e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
December 30, 2007
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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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 or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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916 South Burnside Avenue, Gonzales, Louisiana
70737
(Address of principal executive
offices)
(225) 647-9100
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated
filer in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer o
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Accelerated
filer o
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Non-Accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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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 number of shares of common stock, $0.01 par value, of
the registrant outstanding as of February 7, 2008 was
9,736,248.
CROWN
CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December 30,
2007 and April 1, 2007
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December 30, 2007
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April 1, 2007
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(Unaudited)
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(Amounts in thousands, except share and per share amounts)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1
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$
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33
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Accounts receivable (net of allowances of $1,261 at
December 30, 2007 and $989 at April 1, 2007):
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Due from factor
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11,490
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11,764
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Other
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3,348
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1,121
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Inventories, net
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16,473
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7,145
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Prepaid expenses
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2,036
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1,313
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Assets held for sale
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663
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Deferred income taxes
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1,017
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2,408
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Total current assets
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35,028
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23,784
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Property, plant and equipment at cost:
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Land, buildings and improvements
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203
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1,322
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Machinery and equipment
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2,344
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2,502
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Furniture and fixtures
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748
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654
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3,295
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4,478
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Less accumulated depreciation
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2,644
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3,037
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Property, plant and equipment net
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651
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1,441
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Other assets:
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Goodwill, net
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22,884
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22,884
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Intangible assets, net
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7,712
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617
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Other
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181
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190
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Total other assets
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30,777
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23,691
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Total Assets
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$
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66,456
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$
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48,916
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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8,520
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$
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3,552
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Accrued wages and benefits
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1,175
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1,300
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Accrued royalties
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1,442
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671
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Other accrued liabilities
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108
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73
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Current maturities of long-term debt
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2,508
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19
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Total current liabilities
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13,753
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5,615
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Non-current liabilities:
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Long-term debt
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12,813
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5,780
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Deferred income taxes
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698
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698
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Total non-current liabilities
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13,511
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6,478
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Commitments and contingencies
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Shareholders equity:
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Common stock $0.01 par value per share;
Authorized 74,000,000 shares; Issued 10,039,942 shares
at December 30, 2007 and 10,003,692 shares at
April 1, 2007
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100
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100
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Additional paid-in capital
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39,091
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38,619
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Treasury stock at cost; 225,208 shares at
December 30, 2007
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(854
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)
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Accumulated earnings (deficit)
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855
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(1,896
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)
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Total shareholders equity
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39,192
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36,823
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Total Liabilities and Shareholders Equity
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$
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66,456
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$
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48,916
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See notes to unaudited condensed consolidated financial
statements.
1
CROWN
CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
For the
Three and Nine-Month Periods Ended December 30, 2007 and
December 31, 2006
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Three Months Ended
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Nine Months Ended
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December 30,
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December 31,
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December 30,
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December 31,
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2007
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2006
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2007
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2006
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(Unaudited)
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(Amounts in thousands, except per share amounts)
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Net sales
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$
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18,431
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$
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15,368
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$
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50,902
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$
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52,041
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Cost of products sold
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13,853
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11,504
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38,055
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38,031
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Gross profit
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4,578
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3,864
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12,847
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14,010
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Marketing and administrative expenses
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2,584
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2,236
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7,960
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6,887
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Income from operations
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1,994
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1,628
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4,887
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7,123
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Other income (expense):
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Interest expense
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(244
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)
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(195
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)
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(475
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)
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(1,204
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)
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Gain on debt refinancing
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4,069
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Other net
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178
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2
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154
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162
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Income before income taxes
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1,928
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1,435
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4,566
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10,150
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Income tax expense
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692
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451
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1,705
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2,758
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Income from continuing operations after income taxes
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1,236
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984
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2,861
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7,392
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Loss from discontinued operations, net of income taxes
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(12
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)
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(370
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)
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(110
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)
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(513
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)
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Net income
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$
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1,224
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$
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614
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$
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2,751
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$
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6,879
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|
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|
|
|
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Weighted average shares outstanding basic
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9,903
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|
|
|
9,953
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|
|
|
9,966
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|
|
|
9,716
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|
|
|
|
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|
|
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Weighted average shares outstanding diluted
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10,176
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|
|
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10,269
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|
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10,248
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|
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9,973
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Basic earnings (loss) per share:
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|
|
|
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|
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Income from continuing operations
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$
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0.12
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$
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0.10
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|
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$
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0.29
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|
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$
|
0.76
|
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Loss from discontinued operations
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|
(0.00
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)
|
|
|
(0.04
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)
|
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(0.01
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)
|
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|
(0.05
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)
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Total basic earnings per share
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$
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0.12
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$
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0.06
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$
|
0.28
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|
$
|
0.71
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|
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Diluted earnings (loss) per share:
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|
|
|
|
|
|
|
|
|
|
|
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Income from continuing operations
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|
$
|
0.12
|
|
|
$
|
0.10
|
|
|
$
|
0.28
|
|
|
$
|
0.74
|
|
Loss from discontinued operations
|
|
|
(0.00
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)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
(0.05
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total diluted earnings per share
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$
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0.12
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|
|
$
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0.06
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$
|
0.27
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|
$
|
0.69
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See notes to unaudited condensed consolidated financial
statements.
2
CROWN
CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
Nine-Month Periods Ended December 30, 2007 and
December 31, 2006
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|
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|
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Nine Months Ended
|
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|
|
December 30,
|
|
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December 31,
|
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|
2007
|
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2006
|
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(Unaudited)
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(Amounts in thousands)
|
|
|
Operating activities:
|
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|
|
|
|
|
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|
Net income
|
|
$
|
2,751
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|
$
|
6,879
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|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
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Depreciation of property, plant and equipment
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|
259
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|
|
|
342
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|
Goodwill write-off
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|
|
|
90
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|
Amortization of intangibles
|
|
|
340
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|
|
|
7
|
|
Deferred income taxes
|
|
|
1,390
|
|
|
|
1,895
|
|
Loss (gain) on sale of property, plant and equipment
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|
6
|
|
|
|
(11
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)
|
Discount accretion
|
|
|
169
|
|
|
|
295
|
|
Gain on debt refinancing
|
|
|
|
|
|
|
(4,069
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)
|
Stock-based compensation
|
|
|
432
|
|
|
|
171
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
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|
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Accounts receivable
|
|
|
(2,098
|
)
|
|
|
3,688
|
|
Inventories, net
|
|
|
(5,246
|
)
|
|
|
(1,880
|
)
|
Prepaid expenses
|
|
|
(724
|
)
|
|
|
(204
|
)
|
Other assets
|
|
|
9
|
|
|
|
(108
|
)
|
Accounts payable
|
|
|
4,968
|
|
|
|
2,694
|
|
Accrued liabilities
|
|
|
680
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,936
|
|
|
|
10,589
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(156
|
)
|
|
|
(161
|
)
|
Acquisition costs to purchase Kimberly Grant brand
|
|
|
|
|
|
|
(550
|
)
|
Acquisition costs to purchase Baby Products Line from Springs
Global
|
|
|
(356
|
)
|
|
|
|
|
Proceeds from disposition of assets
|
|
|
19
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(493
|
)
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Retirement of debt
|
|
|
|
|
|
|
(17,077
|
)
|
Payments on long-term debt
|
|
|
(223
|
)
|
|
|
(27
|
)
|
(Repayments) proceeds under revolving line of credit, net
|
|
|
(1,438
|
)
|
|
|
3,468
|
|
Debt issuance costs
|
|
|
|
|
|
|
(70
|
)
|
Purchase of treasury stock
|
|
|
(854
|
)
|
|
|
|
|
Issuance of common stock
|
|
|
40
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,475
|
)
|
|
|
(13,660
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(32
|
)
|
|
|
(3,771
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
33
|
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
984
|
|
|
$
|
294
|
|
Interest paid
|
|
|
228
|
|
|
|
765
|
|
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 unaudited condensed consolidated financial
statements.
3
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND
FOR THE THREE AND NINE-MONTH PERIODS ENDED
DECEMBER 30, 2007 AND DECEMBER 31, 2006
1. Basis of Presentation: The
accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America applicable to interim
financial information and the rules and regulations of the
Securities and Exchange Commission (the SEC).
Accordingly, they do not include all of the information and
disclosures required by accounting principles generally accepted
in the United States of America for complete financial
statements. In the opinion of management, such interim
consolidated financial statements contain all adjustments
necessary to present fairly the financial position of Crown
Crafts, Inc. and its subsidiaries (collectively, the
Company) as of December 30, 2007 and the
results of its operations and cash flows for the periods
presented. Such adjustments include normal, recurring accruals.
Operating results for the three and nine-month periods ended
December 30, 2007 are not necessarily indicative of the
results that may be expected for the year ending March 30,
2008. 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 April 1, 2007.
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 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 balance sheet and
the reported amounts of revenues and expenses during the
reporting period. Significant estimates are made with respect to
the allowances related to accounts receivable for customer
deductions for returns, allowances and disputes. The Company has
a certain amount of discontinued and irregular raw materials and
finished goods which necessitate the establishment of inventory
reserves which are highly subjective. Actual results could
differ from those estimates.
Segment and Related Information: The Company
operates primarily in one principal segment, infant and toddler
products. These products consist of infant and toddler bedding,
infant bibs and related soft goods.
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
December 30, 2007 and April 1, 2007. On April 1,
2002, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. 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 performed a transitional fair value based
impairment test on its goodwill in accordance with
SFAS No. 142. 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 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
4
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recent years. Churchill has since ceased
operations, and its remaining assets are held for sale (see Note
6 to the Companys consolidated financial statements).
Provision for Income Taxes: The provision for
income taxes includes 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.
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 Emerging
Issues Task Force
01-9, all
such allowances are recorded as direct offsets to sales, and
such costs are accrued commensurate with sales activities. When
a customer requests deductions, the allowances are reduced to
reflect such payments.
The Company analyzes the components of the allowances for
customer deductions monthly and adjusts the allowances to the
appropriate levels. The timing of the customer initiated funding
requests for advertising support can cause the net balance in
the allowance account to fluctuate from period to period. The
timing of such funding requests should have no impact on the
consolidated statements of income since such costs are accrued
commensurate with sales activity.
Royalty Payments: The Company has entered into
agreements that provide for royalty payments based on a
percentage of sales with certain minimum guaranteed amounts.
These royalty amounts are accrued based upon historical sales
rates, adjusted for current sales trends by customers. Total
royalty expenses included in cost of sales amounted to
$3.2 million in each of the nine-month periods ended
December 30, 2007 and December 31, 2006.
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 December 30, 2007. 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, 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. This statement provides companies an option to
report selected financial assets and liabilities at fair
5
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 141R), 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. 141R
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.
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 $155,000 and $432,000 of share-based
compensation during the three and nine-month periods ended
December 30, 2007, which affected basic and diluted
earnings per share by $0.02 and $0.04,
6
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. No share-based compensation costs were capitalized
as part of the cost of an asset as of December 30, 2007.
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 December 30, 2007
|
|
$
|
2.15
|
|
|
|
651,330
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 30, 2007
|
|
$
|
1.41
|
|
|
|
431,000
|
|
|
|
|
|
|
|
|
|
|
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. No options were granted
during the quarter ended December 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Options
|
|
|
|
Issued to
|
|
|
Issued to
|
|
|
|
Employees
|
|
|
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 the three and nine-month periods ended December 30,
2007, the Company recognized compensation expense associated
with stock options as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3-Month Period
|
|
|
9-Month Period
|
|
|
|
Cost of
|
|
|
Marketing &
|
|
|
|
|
|
Cost of
|
|
|
Marketing &
|
|
|
|
|
|
|
Products
|
|
|
Administrative
|
|
|
Total
|
|
|
Products
|
|
|
Administrative
|
|
|
Total
|
|
|
|
Sold
|
|
|
Expense
|
|
|
Expense
|
|
|
Sold
|
|
|
Expense
|
|
|
Expense
|
|
|
Options granted in fiscal year 2007
|
|
$
|
12
|
|
|
$
|
36
|
|
|
$
|
48
|
|
|
$
|
38
|
|
|
$
|
121
|
|
|
$
|
159
|
|
Options granted in fiscal year 2008
|
|
|
9
|
|
|
|
24
|
|
|
|
33
|
|
|
|
14
|
|
|
|
36
|
|
|
|
50
|
|
Unvested options at April 2, 2007
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
21
|
|
|
$
|
61
|
|
|
$
|
82
|
|
|
$
|
52
|
|
|
$
|
159
|
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $73,000 and
$221,000 of compensation expense related to these non-vested
stock grants in the three and nine-month
7
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
periods ended December 30, 2007, respectively, 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 December 30, 2007, the amount of unrecognized
compensation expense related to these stock grants amounted to
$788,000. 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.
3. Inventory: Major classes of inventory
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
April 1,
|
|
|
|
2007
|
|
|
2007
|
|
|
Raw Materials
|
|
$
|
27
|
|
|
$
|
15
|
|
Work in Process
|
|
|
|
|
|
|
12
|
|
Finished Goods
|
|
|
16,446
|
|
|
|
7,118
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
16,473
|
|
|
$
|
7,145
|
|
|
|
|
|
|
|
|
|
|
Inventory is recorded net of reserves for inventories classified
as irregular or discontinued of $270,000 at December 30,
2007 and $344,000 at April 1, 2007.
|
|
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 from approved customers
that are within approved credit limits. The Company bears losses
resulting from returns, allowances, claims and discounts.
Long-term debt: At December 30, 2007 and
April 1, 2007, long-term debt consisted of:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
April 1,
|
|
|
|
2007
|
|
|
2007
|
|
|
Revolving line of credit
|
|
$
|
7,318
|
|
|
$
|
2,742
|
|
Term loan
|
|
|
4,792
|
|
|
|
|
|
Non-interest bearing notes
|
|
|
4,000
|
|
|
|
4,000
|
|
Original issue discount
|
|
|
(797
|
)
|
|
|
(966
|
)
|
Capital leases
|
|
|
8
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,321
|
|
|
|
5,799
|
|
Less current maturities
|
|
|
2,508
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,813
|
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
|
|
The Companys long-term debt at December 30, 2007
includes 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% (6.25% at
December 30, 2007) for base rate borrowings or LIBOR
plus 2.25% (7.49% at December 30, 2007), maturing on
July 11, 2010 and secured by a first lien on all assets of
the Company. There was a balance of $7,318,000 on the revolving
line of credit at December 30, 2007, and the Company had
$10.2 million available under the revolving line of credit
based on eligible accounts receivable and inventory balances as
of December 30, 2007. As of December 30, 2007, letters
of credit of $550,000 were outstanding against the
$1.5 million sub-limit for letters of credit.
8
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
December 30, 2007.
Term Loan of an original amount of $5 million, with
an interest rate of prime plus 0.5% (7.75% at December 30,
2007) 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 $797,000 is
included in the consolidated balance sheet as of
December 30, 2007.
Minimum annual maturities of long-term debt are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Revolver
|
|
|
Term Loan
|
|
|
Sub Notes
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
2008
|
|
|
|
|
|
$
|
625
|
|
|
|
|
|
|
$
|
4
|
|
|
$
|
629
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
4
|
|
|
|
2,504
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
2011
|
|
$
|
7,318
|
|
|
|
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
9,318
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,318
|
|
|
$
|
4,792
|
|
|
$
|
4,000
|
|
|
$
|
8
|
|
|
$
|
16,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine-month period
ended December 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Amortization
|
|
|
|
Carrying
|
|
|
Useful
|
|
|
Accumulated
|
|
|
Expense in
|
|
|
|
Amount
|
|
|
Life
|
|
|
Amortization
|
|
|
FY 2008
|
|
|
Tradename
|
|
$
|
466,387
|
|
|
|
15 years
|
|
|
$
|
31,099
|
|
|
$
|
23,319
|
|
Existing designs
|
|
|
35,924
|
|
|
|
1 year
|
|
|
|
26,942
|
|
|
|
26,942
|
|
Non-compete
|
|
|
97,689
|
|
|
|
15 years
|
|
|
|
6,465
|
|
|
|
4,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
600,000
|
|
|
|
|
|
|
$
|
64,506
|
|
|
$
|
55,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Springs: On November 5, 2007, CCIP
acquired certain assets from, and assumed certain liabilities
of, Springs Global US, Inc. (Springs) with respect
to the baby products line of Springs. 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.
9
CROWN
CRAFTS, INC. AND SUBSIDIARIES
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preliminary fair values of the intangible assets acquired were
determined by the Company with the assistance of an independent
third party. The valuation is expected to be completed by the
time of the filing of the Companys annual report on form 10-K
for the fiscal year ended March 30, 2008. The Companys preliminary allocation of the
intangible assets acquired, their estimated useful life, the
accumulated amortization and the amortization expense as of and
for the nine-month period ended December 30, 2007 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
|
|
|
$
|
137,936
|
|
|
$
|
137,936
|
|
Licenses & future designs
|
|
|
1,846,822
|
|
|
|
4 years
|
|
|
|
76,972
|
|
|
|
76,972
|
|
Non-compete
|
|
|
114,981
|
|
|
|
4 years
|
|
|
|
4,811
|
|
|
|
4,811
|
|
Customer relationships
|
|
|
3,817,538
|
|
|
|
10 years
|
|
|
|
63,604
|
|
|
|
63,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,434,529
|
|
|
|
|
|
|
$
|
283,323
|
|
|
$
|
283,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Springs baby products line represented less than 2% of the total revenues of Springs, and
separate financial statements for the baby products line were not historically prepared. Nonetheless, in
connection with the acquisition, the management of Springs has furnished to the Company unaudited,
abbreviated statements of revenues and direct expenses with respect to the baby products line of
Springs for the nine-month periods ended September 29, 2007 and September 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. The nine-month
periods covered by these statements are not coterminous with the Companys nine-month periods ended
December 30, 2007 and December 31, 2006. Additionally, such charges and allocations are not
necessarily indicative of the costs that would have been incurred if
the Springs 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 baby product line are anticipated to be less than
those incurred by Springs; however, no reliably verifiable information is available to adjust the
estimated results of operations of the Springs 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 baby products line for the nine-month and
three-month periods ended September 29, 2007 and September 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 nine-month and three-month periods ended December 30, 2007 and December 31, 2006,
respectively. Additionally, the baby products lines three-month periods ended September 29, 2007 and
September 30, 2006 were derived on a pro rata basis because the Company does not have Springs
Babys actual results of operations for those periods.
The following unaudited pro forma financial information presents a summary of the Companys
consolidated results of operations for the nine-month and three-month periods ended December 30,
2007 and December 31, 2006, as if acquisition of the Springs baby products line 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods
Ended |
|
|
Nine-Month Periods
Ended |
|
|
|
December 30, 2007 (Unaudited) |
|
|
December 31, 2006 (Unaudited) |
|
|
December
30, 2007 (Unaudited) |
|
|
December 31, 2006 (Unaudited)
|
|
|
Net Sales |
|
$ |
20,434 |
|
|
$ |
24,732 |
|
|
$ |
68,929 |
|
|
$ |
80,132 |
|
Total Operating
Expenses |
|
$ |
18,587 |
|
|
$ |
22,809 |
|
|
$ |
65,079 |
|
|
$ |
72,125 |
|
Net income |
|
$ |
1,118 |
|
|
$ |
985 |
|
|
$ |
1,971 |
|
|
$ |
7,956 |
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.11 |
|
|
$ |
0.10 |
|
|
$ |
0.20 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.11 |
|
|
$ |
0.10 |
|
|
$ |
0.19 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
6. 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 the third quarter of 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 statement of income.
These classifications were not used prior to the end of fiscal
year 2007 because Churchills operations were continuing at
that time.
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 140,353 shares and
225,208 shares during the three and nine-month periods
ended December 30, 2007, at a cost of $519,000 and
$854,000, respectively.
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company operates indirectly through its subsidiaries, Crown
Crafts Infant Products, Inc. and Hamco, Inc., primarily in the
Infant, Toddler and Juvenile Product segments within the
Consumer Products industry. The Companys offices are
located in Compton, California; Gonzales, Louisiana; and Rogers,
Arkansas.
The Infant, Toddler and Juvenile Product segments consist of
bedding, bibs, soft goods and accessories. The Companys
products are marketed under a variety of Company-owned
trademarks, under trademarks licensed from others, without
trademarks as unbranded merchandise and with customers
private labels. The products are produced primarily by foreign
contract manufacturers, then warehoused and shipped from
facilities in Compton and Ontario, California. Sales are
generally made directly to retailers, primarily mass merchants,
large chain stores and specialty stores.
The infant, toddler and juvenile 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, a division of Russ Berrie and Co.,
Inc.; Dolly Inc.; Co Ca Lo, Inc.; Carters, Inc.; Danara
International, Ltd.; Luv n Care, Ltd.; The First Years
Inc.; Triboro Quilt Manufacturing, Inc.; Gerber Childrenswear,
Inc.; and Baby Boom Consumer Products, Inc., a division of The
Betesh Group, 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.
11
RESULTS
OF OPERATIONS
The following table contains results of operations data for the
three and nine-month periods ended December 30, 2007 and
December 31, 2006 and the dollar and percentage variances
among those periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
$
|
|
|
%
|
|
|
December 30,
|
|
|
December 31,
|
|
|
$
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
Dollars in thousands
|
|
|
Dollars in thousands
|
|
|
Net Sales by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedding, Blankets and Accessories
|
|
$
|
14,770
|
|
|
$
|
10,633
|
|
|
$
|
4,137
|
|
|
|
38.9
|
%
|
|
$
|
38,601
|
|
|
$
|
36,688
|
|
|
$
|
1,913
|
|
|
|
5.2
|
%
|
Bibs and Bath
|
|
|
3,661
|
|
|
|
4,735
|
|
|
|
(1,074
|
)
|
|
|
(22.7
|
)%
|
|
|
12,301
|
|
|
|
15,353
|
|
|
|
(3,052
|
)
|
|
|
(19.9
|
)%
|
Total Net Sales
|
|
|
18,431
|
|
|
|
15,368
|
|
|
|
3,063
|
|
|
|
19.9
|
%
|
|
|
50,902
|
|
|
|
52,041
|
|
|
|
(1,139
|
)
|
|
|
(2.2
|
)%
|
Cost of Products Sold
|
|
|
13,853
|
|
|
|
11,504
|
|
|
|
2,349
|
|
|
|
20.4
|
%
|
|
|
38,055
|
|
|
|
38,031
|
|
|
|
24
|
|
|
|
0.1
|
%
|
Gross Profit
|
|
|
4,578
|
|
|
|
3,864
|
|
|
|
714
|
|
|
|
18.5
|
%
|
|
|
12,847
|
|
|
|
14,010
|
|
|
|
(1,163
|
)
|
|
|
(8.3
|
)%
|
% of Net Sales
|
|
|
24.8
|
%
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
25.2
|
%
|
|
|
26.9
|
%
|
|
|
|
|
|
|
|
|
Marketing and Administrative Expenses
|
|
|
2,584
|
|
|
|
2,236
|
|
|
|
348
|
|
|
|
15.6
|
%
|
|
|
7,960
|
|
|
|
6,887
|
|
|
|
1,073
|
|
|
|
15.6
|
%
|
% of Net Sales
|
|
|
14.0
|
%
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
15.6
|
%
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
244
|
|
|
|
195
|
|
|
|
49
|
|
|
|
25.1
|
%
|
|
|
475
|
|
|
|
1,204
|
|
|
|
(729
|
)
|
|
|
(60.5
|
)%
|
Gain on Debt Refinancing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
4,069
|
|
|
|
(4,069
|
)
|
|
|
100.0
|
%
|
Other (Expense) Income
|
|
|
178
|
|
|
|
2
|
|
|
|
176
|
|
|
|
8800.0
|
%
|
|
|
154
|
|
|
|
162
|
|
|
|
(8
|
)
|
|
|
(4.9
|
)%
|
Income Tax Expense
|
|
|
692
|
|
|
|
451
|
|
|
|
241
|
|
|
|
53.4
|
%
|
|
|
1,705
|
|
|
|
2,758
|
|
|
|
(1,052
|
)
|
|
|
(38.2
|
)%
|
Income from continuing operations after taxes
|
|
|
1,236
|
|
|
|
984
|
|
|
|
252
|
|
|
|
25.6
|
%
|
|
|
2,861
|
|
|
|
7,392
|
|
|
|
(4,531
|
)
|
|
|
(61.3
|
)%
|
Discontinued Operations net of taxes
|
|
|
(12
|
)
|
|
|
(370
|
)
|
|
|
358
|
|
|
|
(96.9
|
)%
|
|
|
(110
|
)
|
|
|
(513
|
)
|
|
|
404
|
|
|
|
(78.6
|
)%
|
Net Income
|
|
|
1,224
|
|
|
|
614
|
|
|
|
610
|
|
|
|
99.3
|
%
|
|
|
2,751
|
|
|
|
6,879
|
|
|
|
(4,128
|
)
|
|
|
(60.0
|
)%
|
% of Net Sales
|
|
|
6.6
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
5.4
|
%
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
Net Sales: Sales of bedding, blankets and
accessories increased for the three-month period of fiscal year
2008 as compared to the same period in fiscal year 2007. Sales
increased by $2.9 million due to the acquisition of the
baby products line of Springs on November 5, 2007, and
increased by $2.5 million due to shipments of new bedding
and blanket programs. These increases were offset by
$1.3 million in lower replenishment orders or discontinued
programs.
Sales of bedding, blankets and accessories increased for the
nine-month period of fiscal year 2008 as compared to the same
period in fiscal year 2007. Sales increased by $2.9 million
due to the acquisition of the baby product line of Springs on
November 5, 2007, and increased by $8.3 million due to
shipments of new bedding and blanket programs. These increases
were offset by decreased sales of $7.5 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 $1.5 million and a decrease of $0.3 million
due to initial shipments that occurred during the prior year
that were not repeated in the current year.
Bib and bath sales decreased for the three-month period of
fiscal year 2008 as compared to the same period in fiscal year
2007. Sales decreased by $1.4 million due to programs that
were discontinued or had lower replenishment orders and by
$0.4 million related to the discontinuance of sales of
vinyl bibs. Offsetting these decreases was an increase of
$0.7 million related to sales of new designs and promotions.
Bib and bath sales decreased for the nine-month period of fiscal
year 2008 as compared to the same period in fiscal year 2007.
Sales decreased by $4.1 million due to programs that were
discontinued or had lower replenishment orders and by
$0.2 million due to promotions in the prior year that were
not repeated in the current year. Also, there was a net decrease
of $0.9 million in shipments of replenishment orders
related to the discontinuance of sales of vinyl bibs. Offsetting
these decreases were increases of $2.1 million related to
sales of new designs and increased initial shipments.
Gross Profit: Gross profit increased in
amount, but decreased as a percentage of net sales by 0.3% for
the three-month period of fiscal year 2008 as compared to the
same period in 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. Standard cost of
sales, net of an increase in royalties, as a percentage of net
sales improved by 2.0%. This improvement in gross profit was
offset by a change in the burden deferral. For the three-month
period of the fiscal year 2007, the burden deferral was a
negative $48,000 while in fiscal year 2008 the burden deferral
was a negative $274,000. This swing negatively impacted the
current year gross profit by 1.2% as a percentage of net sales.
Additionally, gross profit was lowered in the three-month period
of the current year by $230,000 of amortization expense related
to the Kimberly Grant and Springs baby product line
acquisitions. By comparison, no acquisition costs were amortized
in the three-month period of fiscal year 2007. Warehousing costs
increased as compared to fiscal year 2007 by $292,000 due to the
warehousing and shared services arrangement entered into in
conjunction with the Springs acquisition.
12
Gross profit decreased in both amount and as a percentage of net
sales for the nine-month period of fiscal year 2008 as compared
to the same period of fiscal year 2007. For the nine-month
period ended December 30, 2007, the over-absorption of
overhead related to the increase in inventory was $23,000
compared to $495,000 for the nine-month period ended
December 30, 2006. Additionally, gross profit was
negatively impacted in the current year by a $225,000 charge
related to vinyl bibs recorded in the second quarter,
acquisition-related amortization expense of $252,000, and
increased warehousing costs as referenced above of $292,000.
Marketing and Administrative
Expenses: Marketing and administrative expenses
for the three-month period of fiscal year 2008 increased in
amount but decreased as a percentage of net sales as compared to
the same period of fiscal year 2007. The increased amounts were
in the areas of salaries, share-based compensation,
amortization, and advertising as the Company adjusted to the
acquisition of the Springs baby product line. For the nine-month
period, 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 $432,000 of share-based
compensation for the nine-month period ended December 30,
2007, compared to $171,000 for the nine-month period ended
December 31, 2006. 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 Springs acquisition.
Interest Expense: The increase in interest
expense for the three-month period of fiscal year 2008 as
compared to the same period in fiscal year 2007 is due to a
higher revolving line of credit balance and a new term loan
executed in conjunction with the acquisition of the baby product
line from Springs on November 5, 2007. For the nine-month
period ended December 30, 2007, interest expense decreased
by $729,000 as compared to the nine-month period
ended December 31, 2006 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.
Other Income Net: Other income in
the three-month period of the fiscal year 2008 consisted
primarily of favorable settlements of approximately $213,000 of
workers compensation claims related to the Companys
high-deductible plan that was terminated in 2001. Other income
in fiscal year 2007 consisted mainly of interest income received
on the Companys overnight investment sweep through
July 11, 2006. The Company had $7.8 million cash on
July 11, 2006, $7.4 million of which was used to
reduce debt in connection with the refinancing of the
Companys debt on July 11, 2006.
FINANCIAL
POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.9 million
for the nine-month period of fiscal year 2008. The increase in
cash provided by operating activities was primarily due to net
income, utilization of deferred taxes, and an increase in
accounts payable, offset by increases in accounts receivable and
inventory. Net cash provided by operating activities for the
nine-month period of fiscal year 2007 was $10.6 million.
The increase in cash provided by operating activities was
primarily due to net income, utilization of deferred taxes, a
decrease in accounts receivable and an increase in accounts
payable, offset by the gain on debt refinancing and an increase
in inventory. Net cash used in investing activities was $493,000
in the nine-month period of fiscal year 2008 compared to
$700,000 in the same period of fiscal year 2007. Net cash used
in investing activities consisted primarily of acquisition costs
related to the Springs baby products line of $356,000 in fiscal
year 2008 and $550,000 related to Kimberly Grant in fiscal year
2007. Net cash used in financing activities was
$2.5 million in the nine-month period of fiscal year 2008
compared to $13.7 million in the same period of fiscal year
2007. During the first quarter of fiscal year 2007, the Company
had a cash balance of $7.6 million and was not required to
make payments on its credit facilities. In July 2006, the
Company refinanced its credit facilities using cash of
$7.4 million to reduce debt. Net cash was used in financing
activities in fiscal year 2008 to pay down the revolving line of
credit and the term loan entered into in connection with the
Springs acquisition and to repurchase outstanding shares of the
Companys common stock.
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 availability from
the revolving line of credit will be adequate to meet liquidity
needs.
13
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 6.25% at December 30, 2007, 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.
FORWARD-LOOKING
INFORMATION
This Quarterly Report contains forward-looking statements within
the meaning of the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Private Securities Litigation
Reform Act of 1995. Such statements are based upon
managements current expectations, projections, estimates
and assumptions. Words such as expects,
believes, anticipates and variations of
such words and similar expressions identify such forward-looking
statements. Forward-looking statements involve known and unknown
risks and uncertainties that may cause future results to differ
materially from those suggested by the forward-looking
statements. These risks include, among
others, general economic conditions, including changes in
interest rates, in the overall level of consumer spending and in
the price of oil, cotton and other raw materials used in the
Companys products, changing competition, changes in the
retail environment, the level and pricing of future orders from
the Companys customers, the Companys dependence upon
third-party suppliers, including some located in foreign
countries with unstable political situations, the Companys
ability to successfully implement new information technologies,
customer acceptance of both new designs and newly-introduced
product lines, actions of competitors that may impact the
Companys business, disruptions to transportation systems
or shipping lanes used by the Company or its suppliers, and the
Companys dependence upon licenses from third parties.
Reference is also made to the Companys periodic filings
with the Securities and Exchange Commission for additional
factors that may impact the Companys results of operations
and financial condition. The Company does not undertake to
update the forward-looking statements contained herein to
conform to actual results or changes in the Companys
explanations, whether as a result of new information, future
events or otherwise.
ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest
rates on debt, changes in commodity prices, changes in
international trade regulations, the concentration of the
Companys customers and the Companys reliance upon
licenses. The Companys exposure to interest rate risk
relates to the Companys floating rate debt, of which a
balance of $12.1 million was outstanding at
December 30, 2007 and a balance of $3.5 million was
outstanding at December 31, 2006. Each 1.0 percentage
point increase in the prime interest rate would decrease pre-tax
earnings by $121,000 based on the debt level as of
December 30, 2007. The Companys exposure to commodity
price risk primarily relates to changes in the price of cotton
and oil, which are the principal raw materials used in a
substantial number of the Companys products. Also, changes
in import quantity allotments can materially impact the
availability of the Companys products and the prices at
which those products can be purchased by the Company for resale.
Additionally, the Companys top three customers represent
80% of gross sales, and 39% of the Companys gross sales is
of licensed products. The Company could be materially impacted
by the loss of one or more of these customers or licenses.
ITEM 4
CONTROLS AND PROCEDURES
The Companys Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of the end of the period covered
by this report, as required by paragraph (b) of
Rules 13a-15
or 15d-15 of
the Exchange Act. Based on such evaluation, such officers have
concluded that, as of the end of the period covered by this
report, the Companys disclosure controls and procedures
are effective.
During the quarter ended December 30, 2007, there was not
any change in the Companys internal control over financial
reporting identified in connection with the evaluation required
by paragraph (d) of
Rules 13a-15
or 15d-15 of
the Exchange Act that has materially affected, or is reasonably
likely to materially affect, the Companys control over
financial reporting.
14
PART II
OTHER INFORMATION
|
|
Item 1
|
Legal
Proceedings
|
From time to time, the Company is involved in various legal
proceedings relating to claims arising in the ordinary course of
its business. Except as set forth in the Companys annual
report on
Form 10-K
for the year ended April 1, 2007, 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.
There have been no material changes to the risk factors
disclosed in Item 1A. of Part 1 in our
Form 10-K
for the year ended April 1, 2007.
|
|
Item 2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
(c) 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 December 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
October 1, 2007 through November 4, 2007
|
|
|
25,574
|
|
|
$
|
4.02
|
|
|
|
25,574
|
|
|
$
|
5,562,362
|
|
November 5, 2007 through December 2, 2007
|
|
|
22,086
|
|
|
$
|
3.94
|
|
|
|
22,086
|
|
|
$
|
5,475,242
|
|
December 3, 2007 through December 30, 2007
|
|
|
92,693
|
|
|
$
|
3.56
|
|
|
|
92,693
|
|
|
$
|
5,145,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
140,353 |
|
|
$ |
3.70 |
|
|
|
140,353 |
|
|
$ |
5,145,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
|
Item 3
|
Defaults
Upon Senior Securities
|
None.
|
|
Item 4
|
Submission
of Matters to a Vote of Security Holders
|
None.
|
|
Item 5
|
Other
Information
|
None.
15
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit
|
|
|
2
|
.1
|
|
Asset Purchase Agreement dated as of November 5, 2007 by
and between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(1)
|
|
10
|
.1
|
|
Noncompetition and Non-Disclosure Agreement dated as of
November 5, 2007 by and between Springs Global US, Inc. and
Crown Crafts Infant Products, Inc.(1)
|
|
10
|
.2
|
|
Warehousing Agreement dated as of November 5, 2007 by and
between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(1)
|
|
10
|
.3
|
|
Transition Services Agreement dated as of November 5, 2007
by and between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(1)
|
|
10
|
.4
|
|
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.(1)
|
|
10
|
.5
|
|
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.(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 November 9, 2007. |
|
(2) |
|
Filed herewith. |
16
SIGNATURES
Pursuant to the requirements 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.
AMY VIDRINE SAMSON
Chief Financial Officer
(duly authorized signatory and Principal Financial and
Accounting Officer)
Date: February 13, 2008
17
Index
to Exhibits
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit
|
|
|
2
|
.1
|
|
Asset Purchase Agreement dated as of November 5, 2007 by and
between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(1)
|
|
10
|
.1
|
|
Noncompetition and Non-Disclosure Agreement dated as of November
5, 2007 by and between Springs Global US, Inc. and Crown Crafts
Infant Products, Inc.(1)
|
|
10
|
.2
|
|
Warehousing Agreement dated as of November 5, 2007 by and
between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(1)
|
|
10
|
.3
|
|
Transition Services Agreement dated as of November 5, 2007 by
and between Springs Global US, Inc. and Crown Crafts Infant
Products, Inc.(1)
|
|
10
|
.4
|
|
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.(1)
|
|
10
|
.5
|
|
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.(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 November 9, 2007. |
|
(2) |
|
Filed herewith. |
18