þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 58-0678148 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
June 29, 2008 | March 30, 2008 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 10,074 | $ | 7,930 | ||||
Accounts receivable (net of allowances of
$1,175 at June 29, 2008 and $1,268 at March
30, 2008): |
||||||||
Due from factor |
13,423 | 16,081 | ||||||
Other |
2,328 | 2,197 | ||||||
Inventories, net |
17,846 | 13,777 | ||||||
Prepaid expenses |
931 | 1,064 | ||||||
Assets held for sale |
663 | 663 | ||||||
Deferred income taxes |
962 | 885 | ||||||
Total current assets |
46,227 | 42,597 | ||||||
Property, plant and equipment at cost: |
||||||||
Land, buildings and improvements |
203 | 203 | ||||||
Machinery and equipment |
2,298 | 2,241 | ||||||
Furniture and fixtures |
755 | 742 | ||||||
3,256 | 3,186 | |||||||
Less accumulated depreciation |
2,683 | 2,597 | ||||||
Property, plant and equipment net |
573 | 589 | ||||||
Other assets: |
||||||||
Goodwill, net |
22,884 | 22,884 | ||||||
Intangible assets, net |
6,847 | 7,276 | ||||||
Other |
183 | 131 | ||||||
Total other assets |
29,914 | 30,291 | ||||||
Total Assets |
$ | 76,714 | $ | 73,477 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,307 | $ | 5,614 | ||||
Accrued wages and benefits |
1,548 | 1,179 | ||||||
Accrued royalties |
1,344 | 1,023 | ||||||
Other accrued liabilities |
671 | 711 | ||||||
Current maturities of long-term debt |
2,500 | 2,504 | ||||||
Total current liabilities |
14,370 | 11,031 | ||||||
Non-current liabilities: |
||||||||
Long-term debt |
22,010 | 22,311 | ||||||
Deferred income taxes |
239 | 402 | ||||||
Total non-current liabilities |
22,249 | 22,713 | ||||||
Commitments and contingencies |
| | ||||||
Shareholders equity: |
||||||||
Common stock $0.01 par value per share;
Authorized 74,000,000 shares; Issued
10,039,942 shares at June 29, 2008 and March
30, 2008 |
100 | 100 | ||||||
Additional paid-in capital |
39,412 | 39,247 | ||||||
Treasury stock at cost 679,296 shares at
June 29, 2008 and 562,647 at March 30, 2008 |
(2,493 | ) | (2,071 | ) | ||||
Retained earnings |
3,076 | 2,457 | ||||||
Total shareholders equity |
40,095 | 39,733 | ||||||
Total Liabilities and Shareholders Equity |
$ | 76,714 | $ | 73,477 | ||||
1
Three Months Ended | ||||||||
June 29, 2008 | July 1, 2007 | |||||||
Net sales |
$ | 19,755 | $ | 15,360 | ||||
Cost of products sold |
15,517 | 11,054 | ||||||
Gross profit |
4,238 | 4,306 | ||||||
Marketing and administrative expenses |
2,906 | 2,404 | ||||||
Income from operations |
1,332 | 1,902 | ||||||
Other income (expense): |
||||||||
Interest expense |
(327 | ) | (112 | ) | ||||
Other net |
12 | (35 | ) | |||||
Income before income taxes |
1,017 | 1,755 | ||||||
Income tax expense |
392 | 676 | ||||||
Income from continuing operations after income taxes |
625 | 1,079 | ||||||
Loss from discontinued operations net of income taxes |
(6 | ) | (94 | ) | ||||
Net income |
$ | 619 | $ | 985 | ||||
Weighted average shares
outstanding basic |
9,415 | 10,004 | ||||||
Weighted average shares
outstanding diluted |
9,677 | 10,297 | ||||||
Basic earnings per share: |
||||||||
Income from continuing operations |
$ | 0.07 | $ | 0.11 | ||||
Loss from discontinued operations |
(0.00 | ) | (0.01 | ) | ||||
Total basic earnings per share |
$ | 0.07 | $ | 0.10 | ||||
Diluted earnings per share: |
||||||||
Income from continuing operations |
$ | 0.06 | $ | 0.11 | ||||
Loss from discontinued operations |
(0.00 | ) | (0.01 | ) | ||||
Total diluted earnings per share |
$ | 0.06 | $ | 0.10 | ||||
2
Three Months Ended | ||||||||
June 29, 2008 | July 1, 2007 | |||||||
Operating activities: |
||||||||
Net income |
$ | 619 | $ | 985 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation of property, plant and equipment |
88 | 83 | ||||||
Amortization of intangibles |
434 | 18 | ||||||
Deferred income taxes |
(240 | ) | 503 | |||||
Loss on sale of property, plant and equipment |
1 | 8 | ||||||
Discount accretion |
59 | 55 | ||||||
Stock-based compensation |
165 | 126 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
2,527 | 1,390 | ||||||
Inventories, net |
(4,069 | ) | (4,408 | ) | ||||
Prepaid expenses |
133 | 103 | ||||||
Other assets |
(57 | ) | 15 | |||||
Accounts payable |
2,693 | 3,532 | ||||||
Accrued liabilities |
650 | 837 | ||||||
Net cash provided by operating activities |
3,003 | 3,247 | ||||||
Investing activities: |
||||||||
Capital expenditures |
(72 | ) | (61 | ) | ||||
Proceeds from disposition of assets |
| 13 | ||||||
Net cash used in investing activities |
(72 | ) | (48 | ) | ||||
Financing activities: |
||||||||
Payments on long-term debt |
(629 | ) | (6 | ) | ||||
Borrowings (repayments) under revolving line of credit, net |
264 | (2,742 | ) | |||||
Purchase of treasury stock |
(422 | ) | | |||||
Net cash used in financing activities |
(787 | ) | (2,748 | ) | ||||
Net increase in cash and cash equivalents |
2,144 | 451 | ||||||
Cash and cash equivalents at beginning of period |
7,930 | 33 | ||||||
Cash and cash equivalents at end of period |
$ | 10,074 | $ | 484 | ||||
Supplemental cash flow information: |
||||||||
Income taxes paid |
$ | 602 | $ | 15 | ||||
Interest paid |
213 | 63 |
3
1. | Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) applicable to interim financial information and the rules and regulations of the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, such interim consolidated financial statements contain all adjustments necessary to present fairly the financial position of Crown Crafts, Inc. and its subsidiaries (collectively, the Company) as of June 29, 2008 and the results of its operations and cash flows for the period presented. Such adjustments include normal, recurring accruals. Operating results for the three-month period ended June 29, 2008 are not necessarily indicative of the results that may be expected for the year ending March 29, 2009. For further information, refer to the Companys consolidated financial statements and notes thereto included in the annual report on Form 10-K for the year ended March 30, 2008. | |
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 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. | ||
Segment and Related Information: The Company operates primarily in one principal segment, infant and toddler products. These products consist of infant and toddler bedding, infant bibs and related soft goods. | ||
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. |
4
The following table sets forth the computation of basic and diluted net income per common share for the three-month periods ended June 29, 2008 and July 1, 2007. |
Three-months | Three-months | |||||||
ended | ended | |||||||
June 29, 2008 | July 1, 2007 | |||||||
(Amounts in thousands, except per share data) | ||||||||
Income from continuing operations |
$ | 625 | $ | 1,079 | ||||
Loss from discontinued operations |
(6 | ) | (94 | ) | ||||
Net income, basic and diluted |
$ | 619 | $ | 985 | ||||
Weighted average number of shares outstanding |
||||||||
Basic |
9,415 | 10,004 | ||||||
Effect of dilutive securities |
262 | 293 | ||||||
Diluted |
9,677 | 10,297 | ||||||
Earnings per common share |
||||||||
Basic |
||||||||
Continuing operations |
$ | 0.07 | $ | 0.11 | ||||
Discontinued operations |
(0.00 | ) | (0.01 | ) | ||||
Total |
$ | 0.07 | $ | 0.10 | ||||
Earnings per common share |
||||||||
Diluted |
||||||||
Continuing operations |
$ | 0.06 | $ | 0.11 | ||||
Discontinued operations |
(0.00 | ) | (0.01 | ) | ||||
Total |
$ | 0.06 | $ | 0.10 | ||||
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 June 29, 2008 and March 30, 2008. 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. The Company has determined that the fair value of its goodwill exceeded the recorded value at April 2, 2007 and March 31, 2008. |
5
Allowances Against Accounts Receivable: The Companys allowances against accounts receivable are primarily contractually agreed upon deductions for items such as advertising and warehouse allowances and volume rebates. These deductions are recorded throughout the year commensurate with sales activity. Funding of the majority of the Companys allowances occurs on a per-invoice basis. | ||
The allowances for customer deductions, which are netted against accounts receivable in the consolidated balance sheets, consist of agreed upon advertising support, markdowns and warehouse and other allowances. Consistent with the guidance provided in EITF 01-9, all such allowances are recorded as direct offsets to sales and such costs are accrued commensurate with sales activities. When a customer requests deductions, the allowances are reduced to reflect such payments. | ||
The Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels. The timing of the customer initiated funding requests for advertising support can cause the net balance in the allowance account to fluctuate from period to period. The timing of such funding requests should have no impact on the consolidated statements of income since such costs are accrued commensurate with sales activity. | ||
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. | ||
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 $1.3 million and $0.9 million for the three-month periods ended June 29, 2008 and July 1, 2007, respectively. | ||
Recently Issued Accounting Standards: In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. On April 2, 2007, the Company adopted the provisions of FIN 48. Based on its recent evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Companys consolidated financial statements. The Companys evaluation was performed for the years ended April 3, 2005, April 2, 2006, April 1, 2007, and March 30, 2008, the years which remain subject to examination by major tax jurisdictions as of June 29, 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 GAAP, and expands disclosure requirements related to fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years. In February 2008, the FASB issued Staff Position (FSP) No. 157-2, which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. The Company has not yet determined the impact that the adoption of SFAS No. 157 will have on its non-financial assets and liabilities which are not recognized on a recurring basis; however, the Company does not anticipate that it will materially impact the Companys consolidated financial statements. | ||
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). This statement provides companies an option to report selected financial assets and liabilities at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Upon adoption, the Company did not elect the fair value option for any items within the scope of SFAS No. 159; therefore, the adoption of SFAS No. 159 did not have an impact on the Companys consolidated financial statements. |
6
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. |
2. | Share-Based Compensation: The Company has two incentive stock plans, the 1995 Stock Option Plan (1995 Plan) and the 2006 Omnibus Incentive Plan (2006 Plan). The Company granted non-qualified stock options to employees and non-employee directors from the 1995 Plan through the fiscal year ended April 2, 2006. In conjunction with the approval of the 2006 Plan by the Companys stockholders at its Annual Meeting in August 2006, options may no longer be issued from the 1995 Plan. | |
The 2006 Plan is intended to attract and retain directors, officers and employees of the Company and to motivate these persons to achieve performance objectives related to the Companys overall goal of increasing stockholder value. The principal reason for adopting the 2006 Plan is to ensure that the Company has a mechanism for long-term, equity-based incentive compensation to directors, officers and employees. Awards granted under the 2006 Plan may be in the form of qualified or non-qualified stock options, restricted stock, stock appreciation rights, long-term incentive compensation units consisting of a combination of cash and shares of the Companys common stock, or any combination thereof within the limitations set forth in the 2006 Plan. The 2006 Plan is administered by the compensation committee of the board of directors, which selects eligible employees and non-employee directors to participate in the 2006 Plan and determines the type, amount and duration of individual awards. | ||
The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock options under SFAS No. 123(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 $165,000 of share-based compensation during the three-month period ended June 29, 2008, which affected basic and diluted earnings per share by $0.02. The Company recorded $126,000 of stock-based compensation during the quarter ended July 1, 2007, which affected basic and diluted earnings per share by $0.01. No share-based compensation costs were capitalized as part of the cost of an asset as of June 29, 2008. |
Stock Options: The following table represents stock option activity for fiscal year 2009: |
Weighted-Average | Number of Options | |||||||
Exercise Price | Outstanding | |||||||
Outstanding at March 30, 2008 |
$ | 2.15 | 651,330 | |||||
Granted |
3.58 | 200,000 | ||||||
Exercised |
| | ||||||
Forfeited |
| | ||||||
Outstanding at June 29, 2008 |
$ | 2.48 | 851,330 | |||||
Exercisable at June 29, 2008 |
$ | 1.41 | 431,000 | |||||
7
During the quarter ended June 29, 2008, the Company granted 200,000 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 June 29, 2008. |
Options | ||||
Issued to | ||||
Employees | ||||
Options Issued |
200,000 | |||
Dividend Yield |
| |||
Expected Volatility |
60.00 | % | ||
Risk free interest rate |
3.54 | % | ||
Expected life in years |
5.75 | |||
Forfeiture rate |
5.00 | % |
For the three -month period ended June 29, 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 |
$ | 11 | $ | 37 | $ | 48 | ||||||
Options granted in fiscal year 2008 |
9 | 23 | 32 | |||||||||
Options granted in fiscal year 2009 |
3 | 7 | 10 | |||||||||
Unvested options at April 3, 2006 |
| 1 | 1 | |||||||||
Total stock option compensation |
$ | 23 | $ | 68 | $ | 91 | ||||||
For the quarter ended July 1, 2007, the Company recognized $52,000 of compensation expenses associated with stock options, of which $12,000 was included in cost of products sold and $40,000 was included in marketing and administrative expenses. | ||
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 $74,000 of compensation expense related to these non-vested stock grants during each of the three-month periods ended June 29, 2008 and July 1, 2007, 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 June 29, 2008, the amount of unrecognized compensation expense related to these stock grants amounted to $640,000. 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. |
8
3. | Inventory: Major classes of inventory were as follows (in thousands): |
June 29, 2008 | March 30, 2008 | |||||||
Raw Materials |
$ | 48 | $ | 40 | ||||
Work in Process |
| | ||||||
Finished Goods |
17,798 | 13,737 | ||||||
Total inventory |
$ | 17,846 | $ | 13,777 | ||||
Inventory is recorded net of reserves for inventories classified as irregular or discontinued of $0.4 million at June 29, 2008 and $0.3 million at March 30, 2008. | ||
4. | Financing Arrangements | |
Factoring Agreement: The Company assigns the majority of its trade accounts receivable to a commercial factor. Under the terms of the factoring agreement, the factor remits payments to the Company on the average due date of each group of invoices assigned. The factor bears credit losses with respect to assigned accounts receivable that are within approved credit limits. The Company bears losses resulting from returns, allowances, claims and discounts. | ||
Long-term debt: At June 29, 2008 and March 30, 2008, long term debt consisted of (in thousands): |
June 29, | March 30, | |||||||
2008 | 2008 | |||||||
Revolving line of credit |
$ | 17,647 | $ | 17,383 | ||||
Term loan |
3,542 | 4,167 | ||||||
Non-interest bearing notes |
4,000 | 4,000 | ||||||
Original issue discount |
(679 | ) | (739 | ) | ||||
Capital leases |
| 4 | ||||||
24,510 | 24,815 | |||||||
Less current maturities |
2,500 | 2,504 | ||||||
$ | 22,010 | $ | 22,311 | |||||
9
Fiscal | Revolver | Term Loan | Sub Notes | Total | ||||||||||||
2009 |
| $ | 1,875 | | $ | 1,875 | ||||||||||
2010 |
| 1,667 | | 1,667 | ||||||||||||
2011 |
$ | 17,647 | | $ | 2,000 | 19,647 | ||||||||||
2012 |
| | 2,000 | 2,000 | ||||||||||||
Total |
$ | 17,647 | $ | 3,542 | $ | 4,000 | $ | 25,189 | ||||||||
5. | Acquisitions | |
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. 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 three-month period ended June 29, 2008 is as follows: |
Aggregate | ||||||||||||||||
Amortization | ||||||||||||||||
Expense | ||||||||||||||||
Gross | Estimated | three-months | ||||||||||||||
Carrying | Useful | Accumulated | ended | |||||||||||||
Amount | Life | Amortization | June 29, 2008 | |||||||||||||
Tradename |
$ | 466,387 | 15 years | $ | 46,645 | $ | 7,773 | |||||||||
Existing designs |
35,924 | 1 year | 35,924 | | ||||||||||||
Non-compete |
97,689 | 15 years | 9,723 | 1,629 | ||||||||||||
Totals |
$ | 600,000 | $ | 92,292 | $ | 9,402 | ||||||||||
Springs: 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. | ||
The fair values of the intangible assets acquired were determined by the Company. 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 June 29, 2008 is as follows: |
Aggregate | ||||||||||||||||
Amortization | ||||||||||||||||
Expense | ||||||||||||||||
Gross | Estimated | three-months | ||||||||||||||
Carrying | Useful | Accumulated | ended | |||||||||||||
Amount | Life | Amortization | June 29, 2008 | |||||||||||||
Licenses & existing designs |
$ | 1,655,188 | 2 years | $ | 551,732 | $ | 206,898 | |||||||||
Licenses & future designs |
1,846,822 | 4 years | 307,822 | 115,425 | ||||||||||||
Non-compete |
114,981 | 4 years | 19,181 | 7,185 | ||||||||||||
Customer relationships |
3,817,538 | 10 years | 254,482 | 95,439 | ||||||||||||
Totals |
$ | 7,434,529 | $ | 1,133,217 | $ | 424,947 | ||||||||||
10
Amortization expense related to acquisitions affected basic and diluted earnings per share by $0.04. | ||
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 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 periods. 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 pro forma purposes, the revenues and expenses reported by the Springs Global baby products line for the three-month period ended March 31, 2007 (derived on a pro rata basis using the nine-month period ended September 29, 2007 because the Company does not have Springs Globals actual results of operations for the period ended March 31, 2007) were combined with the revenues and expenses reported by the Company for the three-month period ended July 1, 2007 and adjusted for pro rata estimates of the Companys revenues and expenses related to these products. | ||
The following unaudited proforma financial information presents a summary of the Companys consolidated results of operations for the three-month period ended July 1, 2007, as if the acquisition of the baby products line from Springs Global had occurred on April 2, 2007. 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 2, 2007 (in thousands): |
Three-Month | ||||
Period Ended | ||||
July 1, 2007 | ||||
(Unaudited) | ||||
Net sales |
$ | 21,369 | ||
Total operating expenses |
19,907 | |||
Income from continuing operations |
$ | 739 | ||
Earnings per share: |
||||
Basic |
$ | 0.07 | ||
Diluted |
$ | 0.07 | ||
6. | Discontinued Operations: On February 2, 2007, the Company announced that it would liquidate Churchill Weavers, Inc. (Churchill). 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, the property is classified as assets held for sale in the consolidated balance sheets, and the operations of Churchill are classified as discontinued operations in the consolidated statements of income. | |
7. | Treasury Stock: 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 116,649 shares during the three-month period ended June 29, 2008, at a cost of $422,000. |
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Three-Month Period Ended | ||||||||||||||||
June 29, 2008 | July 1, 2007 | $ change | % change | |||||||||||||
Dollars in thousands | ||||||||||||||||
Net sales by category |
||||||||||||||||
Bedding, blankets and accessories |
$ | 16,307 | $ | 11,406 | $ | 4,901 | 43.0 | % | ||||||||
Bibs and bath |
3,448 | 3,954 | (506 | ) | -12.8 | % | ||||||||||
Total net sales |
19,755 | 15,360 | 4,395 | 28.6 | % | |||||||||||
Cost of products sold |
15,517 | 11,054 | 4,463 | 40.4 | % | |||||||||||
Gross profit |
4,238 | 4,306 | (68 | ) | -1.6 | % | ||||||||||
% of net sales |
21.5 | % | 28.0 | % | ||||||||||||
Marketing and administrative expenses |
2,906 | 2,404 | 502 | 20.9 | % | |||||||||||
% of net sales |
14.7 | % | 15.7 | % | ||||||||||||
Interest expense |
327 | 112 | 215 | 192.0 | % | |||||||||||
Other income (expense) |
12 | (35 | ) | 47 | -134.3 | % | ||||||||||
Income tax expense |
392 | 676 | (284 | ) | -42.0 | % | ||||||||||
Income from continuing operations after taxes |
625 | 1,079 | (454 | ) | -42.1 | % | ||||||||||
Discontinued operations net of taxes |
(6 | ) | (94 | ) | 88 | -93.6 | % | |||||||||
Net income |
619 | 985 | (366 | ) | -37.2 | % | ||||||||||
% of net sales |
3.1 | % | 6.4 | % |
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Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased as | Value of Shares That | |||||||||||||||
Total Number of | Part of Publicly | May Yet be Purchased | ||||||||||||||
Shares | Average Price | Announced Plans or | Under the Plans or | |||||||||||||
Period | Purchased | Paid Per Share (1) | Programs (2) | Programs (2) | ||||||||||||
March 31, 2008
through May 4, 2008 |
52,895 | $ | 3.50 | 52,895 | $ | 3,743,851 | ||||||||||
May 5, 2008 through
June 1, 2008 |
35,495 | $ | 3.60 | 35,495 | $ | 3,615,918 | ||||||||||
June 2, 2008
through June 29,
2008 |
28,259 | $ | 3.84 | 28,259 | $ | 3,507,284 | ||||||||||
Total |
116,649 | $ | 3.62 | 116,649 | $ | 3,507,284 | ||||||||||
(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 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. During the three-month period ended March 30, 2008, 337,439 shares were repurchased at an average price per share, including broker fees, of $3.61. | |
The authorization period for the repurchase of shares ended on July 1, 2008. There were no shares repurchased subsequent to June 29, 2008. |
15
Exhibit No. | Exhibit | |
10.1
|
Governance and Standstill Agreement dated July 1, 2008 by and among Crown Crafts, Inc., Wynnefield Small Cap Value, L.P., Wynnefield Partners Small Cap Value Offshore Fund, Ltd., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield Capital Management, LLC, Wynnefield Capital, Inc., Channel Partnership II, L.P., Nelson Obus and Joshua Landes (1) | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (2) | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (2) | |
32.1
|
Section 1350 Certification by the Companys Chief Executive Officer (2) | |
32.2
|
Section 1350 Certification by the Companys Chief Financial Officer (2) |
(1) | Incorporated herein by reference to Registrants Current Report on Form 8-K dated July 1, 2008. | |
(2) | Filed herewith. |
CROWN CRAFTS, INC. |
||||
Date: August 13, 2008 | /s/ Amy Vidrine Samson | |||
AMY VIDRINE SAMSON | ||||
Chief Financial Officer (duly authorized signatory and Principal Financial and Accounting Officer) |
16
Exhibit No. | Exhibit | |
10.1
|
Governance and Standstill Agreement dated July 1, 2008 by and among Crown Crafts, Inc., Wynnefield Small Cap Value, L.P., Wynnefield Partners Small Cap Value Offshore Fund, Ltd., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield Capital Management, LLC, Wynnefield Capital, Inc., Channel Partnership II, L.P., Nelson Obus and Joshua Landes (1) | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (2) | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (2) | |
32.1
|
Section 1350 Certification by the Companys Chief Executive Officer (2) | |
32.2
|
Section 1350 Certification by the Companys Chief Financial Officer (2) |
(1) | Incorporated herein by reference to Registrants Current Report on Form 8-K dated July 1, 2008. | |
(2) | Filed herewith. |
17