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 30, 2008
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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 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. o
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
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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 30,
2007 (the last business day of the Companys most recently
completed second fiscal quarter) was $27.5 million.
As of May 30, 2008, 9,388,905 shares of the
Companys common stock were outstanding.
Documents
Incorporated by Reference:
Crown Crafts, Inc. Proxy Statement in connection with its 2008
Annual Meeting of Stockholders (Part III hereof).
TABLE OF CONTENTS
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.
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.
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 year 2008, 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 sheet, and the operations of
Churchill are classified as discontinued operations in the
Companys consolidated statements of income. These
classifications were not used prior to the end of fiscal year
2007 because Churchills operations were continuing at that
time.
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. Through
April 3, 2007, the Company, through Churchill, also
produced hand-woven throws for infants and adults in
2
a variety of colors, designs and fabrics, including cotton,
acrylic, cotton/acrylic blends, rayon, wool, fleece and chenille.
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 brand, as well as the customers private
label brand.
Raw
Materials
The principal raw materials used in the manufacture of
comforters, sheets and accessories are printed 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 supply relationships with only a
limited number of suppliers, the Company believes these raw
materials presently are available from several 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 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 (i.e., 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 quota 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 or 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.
Sales and
Marketing
The Companys sales offices are located in Compton,
California; Gonzales, Louisiana; Rogers, Arkansas; and Roslyn
Heights, New York. 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.
3
Products are marketed through a national sales force consisting
of salaried sales executives and employees and independent
commissioned sales representatives. Independent representatives
are used most significantly in sales to juvenile specialty
stores. Sales outside the United States are made primarily
through distributors.
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
each of the Companys last two fiscal years. (The
Companys fiscal year ends on the Sunday nearest
March 31. References to the Companys fiscal years
herein represent the 52 weeks ended March 30, 2008 for
fiscal year 2008 and April 1, 2007 for fiscal year 2007.)
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Fiscal Year
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2008
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2007
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Wal-Mart Stores, Inc.
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44
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%
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39
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%
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Toys R Us
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18
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%
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23
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%
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Target Corporation
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15
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%
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16
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Seasonality
and Inventory Management
Historically, the Company has experienced a sales pattern in
which sales are lowest in the first fiscal quarter and highest
in the second fiscal quarter. In fiscal year 2008, sales were
lowest in the third fiscal quarter, excluding the impact of the
acquisition of the baby product line from Springs Global.
Consistent with the seasonality 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.
Order
Backlog
Management estimates the backlog of unfilled customer orders was
$3.6 million and $4.1 million at May 30, 2008 and
May 31, 2007, 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.
Trademarks,
Copyrights and Patents
The Company considers its trademarks to be of material
importance to its business. Products are marketed in part under
well-known Company trademarks such as Red
Calliope®,
Cuddle
Me®,
NoJo®,
Making
Miracles®,
Hamco®
and
Pinky®.
Protection for these trademarks is obtained through domestic and
foreign registrations.
Certain products are manufactured and sold pursuant to licensing
agreements for trademarks that include, among others,
Disney®.
The licensing agreements for the Companys designer brands
generally are for an initial term of one to three years and may
or may not be subject to renewal or extension. Sales of products
under the Companys licenses with Disney Enterprises, Inc.
accounted for 30% of the Companys total gross sales volume
during fiscal year 2008. The Companys current infant and
toddler licenses with Disney Enterprises, Inc. expire
December 31, 2008 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 licenses. Other designs are the
subject of copyrights and design patents owned by the Company.
The Companys aggregate commitment for minimum guaranteed
royalty payments under all of its license agreements is
$2.9 million, $1.0 million and $0.4 million for
fiscal years 2009, 2010 and 2011, respectively. The Company does
not currently have any commitment for minimum guaranteed royalty
payments after fiscal year
4
2011. 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 $4.9 million and $4.3 million for
fiscal years 2008 and 2007, respectively.
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
Kids Line, LLC and CoCaLo, Inc., divisions of Russ Berrie and
Co., Inc. in its infant and juvenile segment; Summer Infant,
Inc.; Lambs & Ivy; The Betesh Group; Carters, Inc.;
Luv n Care, Ltd.; Danara International, Ltd.; Triboro
Quilt Manufacturing, Inc.; and Gerber Childrenswear, Inc., 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.
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 May 30, 2008, the Company had approximately
150 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.
International
Sales
Sales to customers in foreign countries outside the United
States are not currently material to the Companys business.
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 77% of gross
sales in fiscal year 2008. 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.
The
loss of one or more of the Companys licenses could result
in a material loss of revenues.
Sales of licensed products represented 43% of the Companys
gross sales in fiscal year 2008, including 30% of sales which
were associated with the Companys license with
Disney®.
If the Company is unable to renew its major licenses or obtain
new licenses, the Company could experience a material loss of
revenues.
5
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 and potentially the loss
of sales altogether.
The
strength of our competitors may impact our ability to maintain
and grow our 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. Many of these competitors are larger than the Company and
have greater financial resources than the Company. Increased
competition could result in a material loss of revenues.
The
Companys ability 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 our
products will not decline or that we 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 our
financial condition and operating results.
Customer
pricing pressures could result in lower selling prices which
could negatively affect the Companys operating
results.
The Companys customers constantly place pressures 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 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.
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
Companys operations.
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, further
strengthening of the Chinese currency versus the US 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.
6
The
Companys debt covenants may affect its liquidity or limit
its ability to complete 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. 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.
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. There can be no
assurance that the Companys assets would be sufficient to
repay in full that indebtedness.
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
$21.6 million outstanding at March 30, 2008. Each
1.0 percentage point increase in interest rates would
impact pre-tax earnings by $216,000 at the debt level of
March 30, 2008.
Recalls
or product liability claims could increase costs or reduce
sales.
The Company must comply with regulations set by the Consumer
Product Safety Commission and similar state regulatory
authorities. In addition, the Companys products are
subject to product safety testing. The Companys products
could be subject to involuntary recalls and other actions by
these authorities, and concerns about product safety may lead
the Company to voluntarily recall 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.
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 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.
7
The following table summarizes certain information regarding the
Companys principal real property as of May 30, 2008:
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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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54,100
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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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This property is classified as held for sale in the
Companys consolidated balance sheet (see Note 4). |
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.
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ITEM 3.
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Legal
Proceedings
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During the fourth quarter of fiscal year 2008 the Company
settled litigation instituted by the Center for Environmental
Health in California (CEH) claiming that certain of
the Companys products contained lead in excess of amounts
permitted by California law. Under the terms of the settlement,
the Company paid $16,000 to CEH in lieu of any penalty pursuant
to applicable California health and safety law and $31,500 as
reimbursement of CEHs legal fees and expenses. The Company
also agreed not to manufacture, distribute, ship or sell, or
cause to be manufactured, distributed or sold, any product
containing lead concentrations in excess of certain thresholds.
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.
8
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 $0.01 per share.
The Companys common stock (together with the associated
common share purchase rights) traded on the OTC
Bulletin Board under the ticker symbol CRWS
through March 18, 2007. Effective March 19, 2007, the
Companys common stock (together with the associated common
share purchase rights) began trading on The NASDAQ Capital
Market under the symbol CRWS. The following table
presents quarterly information on the range of the high and low
sales price per share of the Companys common stock for
fiscal year 2008 and fiscal year 2007.
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Quarter
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High
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Low
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Fiscal Year 2008
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First Quarter
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$
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4.81
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$
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3.65
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Second Quarter
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4.65
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3.71
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Third Quarter
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4.11
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3.33
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Fourth Quarter
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3.90
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3.12
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Fiscal Year 2007
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First Quarter
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$
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0.70
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$
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0.57
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Second Quarter
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3.54
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0.65
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|
Third Quarter
|
|
|
4.25
|
|
|
|
3.07
|
|
Fourth Quarter
|
|
|
6.05
|
|
|
|
3.65
|
|
As of May 30, 2008, there were 9,388,905 shares of the
Companys common stock issued and outstanding, held by
approximately 450 registered holders, and the closing stock
price was $3.80. The Company has not paid a dividend since
December 26, 1999, and its credit facility currently
prohibits the Companys payment of cash dividends.
Issuer
Purchases of Equity Securities
The table below sets forth information regarding the
Companys repurchases of its outstanding common stock
during the three-month period ended March 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value of Shares That
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
May Yet be Purchased
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Under the Plans or
|
|
Period
|
|
Shares Purchased
|
|
|
Paid per Share(1)
|
|
|
Programs(2)
|
|
|
Programs(2)
|
|
|
December 31, 2007 through February 3, 2008
|
|
|
66,889
|
|
|
$
|
3.48
|
|
|
|
66,889
|
|
|
$
|
4,912,924
|
|
February 4, 2008 through March 2, 2008
|
|
|
192,754
|
|
|
$
|
3.62
|
|
|
|
192,754
|
|
|
$
|
4,214,494
|
|
March 3, 2008 through March 30, 2008
|
|
|
77,796
|
|
|
$
|
3.67
|
|
|
|
77,796
|
|
|
$
|
3,929,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
337,439
|
|
|
$
|
3.61
|
|
|
|
337,439
|
|
|
$
|
3,929,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes broker fees of $0.03 per share. |
|
(2) |
|
In June 2007, the Companys board of directors formed a
Capital Committee which is authorized to cause the Company to
spend up to $6 million in the aggregate to repurchase from
its stockholders shares of the outstanding common stock of the
Company between July 1, 2007 and July 1, 2008 and to
determine the terms |
9
|
|
|
|
|
and conditions under which any such repurchases would be made.
During the three-month period ended September 30, 2007,
84,855 shares were repurchased at an average price per
share, including broker fees, of $3.95. During the three-month
period ended December 30, 2007, 140,353 shares were
repurchased at an average price per share, including broker
fees, of $3.70. |
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 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
320,000
|
|
|
$
|
3.47
|
|
|
|
502,000
|
|
|
|
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 data for
fiscal years 2008 and 2007 and the dollar and percentage
variances among those years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
Dollars in thousands
|
|
|
Net sales by category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedding, blankets and accessories
|
|
$
|
57,765
|
|
|
$
|
47,869
|
|
|
$
|
9,896
|
|
|
|
20.7
|
%
|
Bibs and bath
|
|
|
17,122
|
|
|
|
21,381
|
|
|
|
(4,259
|
)
|
|
|
(19.9
|
)%
|
Total net sales
|
|
|
74,887
|
|
|
|
69,250
|
|
|
|
5,637
|
|
|
|
8.1
|
%
|
Cost of products sold
|
|
|
56,281
|
|
|
|
51,170
|
|
|
|
5,111
|
|
|
|
10.0
|
%
|
Gross profit
|
|
|
18,606
|
|
|
|
18,080
|
|
|
|
526
|
|
|
|
2.9
|
%
|
% of net sales
|
|
|
24.8
|
%
|
|
|
26.1
|
%
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
10,698
|
|
|
|
9,193
|
|
|
|
1,505
|
|
|
|
16.4
|
%
|
% of net sales
|
|
|
14.3
|
%
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
775
|
|
|
|
1,362
|
|
|
|
(587
|
)
|
|
|
(43.1
|
)%
|
Gain on debt refinancing
|
|
|
|
|
|
|
4,069
|
|
|
|
(4,069
|
)
|
|
|
(100.0
|
)%
|
Other income (expense)
|
|
|
126
|
|
|
|
(5
|
)
|
|
|
131
|
|
|
|
(2620.0
|
)%
|
Income tax expense
|
|
|
2,828
|
|
|
|
3,640
|
|
|
|
(812
|
)
|
|
|
(22.3
|
)%
|
Income from continuing operations after taxes
|
|
|
4,431
|
|
|
|
7,949
|
|
|
|
(3,518
|
)
|
|
|
(44.3
|
)%
|
Discontinued operations net of taxes
|
|
|
(78
|
)
|
|
|
(348
|
)
|
|
|
270
|
|
|
|
(77.6
|
)%
|
Net income
|
|
|
4,353
|
|
|
|
7,601
|
|
|
|
(3,248
|
)
|
|
|
(42.7
|
)%
|
% of net sales
|
|
|
5.8
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
10
Net Sales: Sales of bedding, blankets and
accessories increased in fiscal year 2008 as compared to the
prior year. Sales increased by $9.9 million due to the
acquisition of the baby products line from Springs Global on
November 5, 2007, and increased by $8.2 million due to
shipments of new bedding and blanket programs. These increases
were offset by decreased sales of $6.9 million due to
programs that were discontinued in the latter part of fiscal
year 2007 and the first nine months of fiscal year 2008. In
addition, there was a decrease in shipments of replenishment
orders of $1.3 million.
Bib and bath sales decreased in fiscal year 2008 as compared to
the prior year. Sales decreased by $4.7 million due to
programs that were discontinued or had lower replenishment
orders and by $0.3 million due to promotions in the prior
year that were not repeated in the current year. Also, there was
a net decrease of $1.6 million in shipments of
replenishment orders related to the discontinuance of sales of
vinyl bibs. Offsetting these decreases were increases of
$2.3 million related to sales of new designs and increased
initial shipments.
Gross Profit: Gross profit increased slightly
in amount, but decreased as a percentage of net sales for fiscal
year 2008 as compared to fiscal year 2007. The increase in gross
profit dollars is due to the increased sales volume and
decreased standard cost of sales offset by increased negative
burden deferral, amortization and warehousing costs. Gross
profit was negatively impacted in the current year by a $225,000
charge related to vinyl bibs recorded in the second quarter and
acquisition-related amortization expense of $592,000 in the
current year compared to $9,000 in the previous year. Also,
warehousing costs increased by $788,000 in the current year due
to warehousing and shared services arrangements entered into in
conjunction with the acquisition of the baby products line from
Springs Global.
Marketing and Administrative
Expenses: Marketing and administrative expenses
increased in both amount and as a percentage of net sales from
fiscal year 2007 to fiscal year 2008. The Company recorded
$515,000 of share-based compensation in fiscal year 2008,
compared to $271,000 in fiscal year 2007. Also, the Company
incurred costs of $476,000 during fiscal year 2008 associated
with the Companys proxy contest. Additionally, the Company
experienced increased salaries and amortization as the Company
integrated the acquisition of the baby products line from
Springs Global.
Interest Expense: Interest expense decreased
in fiscal year 2008 as compared to fiscal year 2007 due to lower
average debt balances and lower interest rates primarily as a
result of the refinancing of the Companys debt on
July 11, 2006. However, interest expense increased in the
latter part of fiscal year 2008 due to a higher revolving line
of credit and a new term loan executed in conjunction with the
acquisition of the baby products line from Springs Global on
November 5, 2007.
Gain on Debt Refinancing: On July 11,
2006 the Company refinanced its credit facilities. In connection
with the refinancing, non-interest bearing subordinated
indebtedness was reduced from $8 million to
$4 million. The $8 million debt was carried on the
Companys books net of an unamortized discount of
$1 million immediately before the refinancing. The new
$4 million debt was initially recorded net of an original
issue discount of $1.1 million. The Company recorded an
approximate pre-tax gain of $4.1 million on the
subordinated debt reduction in the second quarter of fiscal year
2007.
Financial
Position, Liquidity and Capital Resources
Net cash provided by operating activities was $2.7 million
for the year ended March 30, 2008, compared to net cash
provided by operating activities of $11.4 million for the
year ended April 1, 2007. 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 $0.5 million in 2008 compared to
net cash used in investing activities of $0.8 million in
the prior year. Net cash provided by financing activities was
$5.7 million in 2008 compared to net cash used in financing
activities of $14.4 million in the prior year. Cash
provided in the current year was primarily borrowings on the
revolving line of credit offset by payments on long-term debt
and treasury stock purchases. Cash used in the prior year was
primarily due to the Companys debt refinancing. Total debt
outstanding increased to $24.8 million at March 30,
2008, from $5.8 million at April 1, 2007. The increase
is primarily due to debt incurred to purchase the baby products
line from Springs Global and borrowings on the revolving line of
credit drawn down due to uncertainties in the United States
credit markets. As of March 30, 2008, letters of credit of
$0.6 million were outstanding against the $1.5 million
sub-limit
11
for letters of credit associated with the Companys
$26 million revolving credit facility. Based on eligible
accounts receivable and inventory balances as of March 30,
2008, the Company had revolving credit availability of
$5.2 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.
At March 30, 2008 and April 1, 2007, long-term debt
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30,
|
|
|
April 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
Revolving line of credit
|
|
$
|
17,383
|
|
|
$
|
2,742
|
|
Term loan
|
|
|
4,167
|
|
|
|
|
|
Non-interest bearing notes
|
|
|
4,000
|
|
|
|
4,000
|
|
Original issue discount
|
|
|
(739
|
)
|
|
|
(966
|
)
|
Capital leases
|
|
|
4
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,815
|
|
|
|
5,799
|
|
Less current maturities
|
|
|
2,504
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,311
|
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
|
|
The Companys credit facilities at March 30, 2008
include the following:
Revolving Line of Credit of up to $26 million,
including a $1.5 million sub-limit for letters of credit,
with an interest rate of prime minus 1.00% (4.25% at
March 30, 2008) for base rate borrowings or LIBOR plus
2.25% (5.37% at March 30, 2008), maturing on July 11,
2010 and secured by a first lien on all assets of the Company.
There was a balance of $17.4 million on the revolving line
of credit at March 30, 2008, and the Company had
$5.2 million available under the revolving line of credit
based on eligible accounts receivable and inventory balances as
of March 30, 2008. As of March 30, 2008, letters of
credit of $0.6 million were outstanding against the
$1.5 million sub-limit for letters of credit.
The financing agreement for the $26 million revolving line
of credit 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
March 30, 2008.
Term Loan of an original amount of $5 million, with
an interest rate of prime plus 0.5% (5.75% at March 30,
2008) and requiring equal monthly installments of principal
until final maturity on November 1, 2009.
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
$0.7 million is included in the consolidated balance sheet
as of March 30, 2008.
12
Minimum annual maturities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Revolver
|
|
|
Term Loan
|
|
|
Sub Notes
|
|
|
Other
|
|
|
Total
|
|
|
2009
|
|
|
|
|
|
$
|
2,500
|
|
|
|
|
|
|
$
|
4
|
|
|
$
|
2,504
|
|
2010
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
|
1,667
|
|
2011
|
|
$
|
17,383
|
|
|
|
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
19,383
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,383
|
|
|
$
|
4,167
|
|
|
$
|
4,000
|
|
|
$
|
4
|
|
|
$
|
25,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To reduce its exposure to credit losses and to enhance its cash
flow, 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 in July 2009, 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 date, the Company is charged interest at prime
less 1.0%, which was 4.25% at March 30, 2008, until payment
is received. The factor bears credit losses with respect to
assigned accounts receivable from approved customers that are
within approved credit limits. The Company bears losses
resulting from 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.
Management does not believe that inflation has had a material
effect on the Companys operations. If inflation increases,
the Company will attempt to increase its prices to offset its
increased expenses. There is no assurance, however, that the
Company will be able to adequately increase its prices in
response to inflation.
Critical
Accounting Policies
While the listing below is not inclusive of all of the
Companys accounting policies, the Companys
management believes that the following policies are those which
are most critical and embody the most significant management
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. These critical policies are:
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.
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 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
finished goods which necessitate the establishment of inventory
reserves which are highly subjective. Actual results could
differ from those estimates.
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
13
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 30, 2008 totaled $18.3 million, net of
allowances of $1.3 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 $4.9 million and $4.3 million for
the fiscal years ended March 30, 2008 and April 1,
2007, 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 may 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. 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 30, 2008, the Companys inventories
totaled $13.8 million, net of allowances for discontinued,
irregular, slow moving and obsolete inventories of
$0.3 million. Management believes that the Companys
inventory valuation results in carrying 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.
14
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 sheet.
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 at
March 30, 2008 and April 1, 2007. On April 1,
2002, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). As a
result, the Company discontinued amortizing goodwill but
continued to amortize other long-lived intangible assets. In
lieu of amortization, the Company is required to perform an
annual impairment review of its goodwill. With the exception of
goodwill related to Churchill, the Company has determined that
the fair value of its goodwill exceeded the recorded value at
April 3, 2006 and April 2, 2007. Churchills
goodwill of $90,000 was written off in June 2006 due to an
impairment indicator, specifically the decline in sales volume
and profitability in recent years. Churchill has since ceased
operations, and its remaining assets are held for sale (see
Note 4 to the Companys consolidated financial
statements).
Recently-Issued
Accounting Standards
In July 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109, 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. On April 2, 2007, the Company adopted the
provisions of FIN 48. Based on our recent evaluation, we
have concluded that there are no significant uncertain tax
positions requiring recognition in the Companys
consolidated financial statements. Our evaluation was performed
for the years ended April 3, 2005, April 2, 2006 and
April 1, 2007, the years which remain subject to
examination by major tax jurisdictions as of March 30,
2008. The Companys policy is to accrue interest expense
and penalties as appropriate on its estimated unrecognized tax
benefits as a charge to interest expense in the Companys
consolidated financial statements.
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. Earlier application is encouraged; provided,
however, that the reporting entity has not yet issued financial
statements for that fiscal year, including financial statements
for an interim period within that fiscal year. The Company is
assessing SFAS No. 157 and has not determined yet the
impact that its adoption will have on the Companys results
of operations or financial position.
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. The Company is assessing
SFAS No. 159 and has not determined yet the impact
that its adoption will have on its results of operations or
financial position.
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
15
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 17 and F-1 through F-16 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 to ensure that information required to
be disclosed in the reports the Company files and submits under
the Exchange Act is recorded, processed, summarized and reported
as and when required.
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 30, 2008.
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 published
financial statements for external purposes 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 reasonable assurance
with respect to financial statement preparation and presentation.
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 connections with such evaluation determined that no
changes occurred during the Companys fourth fiscal quarter
ended March 30, 2008 that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
16
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
2008 (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.
|
|
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 Management and Certain Beneficial Owners 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 Policy on
Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors in the Proxy Statement is
incorporated herein by reference.
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:
|
- Report of Independent Registered Public Accounting Firm
|
- Consolidated Balance Sheets as of March 30, 2008 and
April 1, 2007
|
- Consolidated Statements of Income for the Fiscal Years Ended
March 30, 2008 and April 1, 2007
|
- Consolidated Statements of Changes in Shareholders
Equity for the Fiscal Years Ended March 30, 2008 and
April 1, 2007
|
- Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 30, 2008 and April 1, 2007
|
- 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 18
|
|
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.
17
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 April 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
33
|
|
|
$
|
28
|
|
|
$
|
15
|
|
|
$
|
20
|
|
Allowance for customer deductions
|
|
$
|
1,131
|
|
|
$
|
4,199
|
|
|
$
|
4,037
|
|
|
$
|
969
|
|
Year Ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
20
|
|
|
$
|
28
|
|
|
$
|
12
|
|
|
$
|
4
|
|
Allowance for customer deductions
|
|
$
|
969
|
|
|
$
|
4,387
|
|
|
$
|
4,682
|
|
|
$
|
1,264
|
|
Inventory Valuation Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discontinued and irregulars
|
|
$
|
527
|
|
|
$
|
(183
|
)
|
|
$
|
|
|
|
$
|
344
|
|
Year Ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discontinued and irregulars
|
|
$
|
344
|
|
|
$
|
(19
|
)
|
|
$
|
|
|
|
$
|
325
|
|
|
|
|
(1) |
|
Deductions from the allowance for doubtful accounts represent
the amount of accounts written off reduced by any subsequent
recoveries. |
18
(a)(3).
Exhibits
Exhibits required to be filed by Item 601 of
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)
|
|
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)
|
|
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)
|
19
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
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)
|
|
14
|
.1
|
|
|
|
Code of Ethics(4)
|
|
21
|
|
|
|
|
Subsidiaries of the Company(10)
|
|
23
|
|
|
|
|
Consent of Deloitte & Touche LLP(10)
|
|
31
|
.1
|
|
|
|
Rule 13a-14(a)/15d-14(a)
Certification by the Companys Chief Executive Officer(10)
|
|
31
|
.2
|
|
|
|
Rule 13a-14(a)/15d-14(a)
Certification by the Companys Chief Financial Officer(10)
|
|
32
|
.1
|
|
|
|
Section 1350 Certification by the Companys Chief
Executive Officer(10)
|
|
32
|
.2
|
|
|
|
Section 1350 Certification by the Companys Chief
Financial Officer(10)
|
|
|
|
(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. |
|
(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) |
|
Filed herewith. |
20
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
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
|
|
Chief Executive Officer,
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ William
T. Deyo, Jr.
William
T. Deyo, Jr.
|
|
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ Sidney
Kirschner
Sidney
Kirschner
|
|
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ Zenon
S. Nie
Zenon
S. Nie
|
|
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ Donald
Ratajczak
Donald
Ratajczak
|
|
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ James
A. Verbrugge
James
A. Verbrugge
|
|
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ Frederick
G. Wasserman
Frederick
G. Wasserman
|
|
Director
|
|
June 10, 2008
|
|
|
|
|
|
/s/ Amy
Vidrine Samson
Amy
Vidrine Samson
|
|
Chief Financial Officer,
Chief Accounting Officer
|
|
June 10, 2008
|
21
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Audited Financial Statements:
|
|
|
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
22
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Crown Crafts, Inc.
We have audited the accompanying consolidated balance sheets of
Crown Crafts, Inc. and subsidiaries (the Company) as
of March 30, 2008 and April 1, 2007, and the related
consolidated statements of income, changes in shareholders
equity, and cash flows for the fiscal years ended March 30,
2008 and April 1, 2007. Our audits also included the
financial statement schedule 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 audits.
We conducted our audits 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 audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Crown Crafts, Inc. and subsidiaries as of March 30, 2008
and April 1, 2007, and the results of their operations and
their cash flows for the years ended March 30, 2008 and
April 1, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such 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.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
June 9, 2008
F-1
CROWN
CRAFTS, INC. AND SUBSIDIARIES
March 30, 2008 and April 1, 2007
|
|
|
|
|
|
|
|
|
|
|
March 30, 2008
|
|
|
April 1, 2007
|
|
|
|
(Amounts in thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,930
|
|
|
$
|
33
|
|
Accounts receivable (net of allowances of $1,268 at
March 30, 2008 and $989 at April 1, 2007):
|
|
|
|
|
|
|
|
|
Due from factor
|
|
|
16,081
|
|
|
|
11,764
|
|
Other
|
|
|
2,197
|
|
|
|
1,121
|
|
Inventories, net
|
|
|
13,777
|
|
|
|
7,145
|
|
Prepaid expenses
|
|
|
1,064
|
|
|
|
1,313
|
|
Assets held for sale
|
|
|
663
|
|
|
|
|
|
Deferred income taxes
|
|
|
885
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
42,597
|
|
|
|
23,784
|
|
Property, plant and equipment at cost:
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
203
|
|
|
|
1,322
|
|
Machinery and equipment
|
|
|
2,241
|
|
|
|
2,502
|
|
Furniture and fixtures
|
|
|
742
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,186
|
|
|
|
4,478
|
|
Less accumulated depreciation
|
|
|
2,597
|
|
|
|
3,037
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
|
589
|
|
|
|
1,441
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
22,884
|
|
|
|
22,884
|
|
Intangible assets, net
|
|
|
7,276
|
|
|
|
617
|
|
Other
|
|
|
131
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
30,291
|
|
|
|
23,691
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
73,477
|
|
|
$
|
48,916
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,614
|
|
|
$
|
3,552
|
|
Accrued wages and benefits
|
|
|
1,179
|
|
|
|
1,300
|
|
Accrued royalties
|
|
|
1,023
|
|
|
|
671
|
|
Other accrued liabilities
|
|
|
711
|
|
|
|
73
|
|
Current maturities of long-term debt
|
|
|
2,504
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,031
|
|
|
|
5,615
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
22,311
|
|
|
|
5,780
|
|
Deferred income taxes
|
|
|
402
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
22,713
|
|
|
|
6,478
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock $0.01 par value per share;
Authorized 74,000,000 shares; Issued 10,039,942 shares
at March 30, 2008 and 10,003,692 shares at
April 1, 2007
|
|
|
100
|
|
|
|
100
|
|
Additional paid-in capital
|
|
|
39,247
|
|
|
|
38,619
|
|
Treasury stock at cost
562,647 shares at March 30, 2008
|
|
|
(2,071
|
)
|
|
|
|
|
Retained earnings (accumulated deficit)
|
|
|
2,457
|
|
|
|
(1,896
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
39,733
|
|
|
|
36,823
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
73,477
|
|
|
$
|
48,916
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-2
CROWN
CRAFTS, INC. AND SUBSIDIARIES
Fiscal years ended March 30, 2008 and April 1,
2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
74,887
|
|
|
$
|
69,250
|
|
Cost of products sold
|
|
|
56,281
|
|
|
|
51,170
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,606
|
|
|
|
18,080
|
|
Marketing and administrative expenses
|
|
|
10,698
|
|
|
|
9,193
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
7,908
|
|
|
|
8,887
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(775
|
)
|
|
|
(1,362
|
)
|
Gain on debt refinancing
|
|
|
|
|
|
|
4,069
|
|
Other net
|
|
|
126
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7,259
|
|
|
|
11,589
|
|
Income tax expense
|
|
|
2,828
|
|
|
|
3,640
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations after income taxes
|
|
|
4,431
|
|
|
|
7,949
|
|
Loss from discontinued operations net of income taxes
|
|
|
(78
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,353
|
|
|
$
|
7,601
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
9,888
|
|
|
|
9,782
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
10,165
|
|
|
|
10,038
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.45
|
|
|
$
|
0.81
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Total basic earnings per share
|
|
$
|
0.44
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.44
|
|
|
$
|
0.79
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Total diluted earnings per share
|
|
$
|
0.43
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
CROWN
CRAFTS, INC. AND SUBSIDIARIES
Fiscal years ended March 30, 2008 and April 1,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2, 2006
|
|
|
9,505,937
|
|
|
$
|
95
|
|
|
|
|
|
|
$
|
|
|
|
$
|
38,244
|
|
|
$
|
(9,497
|
)
|
|
$
|
28,842
|
|
Issuance of Shares
|
|
|
497,755
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
80
|
|
Stock-based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,601
|
|
|
|
7,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
CROWN
CRAFTS, INC. AND SUBSIDIARIES
Fiscal years ended March 30, 2008 and April 1,
2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,353
|
|
|
$
|
7,601
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
349
|
|
|
|
452
|
|
Goodwill write-off
|
|
|
|
|
|
|
90
|
|
Amortization of intangibles
|
|
|
784
|
|
|
|
17
|
|
Deferred income taxes
|
|
|
1,227
|
|
|
|
2,677
|
|
Loss (gain) on sale of property, plant and equipment
|
|
|
9
|
|
|
|
(136
|
)
|
Discount accretion
|
|
|
227
|
|
|
|
349
|
|
Gain on debt refinancing
|
|
|
|
|
|
|
(4,069
|
)
|
Stock-based compensation
|
|
|
588
|
|
|
|
300
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,539
|
)
|
|
|
1,572
|
|
Inventories, net
|
|
|
(2,551
|
)
|
|
|
2,597
|
|
Prepaid expenses
|
|
|
249
|
|
|
|
(136
|
)
|
Other assets
|
|
|
51
|
|
|
|
(110
|
)
|
Accounts payable
|
|
|
2,062
|
|
|
|
41
|
|
Accrued liabilities
|
|
|
869
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,678
|
|
|
|
11,421
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(188
|
)
|
|
|
(381
|
)
|
Acquisition costs to purchase Kimberly Grant brand
|
|
|
|
|
|
|
(600
|
)
|
Acquisition costs to purchase baby products line from Springs
Global
|
|
|
(356
|
)
|
|
|
|
|
Proceeds from disposition of assets
|
|
|
19
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(525
|
)
|
|
|
(819
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Retirement of debt
|
|
|
|
|
|
|
(17,077
|
)
|
Payments on long-term debt
|
|
|
(852
|
)
|
|
|
(36
|
)
|
Proceeds under revolving line of credit, net
|
|
|
8,627
|
|
|
|
2,744
|
|
Debt issuance costs
|
|
|
|
|
|
|
(70
|
)
|
Purchase of treasury stock
|
|
|
(2,071
|
)
|
|
|
|
|
Issuance of common stock
|
|
|
40
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
5,744
|
|
|
|
(14,359
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
7,897
|
|
|
|
(3,757
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
33
|
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
7,930
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,177
|
|
|
$
|
738
|
|
Interest paid
|
|
|
475
|
|
|
|
1,121
|
|
Noncash investing and financing activity:
|
|
|
|
|
|
|
|
|
Debt issued to purchase baby products line from Springs Global:
|
|
|
|
|
|
|
|
|
Funded through the 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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
Crown
Crafts, Inc. and Subsidiaries
Fiscal Years Ended March 30, 2008 and April 1,
2007
|
|
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,
bibs, infant 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. 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 2008 and 2007.
Cash and Cash Equivalents: The Company
considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
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 the disclosure of contingent
assets and liabilities as of 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 has a certain amount of discontinued finished goods
which necessitate the establishment of inventory reserves that
are highly subjective. Actual results could differ from those
estimates.
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 Rates estimated for debt with similar
terms and remaining maturities to companies in a similar
financial situation as the Company are used to estimate the fair
value of existing debt. The carrying value is a reasonable
estimate of fair value.
|
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
EITF 01-9,
all such allowances are recorded as direct offsets to sales and
F-6
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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.
Inventory Valuation: Inventories are valued at
the lower of cost or market, where cost is determined using the
first-in,
first-out method.
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 $4.9 million, and $4.3 million in
2008 and 2007, respectively.
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.
Impairment 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 sheet.
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 at
March 30, 2008 and April 1, 2007. On April 1,
2002, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). As a
result, the Company discontinued amortizing goodwill but
continued to amortize other long-lived intangible assets. In
lieu of amortization, the Company is required to perform an
annual impairment review of its goodwill. With the exception of
goodwill related to Churchill Weavers, Inc.
(Churchill), a wholly-owned subsidiary of the
Company, the Company has determined that the fair value of its
goodwill exceeded the recorded value at April 3, 2006 and
April 2, 2007. Churchills goodwill of $90,000 was
written off in June 2006 due to an impairment indicator,
specifically the decline in sales volume and profitability in
recent years. Churchill has since ceased operations, and its
remaining assets are held for sale (see Note 4 to the
Companys consolidated financial statements).
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.
Segments and Related Information: The Company
adopted SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This statement
requires certain information to be reported about operating
segments on a basis consistent with the Companys internal
organizational structure. The Company operates in one
F-7
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
principal segment, infant and toddler products. These products
consist of infant and toddler bedding, bibs, infant soft goods
and accessories.
Earnings Per Share: 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. 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 are 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 following
table sets forth the computation of basic and diluted net income
per common share for fiscal years 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Income from continuing operations
|
|
$
|
4,431
|
|
|
$
|
7,949
|
|
Loss from discontinued operations
|
|
|
(78
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
Net income, basic and diluted
|
|
$
|
4,353
|
|
|
$
|
7,601
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,888
|
|
|
|
9,782
|
|
Effect of dilutive securities
|
|
|
277
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
10,165
|
|
|
|
10,038
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.45
|
|
|
$
|
0.81
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.44
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.44
|
|
|
$
|
0.79
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.43
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
Recently Issued Accounting Standards: In July
2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109, 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. On April 2, 2007, the Company adopted the
provisions of FIN 48. Based on our recent evaluation, we
have concluded that there are no significant uncertain tax
positions requiring recognition in the Companys
consolidated financial statements. Our evaluation was performed
for the years ended April 3, 2005, April 2, 2006 and
April 1, 2007, the years which remain subject to
examination by major tax jurisdictions as of March 30,
2008. The Companys policy is to accrue interest expense
and penalties as appropriate on its estimated unrecognized tax
benefits as a charge to interest expense in the Companys
consolidated financial statements.
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
F-8
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
effective for financial statements issued for fiscal years
beginning after November 15, 2007 and for interim periods
within those fiscal years. Earlier application is encouraged;
provided, however, that the reporting entity has not yet issued
financial statements for that fiscal year, including financial
statements for an interim period within that fiscal year. The
Company is assessing SFAS No. 157 and has not
determined yet the impact that its adoption will have on the
Companys results of operations, financial position or cash
flows.
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. The Company is assessing
SFAS No. 159 and has not determined yet the impact
that its adoption will have on its results of operations,
financial position or cash flows.
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.
Kimberly Grant: On December 29, 2006,
Crown Crafts Infant Products, Inc. (CCIP), a
wholly-owned subsidiary of the Company, acquired substantially
all of the assets of Kimberly Grant, Inc., a designer of various
infant and toddler products. The purchase price consisted of
$550,000 paid at closing and $50,000 paid upon renewal of the
acquired Kimberly Grant trademark.
The assets acquired were limited to certain intangible assets,
the fair values of which were determined by the Company with the
assistance of an independent third party. The Companys
resulting allocation of the purchase price, the estimated useful
life of the assets acquired, the accumulated amortization and
the amortization expense as of and for the year ended
March 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Amortization
|
|
|
|
Carrying
|
|
|
Useful
|
|
|
Accumulated
|
|
|
Expense in
|
|
|
|
Amount
|
|
|
Life
|
|
|
Amortization
|
|
|
FY 2008
|
|
|
Tradename
|
|
$
|
466,387
|
|
|
|
15 years
|
|
|
$
|
38,872
|
|
|
$
|
31,092
|
|
Existing designs
|
|
|
35,924
|
|
|
|
1 year
|
|
|
|
35,924
|
|
|
|
35,924
|
|
Non-compete
|
|
|
97,689
|
|
|
|
15 years
|
|
|
|
8,094
|
|
|
|
6,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
600,000
|
|
|
|
|
|
|
$
|
82,890
|
|
|
$
|
73,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Springs Global: On November 5, 2007, CCIP
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
purchase price consisted initially of $12.4 million for the
inventory and certain intangible assets, which was subject to an
adjustment pending the completion of a final valuation of the
inventory purchased. Upon the completion of this valuation,
$1.4 million was returned to the Company for a net purchase
price of $11.0 million. The Company also capitalized
$0.4 million of direct costs associated with this
acquisition for a total capitalized acquisition cost of
$11.4 million.
F-9
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The fair values of the intangible assets acquired were
determined by the Company with the assistance of an independent
third party. The Companys allocation of the intangible
assets acquired, their estimated useful life, the accumulated
amortization and the amortization expense as of and for the year
ended March 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Amortization
|
|
|
|
Carrying
|
|
|
Useful
|
|
|
Accumulated
|
|
|
Expense in
|
|
|
|
Amount
|
|
|
Life
|
|
|
Amortization
|
|
|
FY 2008
|
|
|
Licenses & existing designs
|
|
$
|
1,655,188
|
|
|
|
2 years
|
|
|
$
|
344,834
|
|
|
$
|
344,834
|
|
Licenses & future designs
|
|
|
1,846,822
|
|
|
|
4 years
|
|
|
|
192,397
|
|
|
|
192,397
|
|
Non-compete
|
|
|
114,981
|
|
|
|
4 years
|
|
|
|
11,996
|
|
|
|
11,996
|
|
Customer relationships
|
|
|
3,817,538
|
|
|
|
10 years
|
|
|
|
159,043
|
|
|
|
159,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,434,529
|
|
|
|
|
|
|
$
|
708,270
|
|
|
$
|
708,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to acquisitions affected basic and
diluted earnings per share by $0.07.
The table below represents estimated amortization expense for
the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Kimberly Grant tradename
|
|
$
|
31,092
|
|
|
$
|
31,092
|
|
|
$
|
31,092
|
|
|
$
|
31,092
|
|
|
$
|
31,092
|
|
Kimberly Grant non-compete
|
|
|
6,513
|
|
|
|
6,513
|
|
|
|
6,513
|
|
|
|
6,513
|
|
|
|
6,513
|
|
Springs Global licenses & existing designs
|
|
|
827,594
|
|
|
|
482,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Springs Global licenses & future designs
|
|
|
461,706
|
|
|
|
461,706
|
|
|
|
461,706
|
|
|
|
269,307
|
|
|
|
|
|
Springs Global non-compete
|
|
|
28,745
|
|
|
|
28,745
|
|
|
|
28,745
|
|
|
|
16,750
|
|
|
|
|
|
Springs Global customer relationships
|
|
|
381,754
|
|
|
|
381,754
|
|
|
|
381,754
|
|
|
|
381,754
|
|
|
|
381,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
1,737,404
|
|
|
$
|
1,392,570
|
|
|
$
|
909,810
|
|
|
$
|
705,416
|
|
|
$
|
419,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
and the twelve-month period ended December 30, 2006. 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 years ended March 30, 2008 and
April 1, 2007. 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 to adjust the
estimated results of operations of the Springs Global baby
products line, and no pro forma adjustments have been made to
give effect to these anticipated reduced costs.
For proforma purposes, the revenues and expenses reported by the
Springs Global baby products line for the nine-month period
ended September 29, 2007 and the twelve-month period ended
December 30, 2006 (adjusted for pro rata estimates of the
Companys revenues and expenses related to these products
from the acquisition date to September 29, 2007) were
combined with the revenues and expenses reported by the Company
for the fiscal years ended March 30, 2008 and April 1,
2007, respectively. For the fiscal year ended March 30,
2008, the proforma results include two overlapping months of
operations related to the baby products line acquired from
Springs Global
F-10
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
as the operations reported by Springs Global include nine months
and the operations reported by the Company include five months.
The following unaudited proforma financial information presents
a summary of the Companys consolidated results of
operations for the fiscal years ended March 30, 2008 and
April 1, 2007, as if the acquisition of the baby products
line from Springs Global had occurred on April 3, 2006.
This proforma financial information includes adjustments to
reflect the amortization of the intangible assets acquired and
an estimate of the interest expense that would have been
incurred, 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 3,
2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
92,914
|
|
|
$
|
106,257
|
|
Total operating expenses
|
|
$
|
86,043
|
|
|
$
|
96,346
|
|
Income from continuing operations
|
|
$
|
3,644
|
|
|
$
|
9,261
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4
|
Discontinued
Operations
|
On February 2, 2007, the Company announced that it would
liquidate Churchill. Goodwill of $90,000 associated with the
acquisition of Churchill was written-off in June 2006. In
anticipation of the liquidation of Churchill, the Company
recorded valuation allowances of $550,000 in the quarter ended
December 31, 2006 to reflect the expected net realizable
value of Churchills receivables, inventories and prepaid
expenses. In the fourth quarter of fiscal year 2007, the Company
sold the Churchill Weavers name, together with Churchills
other intellectual property, domain name and website, yarn
inventory, looms and other weaving, sewing and laundry equipment
for $275,000. The Company also sold in the fourth quarter of
fiscal year 2007 a small portion of the Churchill property in
Berea, Kentucky, and Churchills archives and certain
antiquities for $110,000. 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. The property has been appraised at greater
than net book value. In accordance with accounting guidelines,
in fiscal year 2008, the property is classified as assets held
for sale in the consolidated balance sheet, and the operations
of Churchill are classified as discontinued operations in the
consolidated statements of income. These classifications were
not used prior to the end of fiscal year 2007 because
Churchills operations were continuing at that time.
Major classes of inventory were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30, 2008
|
|
|
April 1, 2007
|
|
|
Raw materials
|
|
$
|
40
|
|
|
$
|
15
|
|
Work in process
|
|
|
|
|
|
|
12
|
|
Finished goods
|
|
|
13,737
|
|
|
|
7,118
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
13,777
|
|
|
$
|
7,145
|
|
|
|
|
|
|
|
|
|
|
Inventory is net of reserves for inventories classified as
irregular or discontinued of $0.3 million at March 30,
2008 and April 1, 2007.
F-11
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 6
|
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. Factoring fees, which are
included in marketing and administrative expenses in the
consolidated statements of income, were $246,000 and $236,000,
respectively, in 2008 and 2007. Factor advances were $0 at both
March 30, 2008 and April 1, 2007.
Notes Payable and Other Credit Facilities: At
March 30, 2008 and April 1, 2007, long term debt
consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 30, 2008
|
|
|
April 1, 2007
|
|
|
Revolving line of credit
|
|
$
|
17,383
|
|
|
$
|
2,742
|
|
Term loan
|
|
|
4,167
|
|
|
|
|
|
Non-interest bearing notes
|
|
|
4,000
|
|
|
|
4,000
|
|
Original issue discount
|
|
|
(739
|
)
|
|
|
(966
|
)
|
Capital leases
|
|
|
4
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,815
|
|
|
|
5,799
|
|
Less current maturities
|
|
|
2,504
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,311
|
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
|
|
The Companys credit facilities at March 30, 2008
include the following:
Revolving Line of Credit of up to $26 million,
including a $1.5 million sub-limit for letters of credit,
with an interest rate of prime minus 1.00% (4.25% at
March 30, 2008) for base rate borrowings or LIBOR plus
2.25% (5.37% at March 30, 2008), maturing on July 11,
2010 and secured by a first lien on all assets of the Company.
There was a balance of $17.4 million on the revolving line
of credit at March 30, 2008, and the Company had
$5.2 million available under the revolving line of credit
based on eligible accounts receivable and inventory balances as
of March 30, 2008. As of March 30, 2008, letters of
credit of $0.6 million were outstanding against the
$1.5 million sub-limit for letters of credit.
The financing agreement for the $26 million revolving line
of credit 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
March 30, 2008.
Term Loan of an original amount of $5 million, with
an interest rate of prime plus 0.5% (5.75% at March 30,
2008) and requiring equal monthly installments of principal
until final maturity on November 1, 2009.
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
$0.7 million is included in the consolidated balance sheet
as of March 30, 2008.
F-12
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Minimum annual maturities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Revolver
|
|
|
Term Loan
|
|
|
Sub Notes
|
|
|
Other
|
|
|
Total
|
|
|
2009
|
|
|
|
|
|
$
|
2,500
|
|
|
|
|
|
|
$
|
4
|
|
|
$
|
2,504
|
|
2010
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
|
1,667
|
|
2011
|
|
$
|
17,383
|
|
|
|
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
19,383
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,383
|
|
|
$
|
4,167
|
|
|
$
|
4,000
|
|
|
$
|
4
|
|
|
$
|
25,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To reduce its exposure to credit losses and to enhance its cash
flow, 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 in July, 2009, 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 date, the Company is charged interest at prime
less 1.0%, which was 4.25% at March 30, 2008, until payment
is received. The factor bears credit losses with respect to
assigned accounts receivable from approved customers that are
within approved credit limits. The Company bears losses
resulting from 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.
|
|
Note 7
|
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.
Income tax expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,159
|
|
|
$
|
|
|
State and local
|
|
|
442
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,601
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
Deferred (primarily Federal)
|
|
|
1,227
|
|
|
|
2,677
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
2,828
|
|
|
$
|
3,640
|
|
|
|
|
|
|
|
|
|
|
F-13
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The tax effects of temporary differences that comprise the
deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Assets/(Liabilities)
|
|
|
|
|
|
|
|
|
Deferred tax asset current:
|
|
|
|
|
|
|
|
|
Employee benefit accruals
|
|
$
|
440
|
|
|
$
|
491
|
|
Accounts receivable and inventory reserves
|
|
|
445
|
|
|
|
355
|
|
Net operating loss carry forward
|
|
|
|
|
|
|
1,220
|
|
Other
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
885
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset (liability) non-current:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(728
|
)
|
|
|
(831
|
)
|
Property, plant and equipment
|
|
|
(15
|
)
|
|
|
15
|
|
Other
|
|
|
341
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) non-current
|
|
|
(402
|
)
|
|
|
(698
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
483
|
|
|
$
|
1,710
|
|
|
|
|
|
|
|
|
|
|
As of March 30, 2008, the Company has utilized its federal
income tax net operating loss carryforwards.
The following reconciles the income tax expense at the
U.S. federal income tax statutory rate to that in the
consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Tax expense at statutory rate (34)%
|
|
$
|
2,468
|
|
|
$
|
3,940
|
|
State income taxes, net of Federal income tax benefit
|
|
|
292
|
|
|
|
636
|
|
Nondeductible expenses
|
|
|
11
|
|
|
|
79
|
|
Nontaxable income
|
|
|
|
|
|
|
(1,061
|
)
|
Other
|
|
|
57
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
2,828
|
|
|
$
|
3,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Retirement
Plans
|
The Company sponsors a defined contribution retirement savings
plan with a cash or deferred arrangement, as provided by
Section 401(k) of the Internal Revenue Code. The plan
covers substantially all employees. In fiscal years 2008 and
2007, employees could elect to exclude up to a maximum of
$15,500 of their compensation in accordance with federal
regulations. 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 including the utilization of
forfeitures was approximately $139,000 and $152,000,
respectively, for fiscal years 2008 and 2007. This matching
represents an amount equal to 100% of the first 2% of employee
deferrals and 50% of the next 1% of deferrals.
|
|
Note 10
|
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
F-14
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
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.
On April 3, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment. This
statement requires the expensing of stock options and other
share-based compensation 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 No. 123(R) eliminates the
ability to account for share-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 No. 123(R).
The Company uses the Black-Scholes option-pricing model to
determine the fair-value of stock options under
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, 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 $588,000 of share-based compensation during
the fiscal year ended March 30, 2008, which affected basic
and diluted earnings per share by $0.06. No share-based
compensation costs were capitalized as part of the cost of an
asset as of March 30, 2008.
Stock Options: The following table represents
stock option activity for fiscal year 2008:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Number of Options
|
|
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Outstanding at April 1, 2007
|
|
$
|
1.68
|
|
|
|
593,346
|
|
Granted
|
|
|
4.08
|
|
|
|
112,000
|
|
Exercised
|
|
|
1.11
|
|
|
|
36,250
|
|
Forfeited
|
|
|
0.76
|
|
|
|
17,766
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 30, 2008
|
|
$
|
2.15
|
|
|
|
651,330
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 30, 2008
|
|
$
|
1.41
|
|
|
|
431,000
|
|
|
|
|
|
|
|
|
|
|
F-15
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
During the quarter ended September 30, 2007, the Company
granted 112,000 non-qualified stock options at the market price
at the date of grant, which options vest over a two-year period,
assuming continued service. The following weighted-average
assumptions were used for the stock options granted during the
quarter ended September 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
Options Issued
|
|
|
Options Issued
|
|
|
|
to Employees
|
|
|
to Directors
|
|
|
Options Issued
|
|
|
100,000
|
|
|
|
12,000
|
|
Dividend Yield
|
|
|
|
|
|
|
|
|
Expected Volatility
|
|
|
65.00
|
%
|
|
|
65.00
|
%
|
Risk free interest rate
|
|
|
4.51
|
%
|
|
|
4.42
|
%
|
Expected life in years
|
|
|
5.75
|
|
|
|
3.25
|
|
Forfeiture rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
For fiscal year 2008, the Company recognized compensation
expense associated with stock options as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
|
|
|
Marketing &
|
|
|
|
|
|
|
Products
|
|
|
Administrative
|
|
|
Total
|
|
|
|
Sold
|
|
|
Expenses
|
|
|
Expense
|
|
|
Options granted in fiscal year 2007
|
|
$
|
50
|
|
|
$
|
158
|
|
|
$
|
208
|
|
Options granted in fiscal year 2008
|
|
|
23
|
|
|
|
59
|
|
|
|
82
|
|
Unvested options at April 2, 2007
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
73
|
|
|
$
|
220
|
|
|
$
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of stock options outstanding and exercisable at
March 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Avg.
|
|
|
|
|
|
Weighted Avg.
|
|
|
|
Number
|
|
|
Weighted Avg.
|
|
|
Exercise Price
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
of Options
|
|
|
Remaining
|
|
|
of Options
|
|
|
Shares
|
|
|
of Shares
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Exercisable
|
|
|
$0.18-$0.66
|
|
|
107,830
|
|
|
|
4.96
|
|
|
$
|
0.60
|
|
|
|
104,500
|
|
|
$
|
0.60
|
|
$0.71
|
|
|
133,250
|
|
|
|
4.41
|
|
|
$
|
0.71
|
|
|
|
133,250
|
|
|
$
|
0.71
|
|
$1.06-$2.31
|
|
|
90,250
|
|
|
|
2.22
|
|
|
$
|
1.40
|
|
|
|
90,250
|
|
|
$
|
1.40
|
|
$3.15
|
|
|
208,000
|
|
|
|
8.22
|
|
|
$
|
3.15
|
|
|
|
103,000
|
|
|
$
|
3.15
|
|
$3.90-$4.08
|
|
|
112,000
|
|
|
|
8.85
|
|
|
$
|
4.08
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651,330
|
|
|
|
|
|
|
|
|
|
|
|
431,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 30, 2008, total unrecognized stock-option
compensation costs amounted to $294,000. 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 options outstanding and options exercisable at
March 30, 2008 was $1.0 million.
Non-vested Stock: The fair value of non-vested
stock granted is determined based on the number of shares
granted multiplied by the quoted 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 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 in
the fiscal year ended March 30, 2008,
F-16
Crown
Crafts, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
which was included in marketing and administrative expenses in
the accompanying consolidated statements of income. 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.
At March 30, 2008, the amount of unrecognized compensation
expense related to these stock grants amounted to $714,000. 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 employee who has received non-vested stock
grants that are unvested as of such employees separation
date.
In June 2007, the board of directors of the Company 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
562,647 shares during the fiscal year ended March 30,
2008, at a cost of $2.1 million.
|
|
Note 12
|
Major
Customers
|
The table below indicates customers representing more than 10%
of sales.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
Wal-Mart Stores, Inc.
|
|
|
44
|
%
|
|
|
39
|
%
|
Toys R Us
|
|
|
18
|
%
|
|
|
23
|
%
|
Target Corporation
|
|
|
15
|
%
|
|
|
16
|
%
|
|
|
Note 13
|
Commitments
and Contingencies
|
Total rent expense was $1.5 million and $1.6 million
for the years ended March 30, 2008 and April 1, 2007,
respectively. Total royalty expense, net of royalty income, was
$4.9 million and $4.3 million for fiscal years 2008
and 2007, respectively. The Companys aggregate commitment
for minimum guaranteed lease payments is $1.6 million,
$0.7 million, $0.6 million and $0.2 million for
fiscal years 2009, 2010, 2011 and 2012, 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 our consolidated financial position,
results of operations or cash flows.
F-17