þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 58-0678148 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
October 1, 2006 | April 2, 2006 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 42 | $ | 3,790 | ||||
Accounts receivable (net of allowances of $1,334 at October 1, 2006 and $1,164 at April 2, 2006) |
||||||||
Due from factor |
11,661 | 12,465 | ||||||
Other |
3,487 | 1,992 | ||||||
Inventories, net |
12,046 | 9,742 | ||||||
Prepaid expenses |
991 | 1,177 | ||||||
Deferred income taxes |
990 | 990 | ||||||
Total current assets |
29,217 | 30,156 | ||||||
Property, plant and equipment at cost: |
||||||||
Land, buildings and improvements |
1,349 | 1,375 | ||||||
Machinery and equipment |
2,534 | 2,459 | ||||||
Furniture and fixtures |
659 | 649 | ||||||
4,542 | 4,483 | |||||||
Less accumulated depreciation |
3,118 | 2,945 | ||||||
Property, plant and equipment net |
1,424 | 1,538 | ||||||
Other assets: |
||||||||
Goodwill, net |
22,884 | 22,974 | ||||||
Deferred income taxes |
1,708 | 3,397 | ||||||
Other |
220 | 114 | ||||||
Total other assets |
24,812 | 26,485 | ||||||
Total Assets |
$ | 55,453 | $ | 58,179 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 6,647 | $ | 3,511 | ||||
Accrued wages and benefits |
992 | 942 | ||||||
Accrued royalties |
1,578 | 559 | ||||||
Other accrued liabilities |
439 | 367 | ||||||
Current maturities of long-term debt |
28 | 36 | ||||||
Total current liabilities |
9,684 | 5,415 | ||||||
Non-current liabilities: |
||||||||
Long-term debt |
10,586 | 23,922 | ||||||
Total non-current liabilities |
10,586 | 23,922 | ||||||
Commitments and contingencies |
| | ||||||
Shareholders equity: |
||||||||
Common stock par value $0.01 per share; 74,000,000 shares authorized; 9,934,188 shares
outstanding at October 1, 2006 and 9,505,937 outstanding at April 2, 2006 |
99 | 95 | ||||||
Additional paid-in capital |
38,317 | 38,244 | ||||||
Accumulated deficit |
(3,233 | ) | (9,497 | ) | ||||
Total shareholders equity |
35,183 | 28,842 | ||||||
Total Liabilities and Shareholders Equity |
$ | 55,453 | $ | 58,179 | ||||
1
Three Months Ended | Six Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net sales |
$ | 21,574 | $ | 21,285 | $ | 37,738 | $ | 34,944 | ||||||||
Cost of products sold |
15,821 | 16,676 | 27,405 | 27,368 | ||||||||||||
Gross profit |
5,753 | 4,609 | 10,333 | 7,576 | ||||||||||||
Marketing and administrative expenses |
2,729 | 2,596 | 5,179 | 5,064 | ||||||||||||
Income from operations |
3,024 | 2,013 | 5,154 | 2,512 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(286 | ) | (740 | ) | (1,010 | ) | (1,541 | ) | ||||||||
Gain on debt refinancing |
4,069 | | 4,069 | | ||||||||||||
Other net |
21 | (25 | ) | 140 | 17 | |||||||||||
Income before income taxes |
6,828 | 1,248 | 8,353 | 988 | ||||||||||||
Income tax expense |
1,475 | 97 | 2,089 | 105 | ||||||||||||
Net income |
$ | 5,353 | $ | 1,151 | $ | 6,264 | $ | 883 | ||||||||
Basic income per share |
$ | 0.55 | $ | 0.12 | $ | 0.65 | $ | 0.09 | ||||||||
Diluted income per share |
$ | 0.54 | $ | 0.05 | $ | 0.64 | $ | 0.04 | ||||||||
Weighted average shares
outstanding basic |
9,690 | 9,506 | 9,598 | 9,506 | ||||||||||||
Weighted average shares
outstanding diluted |
9,990 | 21,441 | 9,821 | 21,386 | ||||||||||||
2
October 1, | October 2, | |||||||
2006 | 2005 | |||||||
Operating activities: |
||||||||
Net income |
$ | 6,264 | $ | 883 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation of property, plant and equipment |
231 | 230 | ||||||
Goodwill write-off |
90 | | ||||||
Deferred income taxes |
1,688 | | ||||||
Gain on sale of property, plant and equipment |
(11 | ) | 14 | |||||
Discount accretion |
242 | 372 | ||||||
Gain on debt restructuring |
(4,069 | ) | | |||||
Stock-based compensation |
47 | | ||||||
Changes in assets and liabilities |
||||||||
Accounts receivable |
(691 | ) | 98 | |||||
Inventories, net |
(2,304 | ) | 445 | |||||
Prepaid expenses |
186 | 446 | ||||||
Other assets |
(105 | ) | (15 | ) | ||||
Accounts payable |
3,136 | 1,420 | ||||||
Accrued liabilities |
1,142 | 424 | ||||||
Net cash provided by operating activities |
5,846 | 4,317 | ||||||
Investing activities: |
||||||||
Capital expenditures |
(117 | ) | (339 | ) | ||||
Proceeds from disposition of assets |
11 | 1 | ||||||
Net cash used in investing activities |
(106 | ) | (338 | ) | ||||
Financing activities: |
||||||||
Retirement of debt |
(17,077 | ) | (4,500 | ) | ||||
Payments on long-term debt |
(19 | ) | (8 | ) | ||||
Borrowings (repayments) under line of credit, net |
7,647 | | ||||||
Debt issuance costs |
(69 | ) | | |||||
Issuance of common stock |
30 | | ||||||
Net cash used in financing activities |
(9,488 | ) | (4,508 | ) | ||||
Net (decrease) in cash and cash equivalents |
(3,748 | ) | (529 | ) | ||||
Cash and cash equivalents at beginning of period |
3,790 | 955 | ||||||
Cash and cash equivalents at end of period |
$ | 42 | $ | 426 | ||||
Supplemental cash flow information: |
||||||||
Income taxes paid (received) |
$ | 136 | $ | (33 | ) | |||
Interest paid |
624 | 1,159 | ||||||
Accrued interest converted to long-term debt |
| 268 |
3
1. | Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial information and the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, such interim consolidated financial statements contain all adjustments necessary to present fairly the financial position of Crown Crafts, Inc. (the Company) as of October 1, 2006 and the results of its operations and cash flows for the periods presented. Such adjustments include normal recurring accruals. Operating results for the three and six-month periods ended October 1, 2006 are not necessarily indicative of the results that may be expected for the year ending April 1, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K for the year ended April 2, 2006 of the Company. | |
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 statement 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. | ||
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements 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 has a certain amount of discontinued and irregular raw materials and finished goods which necessitate the establishment of inventory reserves which are highly subjective. Actual results could differ from those estimates. | ||
Segment and Related Information: The Company operates primarily in one principal segment, infant and juvenile products. These products consist of infant bedding, bibs and soft goods. | ||
Impairment of Long-lived Assets, Identifiable Intangibles and Goodwill: The Company reviews for impairment of long-lived assets and certain identifiable intangibles 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 sheet. | ||
Goodwill, which represents the unamortized excess of purchase price over fair value of net identifiable assets acquired in business combinations, was amortized through March 31, 2002 using the straight-line method over periods of up to 30 years. The Company discontinued amortization of goodwill effective April 1, 2002. The Company reviews the carrying value of goodwill annually and sooner if facts and circumstances suggest that the asset may be impaired. Impairment of goodwill and write-downs, if any, are measured based on estimates of future cash flows. Goodwill is stated net of accumulated amortization of $6.4 million and $6.3 million at October 1, 2006 and April 2, 2006, respectively. The Company performed fair value based impairment tests on its goodwill in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. With the exception of goodwill related to Churchill Weavers, Inc. (Churchill), the Company determined that the fair value exceeded the recorded value at April 4, 2005 and April 3, 2006. Churchills goodwill of $90,000 was written off in June 2006 due to its decline in sales volume and profitability in recent years which were indicative of an impairment. |
4
Provision 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. For the three and six-month periods ended October 2, 2005, deferred tax assets were offset by a valuation allowance as available evidence did not indicate that the assets would be realized. In the fourth quarter of fiscal 2006, the Company determined that, due to taxable earnings generated in recent years, it is more likely than not that the benefit would be realized prior to the expiration of its net operating loss carryforward and consequently the valuation account was removed. As a result of the removal of the deferred tax valuation allowance, the Companys income tax expense in periods subsequent to the third quarter of fiscal year 2006 will include federal as well as state and local income taxes. | ||
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 EITF 01-9, 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. | ||
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 included in cost of sales amounted to $2.3 million and $2.4 million in the six-month periods ended October 1, 2006 and October 2, 2005, respectively. | ||
Recently Issued Accounting Standards: In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This statement is a replacement of APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine period-specific effects of an accounting change on one or more individual prior periods presented. In such circumstances the new accounting principle would be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable with a corresponding adjustment made to the opening balance of retained earnings for that period rather than being reported in an income statement. Further, the accounting principle is to be applied prospectively from the earliest date when it is impracticable to determine the effect to all prior periods. This statement is effective for the Company as of April 3, 2006. Adoption of this statement had no impact on the results of operations for the three and six-month periods ended October 1, 2006. Adoption of this statement could have an impact if there are future voluntary accounting changes and error corrections. | ||
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company has not yet determined the impact this interpretation will have on our results from operations or financial position. |
5
2. | Stock-Based Compensation: The Company has two incentive stock plans, the 1995 Stock Option Plan (1995 Plan) and the 2006 Omnibus Incentive Plan (2006 Plan). The Company granted non-qualified stock options to employees and non-employee directors from the 1995 Plan through the fiscal year ended April 2, 2006. In conjunction with the approval of the 2006 Plan by the 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 its subsidiaries 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 (SARs), 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, who selects eligible employees and non-employee directors to participate in the 2006 Plan and determines the type, amount and duration of individual awards. | ||
On April 3, 2006, the Company adopted SFAS No. 123 (R), Share Based Payment". This standard requires expensing of stock options and other share-based payments and supersedes SFAS No. 123, Accounting for Stock-Based Compensation, and Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related implementation guidance that had previously allowed companies to choose between expensing stock options or providing pro-forma disclosure only. SFAS 123 (R) eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under APB Opinion No. 25 and instead requires that such transactions be accounted for using a fair-value-based method. In addition, the SEC issued Staff Accounting Bulletin 107 in April 2005, which provides supplemental implementation guidance for SFAS 123 (R). | ||
The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards under SFAS 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 123 (R). Under the modified prospective method, SFAS 123 (R) applies to new awards issued on or after April 3, 2006 as well as the unvested portion of awards that were outstanding as of April 2, 2006, including those that are subsequently modified, repurchased or cancelled. Under the modified prospective approach, compensation cost recognized in the three and six-month periods ended October 1, 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of, April 2, 2006 in accordance with the original provisions of SFAS No. 123. Prior periods were not restated to reflect the impact of adopting the new standard. | ||
Prior to adoption of SFAS 123 (R), the Company measured compensation expense for its stock-based compensation plan using the intrinsic value recognition and measurement principles as prescribed by APB Opinion No. 25 and related interpretations. The Company also used the disclosure provision of SFAS No. 123. The following table illustrates the effect on net earnings and earnings per share for the three and six-month periods ended October 2, 2005 had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123(R). |
Three months ended | Six months ended | |||||||
October 2, 2005 | October 2, 2005 | |||||||
Net income, as reported |
$ | 1,151 | $ | 883 | ||||
Deduct: Total stock-based
employee compensation expense
determined under the fair
value based method for all
awards |
(11 | ) | (22 | ) | ||||
Pro forma net income |
$ | 1,140 | $ | 861 | ||||
Income per share: |
||||||||
Basic as reported |
$ | 0.12 | $ | 0.09 | ||||
Basic pro forma |
$ | 0.12 | $ | 0.09 | ||||
Diluted as reported |
$ | 0.05 | $ | 0.04 | ||||
Diluted pro forma |
$ | 0.05 | $ | 0.04 | ||||
6
The Company recorded $47,000 of stock-based compensation during the three and six-month periods ended October 1, 2006 as a result of the adoption of SFAS 123 (R), which had no effect on basic or diluted earnings per share. No stock-based compensation costs were capitalized as part of the cost of an asset as of October 1, 2006. |
Weighted-average | Number of Options | |||||||
Exercise Price | Outstanding | |||||||
Outstanding, April 3, 2006 |
$ | 0.80 | 536,100 | |||||
Granted |
3.15 | 212,000 | ||||||
Exercised |
0.58 | 53,251 | ||||||
Forfeited |
0.78 | 31,999 | ||||||
Outstanding, October 1, 2006 |
$ | 1.57 | 662,850 | |||||
Exercisable, October 1, 2006 |
$ | 0.84 | 434,860 | |||||
During the quarter ended October 1, 2006, the Company granted 212,000 non-qualified options at the market price at the date of grant, which options vest over a two-year period, assuming continued service. The Company recognized $20,000 of compensation expense of which $5,000 was included in cost of products sold and $15,000 was included in marketing and administrative expenses in the accompanying Consolidated Statements of Operations related to these stock option grants for the three and six-month periods ended October 1, 2006. | ||
The following weighted-average assumptions were used for grants issued during the three and six-month periods ended October 1, 2006. |
Options | Options | |||||||
Issued to | Issued to | |||||||
Employees | Directors | |||||||
Options Issued |
200,000 | 12,000 | ||||||
Dividend Yield |
| | ||||||
Expected Volatility |
70.00 | % | 70.00 | % | ||||
Risk free interest rate |
4.76 | % | 4.79 | % | ||||
Expected life, years |
5.75 | 3.25 | ||||||
Forfeiture rate |
5.00 | % | 5.00 | % |
A summary of stock options outstanding and exercisable at October 1, 2006 is as follows: |
Weighted Avg. | Weighted Avg. | Weighted Avg. | ||||||||||||||||||||||
Number of | Remaining | Exercise Price | Number of | Exercise Price | ||||||||||||||||||||
Range of | Options | Contractual | of Options | Shares | of Shares | |||||||||||||||||||
Exercise Prices | Outstanding | Life | Outstanding | Exercisable | Exercisable | |||||||||||||||||||
$ | 0.18-0.41 | 28,500 | 3.83 years | $ | 0.23 | 28,500 | $ | 0.23 | ||||||||||||||||
$ | 0.65 | 131,000 | 6.25 years | 0.65 | 123,008 | 0.65 | ||||||||||||||||||
$ | 0.66 | 12,000 | 3.86 years | 0.66 | 4,002 | 0.66 | ||||||||||||||||||
$ | 0.71 | 174,750 | 5.57 years | 0.71 | 174,750 | 0.71 | ||||||||||||||||||
$ | 1.06-2.31 | 104,600 | 3.68 years | 1.45 | 104,600 | 1.45 | ||||||||||||||||||
$ | 3.15 | 212,000 | 9.62 years | 3.15 | | 0.00 | ||||||||||||||||||
662,850 | 434,860 | |||||||||||||||||||||||
7
As of October 1, 2006, total unrecognized stock-option compensation costs amounted to $416,000. 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 that has received stock options that are unvested as of such employees termination date. The aggregate intrinsic value of both the options outstanding and the options exercisable at October 1, 2006 was $1.0 million. | ||
Non-vested Stock: The fair value of non-vested stock is determined based on the number of shares granted and the quoted closing price of the Companys common stock on the date of grant. All non-vested stock awards issued under the 2006 Plan vest based upon continued service. | ||
During the three-month period ended October 1, 2006, the Company granted 375,000 shares of non-vested stock with a weighted-average grant date fair value of $3.15. These shares have four-year cliff vesting. The Company recognized $25,000 of compensation expense that was included in marketing and administrative expenses in the accompanying Consolidated Statements of Operations. The deferred amount is being amortized by monthly charges to earnings over the four-year vesting period. | ||
As of October 1, 2006, the amount of unrecognized non-vested stock compensation costs amounted to $1.2 million. The amount of unrecognized non-vested stock compensation will be affected by any future non-vested stock grants and by the separation from the Company of any employee who has received non-vested stock grants that are unvested as of such employees separation date. | ||
3. | Inventory: Major classes of inventory were as follows (in thousands): |
October 1, 2006 | April 2, 2006 | |||||||
Raw Materials |
$ | 344 | $ | 442 | ||||
Work in Process |
73 | 73 | ||||||
Finished Goods |
11,629 | 9,227 | ||||||
$ | 12,046 | $ | 9,742 | |||||
Inventory is net of reserves for inventories classified as irregular or discontinued of $0.5 million at October 1, 2006 and at April 2, 2006. | ||
4. | 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, the factor remits payments to the Company on the average due date of each group of invoices assigned. The factor bears credit losses with respect to assigned accounts receivable that are within approved credit limits. The Company bears losses resulting from returns, allowances, claims and discounts. | ||
Notes Payable and Other Credit Facilities: At October 1, 2006 and April 2, 2006, long-term debt consisted of: |
October 1, | April 2, | |||||||
2006 | 2006 | |||||||
Revolving credit facility |
$ | 7,647 | $ | | ||||
Senior subordinated notes |
| 16,000 | ||||||
Non-interest bearing notes |
4,000 | 8,000 | ||||||
Capital leases |
41 | 58 | ||||||
PIK notes |
| 1,077 | ||||||
Original issue discount |
(1,074 | ) | (1,177 | ) | ||||
10,614 | 23,958 | |||||||
Less current maturities |
28 | 36 | ||||||
$ | 10,586 | $ | 23,922 | |||||
8
The Companys credit facilities at October 1, 2006 include the following: | ||
Revolving Credit of up to $22 million, including a $1.5 million sub-limit for letters of credit. The interest rate is prime minus 1.00% (7.25% at October 1, 2006) for base rate borrowings or LIBOR plus 2.25% (7.57% at October 1, 2006). The maturity date is July 11, 2009. The facility is secured by a first lien on all assets. There was $7.6 million outstanding at October 1, 2006. The Company had $11 million available at October 1, 2006. As of October 1, 2006, letters of credit of $655,000 were outstanding against the $1.5 million sub-limit for letters of credit. | ||
The financing agreement for the $22 million revolving credit facility contains usual and customary covenants for transactions of this 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 October 1, 2006. | ||
Subordinated Notes of $4 million. The notes do not bear interest and are due in two equal installments of $2 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 $1.1 million is included in the Consolidated Balance Sheet as of October 1, 2006. | ||
The Company also had other obligations at October 1, 2006 of $11,000 and $29,000, which expire in May 2007 and July 2008, respectively. | ||
As of April 2, 2006, the Company had senior subordinated notes of $16 million with a fixed interest rate of 10% plus an additional 1.65% payable by delivery of a promissory note for which $1.1 million had been accrued and a non-interest bearing note of $8 million carried at a book value of $6.8 million, net of unamortized original issue discount. These balances were refinanced on July 11, 2006 using internally generated cash and funds available under the revolving credit line described above. Concurrent with the refinancing of the senior subordinated notes, the Company settled the $8 million non-interest bearing note and extinguished related common stock purchase warrants by issuance of the $4 million subordinated notes described above. The refinancing resulted in a gain of $4.1 million ($3.7 million net of tax) reported in the three and six-month periods ended October 1, 2006. Approximately $3.1 million of the gain was not subject to federal income tax. | ||
Minimum annual maturities are as follows (in thousands): |
Fiscal | Revolver | Sub Notes | Other | Total | ||||||||||||
2007 |
$ | | $ | | $ | 19 | $ | 19 | ||||||||
2008 |
| | 19 | 19 | ||||||||||||
2009 |
| | 3 | 3 | ||||||||||||
2010 |
7,647 | | | 7,647 | ||||||||||||
2011 |
| 2,000 | | 2,000 | ||||||||||||
2012 |
| 2,000 | | 2,000 | ||||||||||||
Total |
$ | 7,647 | $ | 4,000 | $ | 41 | $ | 11,688 | ||||||||
5. | Earnings per Share: The weighted average number of shares outstanding on a fully diluted basis were 9,990,000 and 9,821,000 for the three and six-month periods ended October 1, 2006, respectively compared to 21,441,000 and 21,386,000 for the three and six-month periods ended October 2, 2005, respectively. The Company had issued to its previous lenders Common Stock Purchase Warrants for non-voting common stock that were convertible into common stock equivalent to 65% of the shares of the Company on a fully diluted basis at a price of 11.3 cents per share. As a result of the debt refinancing discussed above, these warrants were extinguished and are, therefore, no longer included in the Companys calculation of diluted earnings per share. |
9
Three months ended | Six months ended | |||||||||||||||||||||||||||||||
October 2, | % | October 1, | October 2, | % | ||||||||||||||||||||||||||||
October 1, 2006 | 2005 | $ change | change | 2006 | 2005 | $ change | change | |||||||||||||||||||||||||
Dollars in thousands | Dollars in thousands | |||||||||||||||||||||||||||||||
Net Sales by Category |
||||||||||||||||||||||||||||||||
Bedding, Blankets
and Accessories |
$ | 15,150 | $ | 14,786 | $ | 364 | 2.5 | % | $ | 26,056 | $ | 23,770 | $ | 2,286 | 9.6 | % | ||||||||||||||||
Bibs and Bath |
5,769 | 5,770 | (1 | ) | 0.0 | % | 10,617 | 9,929 | 688 | 6.9 | % | |||||||||||||||||||||
Handwoven Products |
655 | 729 | (74 | ) | -10.2 | % | 1,065 | 1,245 | (180 | ) | -14.5 | % | ||||||||||||||||||||
Total Net Sales |
21,574 | 21,285 | 289 | 1.4 | % | 37,738 | 34,944 | 2,794 | 8.0 | % | ||||||||||||||||||||||
Cost of Products Sold |
15,821 | 16,676 | (855 | ) | -5.1 | % | 27,405 | 27,368 | 37 | 0.1 | % | |||||||||||||||||||||
Gross Profit |
5,753 | 4,609 | 1,144 | 24.8 | % | 10,333 | 7,576 | 2,757 | 36.4 | % | ||||||||||||||||||||||
% of Net Sales |
26.7 | % | 21.7 | % | 27.4 | % | 21.7 | % | ||||||||||||||||||||||||
Marketing and Administrative Expenses |
2,729 | 2,596 | 133 | 5.1 | % | 5,179 | 5,064 | 115 | 2.3 | % | ||||||||||||||||||||||
% of Net Sales |
12.6 | % | 12.2 | % | 13.7 | % | 14.5 | % | ||||||||||||||||||||||||
Interest Expense |
286 | 740 | (454 | ) | -61.4 | % | 1,010 | 1,541 | (531 | ) | -34.5 | % | ||||||||||||||||||||
Gain on Debt Refinancing |
(4,069 | ) | | (4,069 | ) | 100.0 | % | (4,069 | ) | | (4,069 | ) | 100.0 | % | ||||||||||||||||||
Other Income net |
(21 | ) | 25 | (46 | ) | -184.0 | % | (140 | ) | (17 | ) | (123 | ) | 723.5 | % | |||||||||||||||||
Income Tax Expense |
1,475 | 97 | 1,378 | 1420.6 | % | 2,089 | 105 | 1,984 | 1889.5 | % | ||||||||||||||||||||||
Net Income |
5,353 | 1,151 | 4,202 | 365.1 | % | 6,264 | 883 | 5,381 | 609.4 | % | ||||||||||||||||||||||
% of Net Sales |
24.8 | % | 5.4 | % | 16.6 | % | 2.5 | % |
10
11
12
13
14
Exhibit | ||
No. | Exhibit | |
4.1
|
Amendment No. 1 to Amended and Restated Rights Agreement dated as of July 12, 2006 between the Company and Computershare Investor Services, LLC (1) | |
10.1
|
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. (1) | |
10.2
|
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. (1) | |
10.3
|
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. (1) | |
10.4
|
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to Wachovia Bank, National Association (1) | |
10.5
|
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to Banc of America Strategic Solutions, Inc. (1) | |
10.6
|
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to The Prudential Insurance Company of America (1) | |
10.7
|
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 (1) | |
10.8
|
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 (1) | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer | |
32.1
|
Section 1350 Certification by the Companys Chief Executive Officer | |
32.2
|
Section 1350 Certification by the Companys Chief Financial Officer |
(1) | Incorporated herein by reference to the Companys Current Report on Form 8-K dated July 17, 2006. |
15
CROWN CRAFTS, INC. |
||||
Date: November 15, 2006 | /s/ Amy Vidrine Samson | |||
AMY VIDRINE SAMSON | ||||
Chief Financial Officer (duly authorized signatory and Principal Financial and Accounting Officer) |
16
Exhibit | ||
No. | Exhibit | |
4.1
|
Amendment No. 1 to Amended and Restated Rights Agreement dated as of July 12, 2006 between the Company and Computershare Investor Services, LLC (1) | |
10.1
|
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. (1) | |
10.2
|
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. (1) | |
10.3
|
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. (1) | |
10.4
|
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to Wachovia Bank, National Association (1) | |
10.5
|
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to Banc of America Strategic Solutions, Inc. (1) | |
10.6
|
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to The Prudential Insurance Company of America (1) | |
10.7
|
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 (1) | |
10.8
|
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 (1) | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer | |
32.1
|
Section 1350 Certification by the Companys Chief Executive Officer | |
32.2
|
Section 1350 Certification by the Companys Chief Financial Officer |
(1) | Incorporated herein by reference to the Companys Current Report on Form 8-K dated July 17, 2006. |
17