,
2007 by and among Crown Crafts, Inc., Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT
Group/Commercial Services, Inc.(8)
|
|
10
|
.17
|
|
|
|
First Amendment to Mortgage, Assignment of Leases and Rents, and
Security Agreement dated November 5, 2007 from Churchill
Weavers, Inc. to The CIT Group/Commercial Services, Inc.(8)
|
|
10
|
.18
|
|
|
|
Letter Agreement dated as of January 29, 2008 between the
Company and Wellington Management Company, LLP.(9)
|
|
10
|
.19
|
|
|
|
Governance and Standstill Agreement dated July 1, 2008 by and
among Crown Crafts, Inc., Wynnefield Partners Small Cap Value,
L.P., Wynnefield Partners Small Cap Value, L.P. I,
Wynnefield Partners Small Cap Value Offshore Fund, Ltd., Channel
Partnership II, L.P., Wynnefield Capital Management, LLC,
Wynnefield Capital, Inc., Nelson Obus and Joshua Landes.(10)
|
|
10
|
.20
|
|
|
|
Employment Agreement dated November 6, 2008 by and between the
Company and Olivia W. Elliott(11)
|
|
10
|
.21
|
|
|
|
First Amendment to Employment Agreement dated November 6, 2008
by and between the Company and E. Randall Chestnut.(12)
|
|
10
|
.22
|
|
|
|
First Amendment to Amended and Restated Severance Protection
Agreement dated November 6, 2008 by and between the Company and
E. Randall Chestnut.(12)
|
|
10
|
.23
|
|
|
|
First Amendment to Amended and Restated Employment Agreement
dated November 6, 2008 by and between the Company and Amy
Vidrine Samson.(12)
|
|
10
|
.24
|
|
|
|
First Amendment to Amended and Restated Employment Agreement
dated November 6, 2008 by and between the Company and Nanci
Freeman.(12)
|
|
14
|
.1
|
|
|
|
Code of Ethics.(4)
|
|
21
|
.1
|
|
|
|
Subsidiaries of the Company.(14)
|
|
23
|
.1
|
|
|
|
Consent of KPMG LLP.(14)
|
|
23
|
.2
|
|
|
|
Consent of Deloitte & Touche LLP.(14)
|
|
31
|
.1
|
|
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys
Chief Executive Officer.(14)
|
|
31
|
.2
|
|
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys
Chief Financial Officer.(14)
|
|
32
|
.1
|
|
|
|
Section 1350 Certification by the Companys Chief Executive
Officer.(14)
|
|
32
|
.2
|
|
|
|
Section 1350 Certification by the Companys Chief Financial
Officer.(14)
|
|
|
|
(1) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated July 23, 2001. |
|
(2) |
|
Incorporated herein by reference to Registrants
Registration Statement on
Form 8-A/A
dated August 13, 2003. |
|
(3) |
|
Incorporated herein by reference to Registrants Quarterly
Report on
Form 10-Q
for the quarter ended December 28, 2003. |
|
(4) |
|
Incorporated herein by reference to Registrants Annual
Report on
Form 10-K
for the fiscal year ended March 28, 2004. |
|
(5) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated July 17, 2006. |
|
(6) |
|
Incorporated herein by reference to Registrants
Registration Statement on
Form S-8
dated August 24, 2006. |
21
|
|
|
(7) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated August 30, 2006. |
|
(8) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated November 9, 2007. |
|
(9) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated January 29, 2008. |
|
(10) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated July 1, 2008. |
|
(11) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K/A
dated November 7, 2008. |
|
(12) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated November 7, 2008. |
|
(13) |
|
Incorporated herein by reference to Registrants Current
Report on
Form 8-K
dated April 16, 2009. |
|
(14) |
|
Filed herewith. |
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CROWN CRAFTS, INC.
|
|
|
|
By:
|
/s/ E.
Randall Chestnut
|
E. Randall Chestnut
Chairman of the Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ E.
Randall Chestnut
E.
Randall Chestnut
|
|
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
|
|
June 23, 2009
|
|
|
|
|
|
/s/ William
T. Deyo, Jr.
William
T. Deyo, Jr.
|
|
Director
|
|
June 23, 2009
|
|
|
|
|
|
/s/ Sidney
Kirschner
Sidney
Kirschner
|
|
Director
|
|
June 23, 2009
|
|
|
|
|
|
/s/ Zenon
S. Nie
Zenon
S. Nie
|
|
Director
|
|
June 23, 2009
|
|
|
|
|
|
/s/ Donald
Ratajczak
Donald
Ratajczak
|
|
Director
|
|
June 23, 2009
|
|
|
|
|
|
/s/ Joseph
Kling
Joseph
Kling
|
|
Director
|
|
June 23, 2009
|
|
|
|
|
|
/s/ Frederick
G. Wasserman
Frederick
G. Wasserman
|
|
Director
|
|
June 23, 2009
|
|
|
|
|
|
/s/ Olivia
W. Elliott
Olivia
W. Elliott
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
June 23, 2009
|
23
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
24
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Crown Crafts, Inc.
We have audited the accompanying consolidated balance sheet of
Crown Crafts, Inc. and subsidiaries as of March 29, 2009,
and the related consolidated statements of income, changes in
shareholders equity, and cash flows for the year then
ended. In connection with our audit of the consolidated
financial statements, we also have audited the financial
statement Schedule II included in Item 15. These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Crown Crafts, Inc. and subsidiaries as of
March 29, 2009, and the results of their operations and
their cash flows for the year then ended, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
June 26, 2009
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Crown Crafts, Inc.
Gonzales, Louisiana
We have audited the accompanying consolidated balance sheet of
Crown Crafts, Inc. and subsidiaries (the Company) as
of March 30, 2008, and the related consolidated statements
of income, changes in shareholders equity, and cash flows
for the year then ended. Our audit also included the financial
statement schedule for the year ended March 30, 2008 listed
at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of March 30, 2008, and the results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule for the year ended March 30, 2008, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ DELOITTE &
TOUCHE LLP
June 9, 2008
F-2
CROWN
CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
March 29, 2009 and March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
|
|
(Amounts in thousands, except
|
|
|
|
share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,249
|
|
|
$
|
7,930
|
|
Accounts receivable (net of allowances of $1,581 at
March 29, 2009 and $1,268 at March 30, 2008):
|
|
|
|
|
|
|
|
|
Due from factor
|
|
|
17,341
|
|
|
|
16,081
|
|
Other
|
|
|
1,613
|
|
|
|
2,197
|
|
Inventories, net
|
|
|
11,751
|
|
|
|
13,777
|
|
Prepaid expenses
|
|
|
1,070
|
|
|
|
1,064
|
|
Assets held for sale
|
|
|
550
|
|
|
|
663
|
|
Deferred income taxes
|
|
|
921
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
48,495
|
|
|
|
42,597
|
|
Property, plant and equipment at cost:
|
|
|
|
|
|
|
|
|
Vehicle
|
|
|
44
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
205
|
|
|
|
203
|
|
Machinery and equipment
|
|
|
2,476
|
|
|
|
2,241
|
|
Furniture and fixtures
|
|
|
765
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,490
|
|
|
|
3,186
|
|
Less accumulated depreciation
|
|
|
2,816
|
|
|
|
2,597
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
|
674
|
|
|
|
589
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
|
|
|
|
22,884
|
|
Intangible assets, net
|
|
|
5,515
|
|
|
|
7,276
|
|
Deferred income taxes
|
|
|
1,655
|
|
|
|
|
|
Other
|
|
|
188
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
7,358
|
|
|
|
30,291
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
56,527
|
|
|
$
|
73,477
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,118
|
|
|
$
|
5,614
|
|
Accrued wages and benefits
|
|
|
894
|
|
|
|
1,179
|
|
Accrued royalties
|
|
|
1,056
|
|
|
|
1,023
|
|
Other accrued liabilities
|
|
|
813
|
|
|
|
711
|
|
Current maturities of long-term debt
|
|
|
1,667
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,548
|
|
|
|
11,031
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
23,568
|
|
|
|
22,311
|
|
Deferred income taxes
|
|
|
|
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
23,568
|
|
|
|
22,713
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value per share;
Authorized 1,000,000 shares; No shares issued at
March 29, 2009 and March 30, 2008
|
|
|
|
|
|
|
|
|
Common stock $0.01 par value per share;
Authorized 74,000,000 shares; Issued 10,098,441 shares
at March 29, 2009 and 10,039,942 shares at
March 30, 2008
|
|
|
101
|
|
|
|
100
|
|
Additional paid-in capital
|
|
|
39,995
|
|
|
|
39,247
|
|
Treasury stock at cost
889,051 shares at March 29, 2009 and
562,647 shares at March 30, 2008
|
|
|
(3,056
|
)
|
|
|
(2,071
|
)
|
Retained earnings (accumulated deficit)
|
|
|
(14,629
|
)
|
|
|
2,457
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
22,411
|
|
|
|
39,733
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
56,527
|
|
|
$
|
73,477
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
CROWN
CRAFTS, INC. AND SUBSIDIARIES
Fiscal
years ended March 29, 2009 and March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
87,398
|
|
|
$
|
74,887
|
|
Cost of products sold
|
|
|
68,488
|
|
|
|
56,281
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,910
|
|
|
|
18,606
|
|
Marketing and administrative expenses
|
|
|
10,954
|
|
|
|
10,698
|
|
Goodwill impairment charge
|
|
|
22,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(14,928
|
)
|
|
|
7,908
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,089
|
)
|
|
|
(775
|
)
|
Other net
|
|
|
108
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(15,909
|
)
|
|
|
7,259
|
|
Income tax expense
|
|
|
1,133
|
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations after income taxes
|
|
|
(17,042
|
)
|
|
|
4,431
|
|
Loss from discontinued operations net of income taxes
|
|
|
(44
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(17,086
|
)
|
|
$
|
4,353
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
9,317
|
|
|
|
9,888
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
9,317
|
|
|
|
10,165
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(1.83
|
)
|
|
$
|
0.45
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per share
|
|
$
|
(1.83
|
)
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(1.83
|
)
|
|
$
|
0.44
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Total diluted (loss) earnings per share
|
|
$
|
(1.83
|
)
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
CROWN
CRAFTS, INC. AND SUBSIDIARIES
Fiscal
years ended March 29, 2009 and March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
Common Shares
|
|
|
Treasury Shares
|
|
|
Additional
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Equity
|
|
|
|
(Dollar amounts in thousands)
|
|
|
Balances April 1, 2007
|
|
|
10,003,692
|
|
|
$
|
100
|
|
|
|
|
|
|
$
|
|
|
|
$
|
38,619
|
|
|
$
|
(1,896
|
)
|
|
$
|
36,823
|
|
Issuance of shares
|
|
|
36,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
40
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588
|
|
|
|
|
|
|
|
588
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(562,647
|
)
|
|
|
(2,071
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,071
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,353
|
|
|
|
4,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances March 30, 2008
|
|
|
10,039,942
|
|
|
|
100
|
|
|
|
(562,647
|
)
|
|
|
(2,071
|
)
|
|
|
39,247
|
|
|
|
2,457
|
|
|
|
39,733
|
|
Issuance of shares
|
|
|
58,499
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
20
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707
|
|
|
|
|
|
|
|
707
|
|
Tax effect of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(326,404
|
)
|
|
|
(985
|
)
|
|
|
|
|
|
|
|
|
|
|
(985
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,086
|
)
|
|
|
(17,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances March 29, 2009
|
|
|
10,098,441
|
|
|
$
|
101
|
|
|
|
(889,051
|
)
|
|
$
|
(3,056
|
)
|
|
$
|
39,995
|
|
|
$
|
(14,629
|
)
|
|
$
|
22,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
CROWN
CRAFTS, INC. AND SUBSIDIARIES
Fiscal
years ended March 29, 2009 and March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(17,086
|
)
|
|
$
|
4,353
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
285
|
|
|
|
349
|
|
Amortization of intangibles
|
|
|
1,745
|
|
|
|
784
|
|
Impairment charge goodwill
|
|
|
22,884
|
|
|
|
|
|
Impairment charge assets held for sale
|
|
|
94
|
|
|
|
|
|
Deferred income taxes
|
|
|
(2,072
|
)
|
|
|
1,227
|
|
(Gain) loss on sale of property, plant and equipment
|
|
|
(65
|
)
|
|
|
9
|
|
Discount accretion
|
|
|
244
|
|
|
|
227
|
|
Stock-based compensation
|
|
|
707
|
|
|
|
588
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(618
|
)
|
|
|
(5,539
|
)
|
Inventories, net
|
|
|
2,026
|
|
|
|
(2,551
|
)
|
Prepaid expenses
|
|
|
(6
|
)
|
|
|
249
|
|
Other assets
|
|
|
(99
|
)
|
|
|
51
|
|
Accounts payable
|
|
|
504
|
|
|
|
2,062
|
|
Accrued liabilities
|
|
|
(150
|
)
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
8,393
|
|
|
|
2,678
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(372
|
)
|
|
|
(188
|
)
|
Acquisition costs to purchase Baby Products Line from Springs
Global
|
|
|
|
|
|
|
(356
|
)
|
Proceeds from disposition of assets
|
|
|
86
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(286
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(2,503
|
)
|
|
|
(852
|
)
|
Proceeds under revolving line of credit, net
|
|
|
2,680
|
|
|
|
8,627
|
|
Purchase of treasury stock
|
|
|
(985
|
)
|
|
|
(2,071
|
)
|
Issuance of common stock
|
|
|
20
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(788
|
)
|
|
|
5,744
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
7,319
|
|
|
|
7,897
|
|
Cash and cash equivalents at beginning of period
|
|
|
7,930
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
15,249
|
|
|
$
|
7,930
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
2,854
|
|
|
$
|
1,177
|
|
Interest paid
|
|
|
746
|
|
|
|
475
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
Debt issued to purchase Baby Products Line from Springs Global:
|
|
|
|
|
|
|
|
|
Funded through revolving line of credit
|
|
$
|
|
|
|
$
|
6,014
|
|
Funded through long-term debt
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Total debt issued to purchase Baby Products Line from Springs
Global
|
|
$
|
|
|
|
$
|
11,014
|
|
|
|
|
|
|
|
|
|
|
Adjustment to purchase price of Springs Baby Products
|
|
|
|
|
|
|
|
|
from resolution of pre-acquisition contingency
|
|
$
|
(58
|
)
|
|
$
|
|
|
See notes to consolidated financial statements.
F-6
Crown
Crafts, Inc. and Subsidiaries
Fiscal Years Ended March 29, 2009 and March 30,
2008
|
|
Note 1
|
Description
of Business
|
Crown Crafts, Inc. and its subsidiaries (collectively, the
Company) operate in the infant and toddler products
segment within the consumer products industry. The infant and
toddler products segment consists of infant and toddler bedding,
infant bibs and related soft goods and accessories. Sales of the
Companys products are generally made directly to
retailers, primarily mass merchants, chain stores, juvenile
specialty stores, internet accounts, wholesale clubs and
catalogue and direct mail houses.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Basis of Presentation: The consolidated
financial statements include the accounts of the Company and
have been prepared in conformity with accounting principles
generally accepted in the United States of America
(GAAP). All significant intercompany balances and
transactions are eliminated in consolidation.
The Companys fiscal year ends on the Sunday nearest
March 31. Fiscal years are designated in the consolidated
financial statements and notes thereto by reference to the
calendar year within which the fiscal year ends. The
consolidated financial statements encompass 52 weeks for
fiscal years 2009 and 2008.
Use of Estimates: The preparation of financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated balance sheets and
the reported amounts of revenues and expenses during the
reporting period. Significant estimates are made with respect to
the allowances related to accounts receivable for customer
deductions for returns, allowances and disputes. The Company
also has a certain amount of discontinued finished goods which
necessitates the establishment of inventory reserves that are
highly subjective.
The Companys impairment test for goodwill is based on
comparing the fair value of each reporting unit of the Company
to such reporting units carrying value. Fair value is
measured using a combination of the income approach, utilizing
the discounted cash flow method that incorporates the
Companys estimates of future revenues and costs, and the
public company comparables approach, utilizing multiples of
profit measures. The estimates that the Company uses to measure
goodwill are consistent with the plans and estimates that the
Company uses to manage its operations and are based on the best
information available as of the date of the measurement. Actual
results could differ from those estimates.
Cash and Cash Equivalents: The Company
considers all highly-liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Financial Instruments: The following methods
and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to
estimate that value:
|
|
|
|
|
Cash and cash equivalents, accounts receivable and accounts
payable For those short term instruments, the
carrying value is a reasonable estimate of fair value.
|
|
|
|
Long term debt The carrying value of the
Companys long term debt approximates fair value because
interest rates under the Companys borrowings are variable,
based on prevailing market rates.
|
Depreciation and Amortization: Depreciation of
property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the
respective assets. Estimated useful lives are three to seven and
one-half years for machinery and equipment, five years for data
processing equipment and eight years for furniture and fixtures.
The cost of improvements to leased premises is amortized over
the shorter of the estimated life of the improvement or the term
of the lease.
Revenue Recognition: Sales are recorded when
goods are shipped to customers and are reported net of
allowances for estimated returns and allowances in the
consolidated statements of income. Allowances for returns
F-7
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
are estimated based on historical rates. Allowances for returns,
advertising allowances, warehouse allowances and volume rebates
are netted against sales. These allowances are recorded
commensurate with sales activity and the cost of such allowances
is netted against sales in reporting the results of operations.
Shipping and handling costs, net of amounts reimbursed by
customers, are relatively insignificant and are included in net
sales.
Allowances Against Accounts Receivable: The
Companys allowances against accounts receivable are
primarily contractually agreed upon deductions for items such as
advertising and warehouse allowances and volume rebates. These
deductions are recorded throughout the year commensurate with
sales activity. Funding of the majority of the Companys
allowances occurs on a per-invoice basis.
The allowances for customer deductions, which are netted against
accounts receivable in the consolidated balance sheets, consist
of agreed upon advertising support, markdowns and warehouse and
other allowances. Consistent with the guidance provided in Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products)
(EITF 01-9),
released by the Emerging Issues Task Force of the Financial
Accounting Standards Board (FASB), all such
allowances are recorded as direct offsets to sales and such
costs are accrued commensurate with sales activities. When a
customer requests deductions, the allowances are reduced to
reflect such payments.
The Company analyzes the components of the allowances for
customer deductions monthly and adjusts the allowances to the
appropriate levels. The timing of the customer initiated funding
requests for advertising support can cause the net balance in
the allowance account to fluctuate from period to period. The
timing of such funding requests should have no impact on the
consolidated statements of income since such costs are accrued
commensurate with sales activity.
The Company factors the majority of its receivables. In the
event a factored receivable becomes uncollectible due to credit
worthiness, the factor bears the risk of loss. The
Companys management must make estimates of the
uncollectiblity of its non-factored accounts receivable.
Management specifically analyzes accounts receivable, historical
bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in its customers
payment terms when evaluating the adequacy of its allowance for
doubtful accounts. The Companys accounts receivable at
March 29, 2009 totaled $19.0 million, net of
allowances of $1.6 million.
Inventory Valuation: Inventories are valued at
the lower of cost or market, where cost is determined using the
first-in,
first-out method.
Valuation of Long-Lived Assets, Identifiable Intangibles and
Goodwill: The Company reviews for impairment
long-lived assets and certain identifiable intangible assets
whenever events or changes in circumstances indicate that the
carrying amount of any asset may not be recoverable. In the
event of impairment, the asset is written down to its fair
market value. Assets to be disposed of, if any, are recorded at
the lower of net book value or fair market value, less cost to
sell at the date management commits to a plan of disposal, and
are classified as assets held for sale on the consolidated
balance sheets.
The Company reported goodwill of $22.9 million at
March 30, 2008. The Company tests the fair value of the
goodwill of its reporting units annually in a two-step approach.
The first step is the estimation of the fair value of each
reporting unit to ensure that its fair value exceeds its
carrying value. If step one indicates that a potential
impairment exists, the second step is performed to measure the
amount of an impairment charge, if any. In the second step,
these estimated fair values are used as the hypothetical
purchase price for the reporting units, and an allocation of
such hypothetical purchase price is made to the identifiable
tangible and intangible assets and assigned liabilities of the
reporting units. The impairment charge is calculated as the
amount, if any, that the carrying value of the goodwill exceeds
the implied amount of goodwill that results from this
hypothetical purchase price allocation. An impairment test must
be performed more frequently if an event or change in
circumstances occurs that suggests that the fair value of the
goodwill of either of the reporting units of the Company has
more likely than not fallen below its carrying value.
F-8
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Provisions for Income Taxes: The provisions
for income taxes include all currently payable federal, state
and local taxes that are based upon the Companys taxable
income and the change during the fiscal year in net deferred
income tax assets and liabilities. The Company provides for
deferred income taxes based on the difference between the
financial statement and tax bases of assets and liabilities
using enacted tax rates that will be in effect when the
differences are expected to reverse.
Beginning with the Companys adoption on April 2, 2007
of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement of Financial Accounting Standards
(SFAS) No. 109
(FIN 48), the Company recognizes the effect
of income tax positions only if those positions are more likely
than not to be sustained. Recognized income tax positions are
measured at the largest amount that has a greater than 50%
likelihood of being realized. Changes in recognition or
measurement are reflected in the period in which the change in
judgment occurs. Based on its recent evaluation, the Company has
concluded that there are no significant uncertain tax positions
requiring recognition in the Companys consolidated
financial statements. Tax years still open to federal or state
general examination or other adjustment as of March 29,
2009 include tax years ended April 2, 2006, April 1,
2007, March 30, 2008 and March 29, 2009, as well as
the tax year ended April 3, 2005 for several states. The
Companys policy is to accrue interest expense and
penalties as appropriate on any estimated unrecognized tax
benefits as a appropriate on any estimated unrecognized tax
benefits as a charge to interest expense in the Companys
consolidated statements of income.
Segments and Related Information: The Company
operates in one principal segment, infant and toddler products.
These products consist of infant and toddler bedding, infant
bibs and related soft goods and accessories.
Royalty Payments: The Company has entered into
agreements that provide for royalty payments based on a
percentage of sales with certain minimum guaranteed amounts.
These royalty amounts are accrued based upon historical sales
rates adjusted for current sales trends by customers. Total
royalty expense, net of royalty income, included in cost of
sales amounted to $6.9 million and $4.9 million in
2009 and 2008, respectively.
(Loss) Earnings Per Share: (Loss) earnings per
share are calculated in accordance with SFAS No. 128,
Earnings per Share, which requires dual presentation of
basic and diluted earnings per share on the face of the
consolidated statements of income for all entities with complex
capital structures. (Loss) earnings per common share are based
on the weighted average number of shares outstanding during the
period. Basic and diluted weighted average shares are calculated
in accordance with the treasury stock method, which assumes that
the proceeds from the exercise of all options would be used to
repurchase common shares at market value. The number of shares
remaining after the exercise proceeds are exhausted represents
the potentially dilutive effect of the options. The
F-9
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
following table sets forth the computation of basic and diluted
net (loss) income per common share for fiscal years 2009 and
2008.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
(Loss) income from continuing operations
|
|
$
|
(17,042
|
)
|
|
$
|
4,431
|
|
(Loss) from discontinued operations
|
|
|
(44
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) income, basic and diluted
|
|
$
|
(17,086
|
)
|
|
$
|
4,353
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,317
|
|
|
|
9,888
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
9,317
|
|
|
|
10,165
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.83
|
)
|
|
$
|
0.45
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1.83
|
)
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.83
|
)
|
|
$
|
0.44
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1.83
|
)
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
Recently-Issued Accounting Standards: In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS No. 157),
which defines fair value, establishes a framework for a
reporting entity to measure fair value in generally accepted
accounting principles, and expands disclosure requirements
related to fair value measurements. This statement is effective
for financial statements issued for fiscal years beginning after
November 15, 2007 and for interim periods within those
fiscal years. In February 2008, the FASB issued FASB Staff
Position (FSP)
No. 157-2,
which delayed the effective date of SFAS No. 157 for
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis, to fiscal years
beginning after November 15, 2008. The Company has not yet
determined the impact that the adoption of
SFAS No. 157 will have on its non-financial assets and
liabilities which are not recognized on a recurring basis;
however, the Company does not anticipate that the adoption of
SFAS No. 157 will materially impact the Companys
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159). This
statement provides companies an option to report selected
financial assets and liabilities at fair value.
SFAS No. 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
Accordingly, on March 31, 2008, the Company adopted the
provisions of SFAS No. 159. Upon adoption, the Company
did not elect the fair value option for any items within the
scope of SFAS No. 159; therefore, the adoption of
SFAS No. 159 did not have an impact on the
Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS No. 141(R)), which establishes
principles and requirements for the reporting entity in a
business combination, including recognition and measurement in
the financial statements of the identifiable assets acquired,
the liabilities assumed and any non-controlling interest in the
acquiree. This statement also establishes disclosure
F-10
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
requirements to enable financial statement users to evaluate the
nature and financial effects of the business combination.
SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited.
On November 5, 2007, Crown Crafts Infant Products, Inc.
(CCIP), a wholly-owned subsidiary of the Company,
acquired certain assets from, and assumed certain liabilities
of, Springs Global US, Inc. (Springs Global) with
respect to the baby products line of Springs Global. The initial
purchase price was reduced upon the completion of a final
valuation of the inventory purchased. The Company also
capitalized the direct costs associated with the acquisition and
in fiscal year 2009 resolved a pre-acquisition contingency for a
total capitalized acquisition cost as follows (in thousands):
|
|
|
|
|
|
|
Amount
|
|
|
Initial purchase price
|
|
$
|
12,393
|
|
Refund upon inventory valuation
|
|
|
(1,379
|
)
|
Resolution of pre-acquisition contingency
|
|
|
(58
|
)
|
Capitalized direct acquisition costs
|
|
|
356
|
|
|
|
|
|
|
Total
|
|
$
|
11,312
|
|
|
|
|
|
|
The fair values of the assets acquired and liabilities assumed
were determined by the Company with the assistance of an
independent third party. The Companys allocation of the
capitalized acquisition cost is as follows (in thousands):
|
|
|
|
|
|
|
Amount
|
|
|
Inventory
|
|
$
|
4,082
|
|
Intangible assets
|
|
|
7,376
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
11,458
|
|
|
|
|
|
|
Customer allowances
|
|
|
146
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
146
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
11,312
|
|
|
|
|
|
|
The Springs Global baby products line represented less than 2%
of the total revenues of Springs Global, and separate financial
statements for the baby products line were not historically
prepared. Nonetheless, in connection with the acquisition, the
management of Springs Global has furnished to the Company
unaudited, abbreviated statements of revenues and direct
expenses with respect to the baby products line of Springs
Global for the nine-month period ended September 29, 2007.
These statements excluded charges for corporate overhead,
interest expense and income taxes, but included estimates of
charges for customer service, cash management, purchasing,
accounting and information technology services that were
directly charged to the baby products line
and/or
allocated to it based on a relative percentage of sales in the
baby products line to the total sales of Springs Global. The
periods covered by these statements are not coterminous with the
Companys fiscal year ended March 30, 2008.
Additionally, such charges and allocations are not necessarily
indicative of the costs that would have been incurred if the
Springs Global baby products line had been a separate entity or
if the business had been owned and operated by the Company.
Certain of the Companys costs incurred to operate the
Springs Global baby products line are anticipated to be less
than those incurred by Springs Global; however, no reliably
verifiable information is available
F-11
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
to adjust the estimated results of operations of the Springs
Global baby products line, and no adjustments have been made to
give effect to these anticipated reduced costs.
For pro forma purposes, the revenues and expenses reported by
the Springs Global baby products line for the nine-month period
ended September 29, 2007 were prorated to the seven-month
period ending on the acquisition date and were combined with the
revenues and expenses reported by the Company for the fiscal
year ended March 30, 2008. This activity was performed to
provide the following unaudited pro forma financial information,
which presents a summary of the Companys consolidated
results of operations for the fiscal year ended March 30,
2008, as if the acquisition of the baby products line from
Springs Global had occurred on April 2, 2007. This pro
forma financial information includes adjustments to reflect the
amortization of the intangible assets acquired and an estimate
of the interest expense and income taxes that would have been
incurred from April 2, 2007 to the acquisition date, but is
not otherwise necessarily indicative of the consolidated results
of operations that would have been reported by the Company if
the acquisition had occurred on April 2, 2007 (in
thousands):
|
|
|
|
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
88,908
|
|
Total operating expenses
|
|
|
82,023
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
3,656
|
|
|
|
|
|
|
Income from continuing operations per share
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
Note 4
|
Discontinued
Operations
|
On February 2, 2007, the Company announced that it would
liquidate Churchill Weavers, Inc. (Churchill), a
wholly-owned subsidiary of the Company. During the first quarter
of fiscal year 2008, Churchills operations ceased and all
employees were terminated. The Company is actively marketing
Churchills land and building for sale, and a portion of
the property was sold in July 2008. In accordance with
accounting guidelines, the operations of Churchill are
classified as discontinued operations in the consolidated
statements of income. The Churchill property is recorded at the
lower of net book value or fair value, less cost to sell, and is
classified as assets held for sale in the consolidated balance
sheets. Management of the Company has determined that the fair
value, less cost to sell, of the property had fallen below its
net book value as of March 29, 2009. Accordingly, during
fiscal year 2009, the Company recorded a pre-tax impairment
charge of $94,000, which did not result in any cash
expenditures, did not have an adverse effect on the
Companys compliance with the covenants under its financing
agreement and did not affect the Companys cash position,
cash flows from operating activities or availability under its
revolving line of credit.
F-12
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth the loss from discontinued
operations for fiscal years 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands)
|
|
|
Loss from discontinued operations
|
|
$
|
(48
|
)
|
|
$
|
(155
|
)
|
Gain (loss) from sale of property
|
|
|
67
|
|
|
|
(5
|
)
|
Impairment charge
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(75
|
)
|
|
$
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(31
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
$
|
(44
|
)
|
|
$
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 5
|
Goodwill
and Other Intangible Assets
|
Goodwill: The Company reported goodwill of
$22.9 million at March 30, 2008. The Company tests the
fair value of the goodwill of its reporting units annually in a
two-step approach. The first step is the estimation of the fair
value of each reporting unit to ensure that its fair value
exceeds its carrying value. If step one indicates that a
potential impairment exists, the second step is performed to
measure the amount of an impairment charge, if any. In the
second step, these estimated fair values are used as the
hypothetical purchase price for the reporting units, and an
allocation of such hypothetical purchase price is made to the
identifiable tangible and intangible assets and assigned
liabilities of the reporting units. The impairment charge is
calculated as the amount, if any, that the carrying value of the
goodwill exceeds the implied amount of goodwill that results
from this hypothetical purchase price allocation. An impairment
test must be performed more frequently if an event or change in
circumstances occurs that suggest that the fair value of the
goodwill of either of the reporting units of the Company has
more likely than not fallen below its carrying value.
The market capitalization of the Company was below its net book
value for most of the second half of fiscal year 2009, which the
Company concluded was a triggering event that required the
Company to perform an interim impairment test of the goodwill of
its reporting units. As a result of step one of this interim
impairment test, the Company concluded that the fair values of
its two reporting units were below their carrying values,
indicating that the goodwill within these reporting units had
been impaired. In step two of the interim impairment test, the
goodwill of the reporting units was were determined to have no
implied value. Accordingly, during fiscal year 2009, the Company
recorded a pre-tax charge of $22.9 million, which
represented the aggregate carrying value of the goodwill of the
Companys reporting units. This impairment charge did not
result in any cash expenditures and did not have an adverse
effect on the covenant calculations under the Companys
financing agreement.
F-13
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Other Intangible Assets: Other intangible
assets, their estimated useful life, accumulated amortization as
of March 29, 2009 and amortization expense for fiscal years
2009 and 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
Amortization at
|
|
|
Amortization
|
|
|
|
Carrying
|
|
|
Useful
|
|
|
March 29,
|
|
|
Expense
|
|
|
|
Amount
|
|
|
Life
|
|
|
2009
|
|
|
FY 2009
|
|
|
FY 2008
|
|
|
Springs acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses & existing designs
|
|
$
|
1,655
|
|
|
|
2 years
|
|
|
$
|
1,172
|
|
|
$
|
827
|
|
|
$
|
345
|
|
Licenses & future designs
|
|
|
1,847
|
|
|
|
4 years
|
|
|
|
654
|
|
|
|
462
|
|
|
|
192
|
|
Non-compete
|
|
|
115
|
|
|
|
4 years
|
|
|
|
41
|
|
|
|
29
|
|
|
|
12
|
|
Customer relationships
|
|
|
3,759
|
|
|
|
10 years
|
|
|
|
538
|
|
|
|
378
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Springs acquisition
|
|
|
7,376
|
|
|
|
|
|
|
|
2,405
|
|
|
|
1,696
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquired intangible assets
|
|
|
600
|
|
|
|
15 years
|
|
|
|
120
|
|
|
|
38
|
|
|
|
74
|
|
Other intangible assets
|
|
|
81
|
|
|
|
10 years
|
|
|
|
17
|
|
|
|
11
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
$
|
8,057
|
|
|
|
|
|
|
$
|
2,542
|
|
|
$
|
1,745
|
|
|
$
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth estimated amortization expense for
the following fiscal years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Springs acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses & existing designs
|
|
$
|
483
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Licenses & future designs
|
|
|
461
|
|
|
|
461
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
Non-compete
|
|
|
29
|
|
|
|
29
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Springs acquisition
|
|
|
1,348
|
|
|
|
865
|
|
|
|
661
|
|
|
|
375
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquired intangible assets
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
Other intangible assets
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated amortization expense
|
|
$
|
1,391
|
|
|
$
|
908
|
|
|
$
|
704
|
|
|
$
|
418
|
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major classes of inventory were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
|
Raw Materials
|
|
$
|
30
|
|
|
$
|
40
|
|
Finished Goods
|
|
|
11,721
|
|
|
|
13,737
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
11,751
|
|
|
$
|
13,777
|
|
|
|
|
|
|
|
|
|
|
Inventory is net of allowances for inventories classified as
irregular or discontinued of $0.4 million at March 29,
2009 and $0.3 million at March 30, 2008. When
inventory for which an allowance has been established is later
sold or is otherwise disposed, the allowance is reduced
accordingly.
|
|
Note 7
|
Financing
Arrangements
|
Factoring Agreement: The Company assigns the
majority of its trade accounts receivable to a commercial
factor. Under the terms of the factoring agreement, which
expires in July 2010, the factor remits payments to the Company
on the average due date of each group of invoices assigned. If a
customer fails to pay the factor on the due
F-14
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
date, the Company is charged interest at prime less 1.0%, which
was 2.25% at March 29, 2009, until payment is received. The
Company incurred interest expense of $106,000 and $170,000 in
fiscal years 2009 and 2008, respectively, as a result of the
failure of the Companys customers to pay the factor by the
due date. The factor bears credit losses with respect to
assigned accounts receivable that are within approved credit
limits. The Company bears the responsibility for adjustments
from customers related to returns, allowances, claims and
discounts. The factor may at any time limit or terminate its
approval of shipments to a particular customer. If such a
termination were to occur, the Company must either assume the
credit risks for shipments to the customer after the date of
such termination or cease shipments to the customer. Factoring
fees, which are included in marketing and administrative
expenses in the consolidated statements of income, were $352,000
and $246,000, respectively, in 2009 and 2008. There were no
advances from the factor at both March 29, 2009 and
March 30, 2008.
Notes Payable and Other Credit Facilities: At
March 29, 2009 and March 30, 2008, long term debt of
the Company consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
|
Revolving line of credit
|
|
$
|
20,062
|
|
|
$
|
17,383
|
|
Term loan
|
|
|
1,667
|
|
|
|
4,167
|
|
Non-interest bearing notes
|
|
|
4,000
|
|
|
|
4,000
|
|
Original issue discount
|
|
|
(494
|
)
|
|
|
(739
|
)
|
Capital leases
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,235
|
|
|
|
24,815
|
|
Less current maturities
|
|
|
1,667
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,568
|
|
|
$
|
22,311
|
|
|
|
|
|
|
|
|
|
|
The Companys credit facilities at March 29, 2009
include the following:
Revolving Line of Credit of up to $26.0 million,
including a $1.5 million
sub-limit
for letters of credit, with an interest rate of prime minus
1.00% (2.25% at March 29, 2009) for base rate
borrowings or LIBOR plus 2.25% (2.75% at March 29, 2009),
maturing on July 11, 2010 and secured by a first lien on
all assets of the Company. There was a balance of
$20.1 million on the revolving line of credit at
March 29, 2009, and the Company had $2.5 million
available under the revolving line of credit based on eligible
accounts receivable and inventory balances as of March 29,
2009. As of March 29, 2009, letters of credit of
$0.5 million were outstanding against the $1.5 million
sub-limit
for letters of credit.
The financing agreement for the $26.0 million revolving
line of credit contains usual and customary covenants for
agreements of that type, including limitations on other
indebtedness, liens, transfers of assets, investments and
acquisitions, merger or consolidation transactions, dividends,
transactions with affiliates and changes in or amendments to the
organizational documents for the Company and its subsidiaries.
The Company was in compliance with these covenants as of
March 29, 2009.
Term Loan of an original amount of $5.0 million,
with an interest rate of prime plus 0.5% (3.75% at
March 29, 2009) and requiring equal monthly
installments of principal until final maturity on
November 1, 2009.
Subordinated Notes of $4.0 million. The notes do not
bear interest and are due in two equal installments of
$2.0 million each, the first of which is payable on
July 11, 2010, and the second of which is payable on
July 11, 2011. The original issue discount of
$1.1 million on this non-interest bearing obligation at a
market interest rate of 7.25% is being amortized over the life
of the notes. The remaining unamortized balance of
$0.5 million is included in the consolidated balance sheet
as of March 29, 2009.
F-15
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Minimum annual maturities of the Companys credit
facilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Revolver
|
|
|
Term Loan
|
|
|
Sub Notes
|
|
|
Total
|
|
|
2010
|
|
$
|
|
|
|
$
|
1,667
|
|
|
$
|
|
|
|
$
|
1,667
|
|
2011
|
|
|
20,062
|
|
|
|
|
|
|
|
2,000
|
|
|
|
22,062
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,062
|
|
|
$
|
1,667
|
|
|
$
|
4,000
|
|
|
$
|
25,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8
|
Related
Party Transactions
|
On February 19, 2008, the Company purchased
141,520 shares of its common stock from E. Randall
Chestnut, the Companys President and Chief Executive
Officer. The shares were repurchased under the Companys
stock repurchase plan at a price of $3.65 per share, the closing
price of the Companys common stock on Friday,
February 15, 2008, which was the most recent trading day
prior to the repurchase. The total purchase price paid to
Mr. Chestnut was approximately $517,000.
The Companys income taxes for fiscal years 2009 and 2008
are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 29, 2009
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Federal
|
|
$
|
2,667
|
|
|
$
|
(1,769
|
)
|
|
$
|
898
|
|
State
|
|
|
507
|
|
|
|
(279
|
)
|
|
|
228
|
|
Other, including foreign
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) on continuing operations
|
|
|
3,181
|
|
|
|
(2,048
|
)
|
|
|
1,133
|
|
Income tax expense (benefit) on discontinued operations
|
|
|
15
|
|
|
|
(46
|
)
|
|
|
(31
|
)
|
Income tax reported in stockholders equity related to
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based compensation
|
|
|
|
|
|
|
22
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax
|
|
$
|
3,196
|
|
|
$
|
(2,072
|
)
|
|
$
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 30, 2008
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Federal
|
|
$
|
1,182
|
|
|
$
|
1,260
|
|
|
$
|
2,442
|
|
State
|
|
|
442
|
|
|
|
(56
|
)
|
|
|
386
|
|
Other, including foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense on continuing operations
|
|
|
1,624
|
|
|
|
1,204
|
|
|
|
2,828
|
|
Income tax expense (benefit) on discontinued operations
|
|
|
(105
|
)
|
|
|
23
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
1,519
|
|
|
$
|
1,227
|
|
|
$
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of March 29, 2009 and March 30, 2008
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Employee benefit accruals
|
|
$
|
342
|
|
|
$
|
440
|
|
Accounts receivable and inventory reserves
|
|
|
579
|
|
|
|
445
|
|
Goodwill
|
|
|
367
|
|
|
|
|
|
Other intangible assets
|
|
|
686
|
|
|
|
207
|
|
State net operating loss carryforwards
|
|
|
1,104
|
|
|
|
855
|
|
Stock-based compensation
|
|
|
626
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
3,704
|
|
|
|
2,288
|
|
Less valuation allowance
|
|
|
(1,104
|
)
|
|
|
(855
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets after valuation allowance
|
|
|
2,600
|
|
|
|
1,433
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
(935
|
)
|
Property, plant and equipment
|
|
|
(24
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(24
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
2,576
|
|
|
$
|
483
|
|
|
|
|
|
|
|
|
|
|
In assessing the probability that the Companys deferred
tax assets will be realized, the Company has considered whether
it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of taxable income during the future periods in which
the temporary differences giving rise to the deferred tax assets
will become deductible. The Company has also considered the
scheduled inclusion into taxable income in future periods of the
temporary differences giving rise to the Companys deferred
tax liabilities. The valuation allowance as of March 29,
2009 and March 30, 2008 was related to the Companys
state net operating loss carryforwards that, in the judgment of
management, are not likely to be realized. The Company utilized
its remaining federal income tax net operating loss
carryforwards of $3.3 million during fiscal year 2008.
Based upon the Companys expectations of the generation of
sufficient taxable income during future periods, the Company
believes that it is more likely than not that the Company will
realize its deferred tax assets, net of the valuation allowance
and the deferred tax liabilities.
Beginning with the Companys adoption on April 2, 2007
of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement of Financial Accounting Standards
(SFAS) No. 109
(FIN 48), the Company recognizes the effect
of income tax positions only if those positions are more likely
than not to be sustained. Recognized income tax positions are
measured at the largest amount that has a greater than 50%
likelihood of being realized. Changes in recognition or
measurement are reflected in the period in which the change in
judgment occurs. Based on its recent evaluation, the Company has
concluded that there are no significant uncertain tax positions
requiring recognition in the Companys consolidated
financial statements. Tax years still open to federal or state
general examination or other adjustment as of March 29,
2009 include tax years ended April 2, 2006, April 1,
2007, March 30, 2008 and March 29, 2009, as well as
the tax year ended April 3, 2005 for several states. The
Companys policy is to accrue interest expense and
penalties as appropriate on any estimated unrecognized tax
benefits as a appropriate on any estimated unrecognized tax
benefits as a charge to interest expense in the Companys
consolidated statements of income.
F-17
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table reconciles income tax expense on income from
continuing operations at the U.S. federal income tax
statutory rate to the net income tax provision reported for
fiscal years 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Tax expense (benefit) at statutory rate (34)%
|
|
$
|
(5,409
|
)
|
|
$
|
2,468
|
|
State income taxes, net of Federal income tax benefit
|
|
|
195
|
|
|
|
292
|
|
Tax credits
|
|
|
(152
|
)
|
|
|
(35
|
)
|
Nondeductible expenses
|
|
|
12
|
|
|
|
11
|
|
Goodwill impairment
|
|
|
6,533
|
|
|
|
|
|
Other
|
|
|
(46
|
)
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Income tax expense on continuing operations
|
|
$
|
1,133
|
|
|
$
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10
|
Retirement
Plans
|
The Company sponsors a defined contribution retirement savings
plan with a cash or deferred arrangement (the Plan),
as provided by Section 401(k) of the Internal Revenue Code
(Code). The Plan covers substantially all employees,
who may elect to contribute a portion of their compensation to
the Plan, subject to maximum amounts and percentages as
prescribed in the Code. Each calendar year, the board of
directors determines the portion, if any, of employee
contributions that will be matched by the Company. The
Companys matching contribution to the Plan, net of the
utilization of forfeitures was $133,000 and $131,000,
respectively, for fiscal years 2009 and 2008. This matching
represents an amount equal to 100% of the first 2% of employee
contributions and 50% of the next 1% of employee contributions
to the Plan.
|
|
Note 11
|
Stock-based
Compensation
|
The Company has two incentive stock plans, the 1995 Stock Option
Plan (the 1995 Plan) and the 2006 Omnibus Incentive
Plan (the 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 Companys 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
Companys overall goal of increasing stockholder value. The
principal reason for adopting the 2006 Plan is 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
Companys 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 board of
directors, which selects eligible employees and non-employee
directors to participate in the 2006 Plan and determines the
type, amount and duration of individual awards.
The Company uses the Black-Scholes option-pricing model to
determine the fair-value of stock options under
SFAS No. 123 (Revised 2004), Share-Based Payment
(SFAS No. 123(R)), consistent with the
method previously used for pro forma disclosures under
SFAS No. 123. The Company elected to use the modified
prospective transition method permitted by
SFAS No. 123(R). Under the modified prospective
transition method, SFAS No. 123(R) applies to stock
options granted on or after April 3, 2006 as well as the
unvested portion of stock options that were outstanding as of
April 2, 2006, including those that are subsequently
modified, repurchased or cancelled. Under the modified
prospective transition method, compensation expense recognized
during the fiscal year ended April 1, 2007 included
compensation for all stock options granted prior to, but not yet
vested as of,
F-18
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
April 2, 2006 in accordance with the original provisions of
SFAS No. 123. Prior periods were not restated to
reflect the impact of adopting SFAS No. 123(R).
The Company recorded $707,000 and $588,000 of stock-based
compensation during fiscal years 2009 and 2008, respectively. No
stock-based compensation costs were capitalized as part of the
cost of an asset as of March 29, 2009.
Stock Options: The following table represents
stock option activity for fiscal year 2009:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Number of
|
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Outstanding at March 30, 2008
|
|
$
|
2.15
|
|
|
|
651,330
|
|
Granted
|
|
|
3.58
|
|
|
|
200,000
|
|
Exercised
|
|
|
0.74
|
|
|
|
(28,499
|
)
|
Forfeited
|
|
|
3.77
|
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding at March 29, 2009
|
|
$
|
2.54
|
|
|
|
819,831
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 29, 2009
|
|
$
|
2.02
|
|
|
|
564,831
|
|
|
|
|
|
|
|
|
|
|
During the quarter ended June 29, 2008, the Company granted
200,000 non-qualified stock options to certain employees at the
closing price of the Companys common stock on the date of
grant, which options vest over a two-year period, assuming
continued service. The following assumptions were used for the
stock options granted during the quarter ended June 29,
2008.
|
|
|
|
|
Dividend Yield
|
|
|
|
|
Expected Volatility
|
|
|
55.00
|
%
|
Risk free interest rate
|
|
|
3.54
|
%
|
Expected life in years
|
|
|
5.75
|
|
Forfeiture rate
|
|
|
5.00
|
%
|
The Company recognized compensation expense associated with
stock options for 2009 and 2008 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 29, 2009
|
|
|
|
Cost of
|
|
|
Marketing &
|
|
|
|
|
|
|
Products
|
|
|
Administrative
|
|
|
Total
|
|
Options Granted in Fiscal Year
|
|
Sold
|
|
|
Expenses
|
|
|
Expense
|
|
|
2007
|
|
$
|
23
|
|
|
$
|
71
|
|
|
$
|
94
|
|
2008
|
|
|
38
|
|
|
|
97
|
|
|
|
135
|
|
2009
|
|
|
36
|
|
|
|
108
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
97
|
|
|
$
|
276
|
|
|
$
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 30, 2008
|
|
|
|
Cost of
|
|
|
Marketing &
|
|
|
|
|
|
|
Products
|
|
|
Administrative
|
|
|
Total
|
|
Options Granted in Fiscal Year
|
|
Sold
|
|
|
Expenses
|
|
|
Expense
|
|
|
2007
|
|
$
|
50
|
|
|
$
|
158
|
|
|
$
|
208
|
|
2008
|
|
|
23
|
|
|
|
59
|
|
|
|
82
|
|
Unvested options at April 3, 2006
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
73
|
|
|
$
|
220
|
|
|
$
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
A summary of stock options outstanding and exercisable at
March 29, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Avg.
|
|
|
|
|
|
Weighted Avg.
|
|
|
|
Number
|
|
|
Weighted Avg.
|
|
|
Exercise Price
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
of Options
|
|
|
Remaining
|
|
|
of Options
|
|
|
Options
|
|
|
of Options
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Exercisable
|
|
|
$0.18-$0.66
|
|
|
91,331
|
|
|
|
4.06
|
|
|
$
|
0.60
|
|
|
|
91,331
|
|
|
$
|
0.60
|
|
$0.71
|
|
|
122,250
|
|
|
|
3.42
|
|
|
$
|
0.71
|
|
|
|
122,250
|
|
|
$
|
0.71
|
|
$1.06-$2.31
|
|
|
90,250
|
|
|
|
1.22
|
|
|
$
|
1.40
|
|
|
|
90,250
|
|
|
$
|
1.40
|
|
$3.15
|
|
|
206,000
|
|
|
|
7.27
|
|
|
$
|
3.15
|
|
|
|
206,000
|
|
|
$
|
3.15
|
|
$3.58
|
|
|
200,000
|
|
|
|
9.21
|
|
|
$
|
3.58
|
|
|
|
|
|
|
$
|
|
|
$3.90-$4.08
|
|
|
110,000
|
|
|
|
7.93
|
|
|
$
|
4.08
|
|
|
|
55,000
|
|
|
$
|
4.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819,831
|
|
|
|
|
|
|
|
|
|
|
|
564,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2009, total unrecognized stock-option
compensation costs amounted to $301,000. Unvested stock option
compensation costs will be recognized as the underlying stock
options vest over a period of up to two years. The amount of
unrecognized stock-option compensation will be affected by any
future stock option grants and by the termination of any
employee or director that has received stock options that are
unvested as of such individuals termination date. The
aggregate intrinsic value of options outstanding and options
exercisable at March 29, 2009 was $381,000.
Non-vested Stock: The fair value of non-vested
stock granted is determined based on the number of shares
granted multiplied by the closing price of the Companys
common stock on the date of grant. All non-vested stock granted
under the 2006 Plan vests based upon continued service.
During the quarter ended October 1, 2006, the Company
granted 375,000 shares of non-vested stock to certain
employees with a fair value of $3.15 as of the date of the stock
grants. These shares have four-year cliff vesting. The Company
recognized $295,000 of compensation expense related to these
non-vested stock grants during fiscal years 2009 and 2008, which
was included in marketing and administrative expenses in the
accompanying consolidated statements of income.
During the quarter ended September 28, 2008, the Company
granted 30,000 shares of non-vested stock to its
non-employee directors with a fair value of $3.87 as of the date
of the stock grants. These shares vest over a two-year period.
The Company recognized $39,000 of compensation expense related
to these non-vested stock grants during the fiscal year ended
March 29, 2009, which was included in marketing and
administrative expenses in the accompanying consolidated
statements of income.
At March 29, 2009, the amount of unrecognized compensation
expense related to non-vested stock grants amounted to $496,000.
The amount of compensation expense related to non-vested stock
grants to be recognized in future periods will 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 are unvested as of such individuals separation
date. The deferred amount of these non-vested stock grants is
being amortized by monthly charges to earnings over the
remaining portion of the vesting period.
In June 2007, the board of directors created a capital committee
and authorized the committee to adopt a program that would allow
the Company to spend an aggregate of up to $6 million to
repurchase shares of the Companys common stock from
July 1, 2007 through July 1, 2008. Pursuant to this
program, the Company repurchased 679,296 shares at a cost
of $2.5 million.
F-20
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
On October 14, 2008 and November 3, 2008, the Company,
in privately-negotiated transactions, repurchased
(i) 100,000 shares of its common stock at a purchase
price, including broker fees, of $2.68 per share and
(ii) 109,755 shares of its common stock at a purchase
price, including broker fees, of $2.69 per share, respectively.
|
|
Note 13
|
Major
Customers
|
The table below indicates customers representing more than 10%
of sales.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2009
|
|
|
2008
|
|
|
Wal-Mart Stores, Inc.
|
|
|
47
|
%
|
|
|
44
|
%
|
Toys R Us
|
|
|
21
|
%
|
|
|
18
|
%
|
Target Corporation
|
|
|
10
|
%
|
|
|
15
|
%
|
|
|
Note 14
|
Commitments
and Contingencies
|
Total rent expense was $1.8 million and $1.5 million
for the years ended March 29, 2009 and March 30, 2008,
respectively. The Companys commitment for minimum
guaranteed rental payments as of March 29, 2009 is
$1.3 million, $1.4 million, $1.1 million,
$0.9 million, $0.9 million and $0.2 million for
fiscal years 2010, 2011, 2012, 2013, 2014 and 2015, respectively.
Total royalty expense, net of royalty income, was
$6.9 million and $4.9 million for the fiscal years
ended March 29, 2009 and March 30, 2008, respectively.
The Companys commitment for minimum guaranteed royalty
payments under its license agreements as of March 29, 2009
is $5.1 million, including $2.8 million and
$2.3 million for fiscal years 2010 and 2011, respectively.
The Company is a party to various routine legal proceedings
primarily involving commercial claims and workers
compensation claims. While the outcome of these routine claims
and legal proceedings cannot be predicted with certainty,
management believes that the outcomes of such proceedings in the
aggregate, even if determined adversely, would not have a
material adverse affect on the Companys consolidated
financial position, results of operations or cash flows.
|
|
Note 15
|
Current
Economic Conditions
|
Current economic conditions, including the credit crisis
affecting global financial markets and the possibility of an
extended global recession, could adversely impact the
Companys business. These conditions could result in
reduced demand for some of the Companys products,
increased order cancellations and returns, an increased risk of
excess and obsolete inventories, increased pressure on the
prices of the Companys products, and greater difficulty in
obtaining necessary financing on favorable terms. Also, although
the Companys use of a commercial factor significantly
reduces the risk associated with collecting accounts receivable,
the factor may at any time terminate or limit its approval of
shipments to a particular customer, and the likelihood of the
factor doing so may increase as a result of current economic
conditions. Such an action by the factor would result in the
loss of future sales to the affected customer.
F-21