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 28, 2008
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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, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
þ
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
The number of shares of common stock, $0.01 par value, of the registrant outstanding as of February
2, 2009 was 9,205,890.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 28, 2008 and March 30, 2008
(amounts in thousands, except share and per share amounts)
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December 28, 2008
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(Unaudited)
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March 30, 2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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12,214
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$
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7,930
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Accounts receivable (net of allowances of
$1,151 at December 28, 2008 and $1,268 at
March 30, 2008):
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Due from factor
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12,545
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16,081
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Other
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1,931
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2,197
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Inventories, net
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14,729
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13,777
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Prepaid expenses
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1,146
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1,064
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Assets held for sale
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644
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663
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Deferred income taxes
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733
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885
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Total current assets
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43,942
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42,597
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Property, plant and equipment at cost:
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Land, buildings and improvements
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205
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203
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Machinery and equipment
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2,366
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2,241
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Furniture and fixtures
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765
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742
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3,336
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3,186
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Less accumulated depreciation
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2,816
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2,597
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Property, plant and equipment net
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520
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589
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Other assets:
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Goodwill, net
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13,884
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22,884
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Intangible assets, net
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5,931
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7,276
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Deferred income taxes
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39
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Other
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190
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131
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Total other assets
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20,044
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30,291
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Total Assets
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$
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64,506
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$
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73,477
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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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6,779
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$
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5,614
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Accrued wages and benefits
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944
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1,179
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Accrued royalties
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1,700
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1,023
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Other accrued liabilities
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1,115
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711
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Current maturities of long-term debt
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2,292
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2,504
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Total current liabilities
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12,830
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11,031
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Non-current liabilities:
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Long-term debt
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18,891
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22,311
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Deferred income taxes
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402
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Total non-current liabilities
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18,891
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22,713
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Commitments and contingencies
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Shareholders equity:
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Common stock $0.01 par value per share;
Authorized 74,000,000 shares; Issued
10,094,941 shares at December 28, 2008 and
10,039,942 shares at March 30, 2008
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101
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100
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Additional paid-in capital
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39,807
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39,247
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Treasury stock at cost 889,051 shares at
December 28, 2008 and 562,647 shares at March
30, 2008
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(3,056
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)
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(2,071
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)
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Retained earnings (accumulated deficit)
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(4,067
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)
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2,457
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Total shareholders equity
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32,785
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39,733
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Total Liabilities and Shareholders Equity
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$
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64,506
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$
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73,477
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See notes to unaudited condensed consolidated financial statements.
1
CROWN CRAFTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine-Month Periods Ended December 28, 2008 and December 30, 2007
(amounts in thousands, except per share amounts)
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Three Months Ended
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Nine Months Ended
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December 28,
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December 30,
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December 28,
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December 30,
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2008
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2007
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2008
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2007
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Net sales
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$
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19,316
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$
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18,431
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$
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62,830
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$
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50,902
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Cost of products sold
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15,519
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13,853
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49,940
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38,055
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Gross profit
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3,797
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4,578
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12,890
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12,847
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Marketing and administrative expenses
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2,217
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2,584
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8,096
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7,960
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Goodwill impairment charge
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9,000
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9,000
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(Loss) income from operations
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(7,420
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)
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1,994
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(4,206
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)
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4,887
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Other income (expense):
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Interest expense
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(265
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)
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(244
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)
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(900
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)
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(475
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)
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Other net
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37
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|
178
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87
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154
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|
|
|
|
|
|
|
|
|
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(Loss) income before income taxes
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(7,648
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)
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1,928
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(5,019
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)
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|
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4,566
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Income tax expense
|
|
|
526
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|
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|
692
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|
|
|
1,532
|
|
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1,705
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|
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|
|
|
|
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(Loss) income from continuing operations after income taxes
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|
|
(8,174
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)
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1,236
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|
|
(6,551
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)
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2,861
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(Loss) income from discontinued operations net of income taxes
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|
(4
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)
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|
|
(12
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)
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27
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|
(110
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)
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|
|
|
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|
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|
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Net (loss) income
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|
$
|
(8,178
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)
|
|
$
|
1,224
|
|
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$
|
(6,524
|
)
|
|
$
|
2,751
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|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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Weighted
average shares outstanding basic
|
|
|
9,265
|
|
|
|
9,903
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|
|
|
9,353
|
|
|
|
9,966
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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Weighted
average shares outstanding diluted
|
|
|
9,265
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|
|
|
10,176
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|
|
|
9,353
|
|
|
|
10,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(Loss) income from continuing operations
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|
$
|
(0.88
|
)
|
|
$
|
0.12
|
|
|
$
|
(0.70
|
)
|
|
$
|
0.29
|
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic (loss) earnings per share
|
|
$
|
(0.88
|
)
|
|
$
|
0.12
|
|
|
$
|
(0.70
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)
|
|
$
|
0.28
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(0.88
|
)
|
|
$
|
0.12
|
|
|
$
|
(0.70
|
)
|
|
$
|
0.28
|
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted (loss) earnings per share
|
|
$
|
(0.88
|
)
|
|
$
|
0.12
|
|
|
$
|
(0.70
|
)
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements.
2
CROWN CRAFTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine-Month Periods Ended December 28, 2008 and December 30, 2007
(amounts in thousands)
|
|
|
|
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|
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|
|
|
Nine Months Ended
|
|
|
|
December 28,
|
|
|
December 30,
|
|
|
|
2008
|
|
|
2007
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(6,524
|
)
|
|
$
|
2,751
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
225
|
|
|
|
259
|
|
Amortization of intangibles
|
|
|
1,311
|
|
|
|
340
|
|
Goodwill impairment charge
|
|
|
9,000
|
|
|
|
|
|
Deferred income taxes
|
|
|
(288
|
)
|
|
|
1,390
|
|
(Gain) loss on sale of property, plant and equipment
|
|
|
(65
|
)
|
|
|
6
|
|
Discount accretion
|
|
|
182
|
|
|
|
169
|
|
Stock-based compensation
|
|
|
542
|
|
|
|
432
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,861
|
|
|
|
(2,098
|
)
|
Inventories, net
|
|
|
(952
|
)
|
|
|
(5,246
|
)
|
Prepaid expenses
|
|
|
(83
|
)
|
|
|
(724
|
)
|
Other assets
|
|
|
(84
|
)
|
|
|
9
|
|
Accounts payable
|
|
|
1,165
|
|
|
|
4,968
|
|
Accrued liabilities
|
|
|
846
|
|
|
|
680
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
9,136
|
|
|
|
2,936
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(158
|
)
|
|
|
(156
|
)
|
Acquisition costs to purchase Baby Products Line from Springs Global
|
|
|
|
|
|
|
(356
|
)
|
Proceeds from disposition of assets
|
|
|
86
|
|
|
|
19
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(72
|
)
|
|
|
(493
|
)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(1,879
|
)
|
|
|
(223
|
)
|
Repayments under revolving line of credit, net
|
|
|
(1,935
|
)
|
|
|
(1,438
|
)
|
Purchase of treasury stock
|
|
|
(985
|
)
|
|
|
(854
|
)
|
Issuance of common stock
|
|
|
19
|
|
|
|
40
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(4,780
|
)
|
|
|
(2,475
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,284
|
|
|
|
(32
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
7,930
|
|
|
|
33
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
12,214
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,218
|
|
|
$
|
984
|
|
Interest paid
|
|
|
626
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
Debt issued to purchase Baby Products Line from Springs Global:
|
|
|
|
|
|
|
|
|
Funded through revolving line of credit
|
|
$
|
|
|
|
$
|
6,014
|
|
Funded through long-term debt
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
Total debt issued to purchase Baby Products Line
from Springs Global
|
|
$
|
|
|
|
$
|
11,014
|
|
|
|
|
|
|
|
|
Adjustment to purchase price of Springs Baby Products
from resolution of pre-acquisition contingency
|
|
$
|
(58
|
)
|
|
$
|
|
|
See notes to 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 28, 2008 AND DECEMBER 30, 2007
1.
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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 (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 December 28, 2008 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 28, 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.
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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 recorded commensurate with
sales activity and the cost of such allowances are netted against sales in reporting the results
of operations. Shipping and handling costs, net of amounts reimbursed by customers, are
included in net sales.
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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 the disclosure of contingent assets and liabilities as of the date of the
consolidated balance sheets and the reported amounts of revenues and expenses during the periods
presented on the consolidated statements of income and cash flows. 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. Our impairment
test of goodwill is based on comparing the fair value of each of the reporting units of the Company
to such reporting units carrying value. Fair value is measured using a combination of the income
approach, utilizing the discounted cash flow method that incorporates our estimates of future
revenues and costs for our business, and the public company comparables approach, utilizing
multiples of profit measures. The estimates that we use to measure goodwill are consistent with
the plans and estimates that we use to manage our operations, and are based on the best information
available as of the date of the measurement. 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.
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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 sheets.
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The Company reported goodwill of $13.9 million and $22.9 million at December 28, 2008 and March 30,
2008, respectively. The Company tests the fair value of the goodwill of its reporting units
annually in a two-step approach (Impairment Test). The first step is the estimation of the fair
value of each reporting unit to ensure that its fair value exceeds its carrying value. If step one
indicates that a potential impairment exists, the second step is performed to measure the amount of
an impairment charge, if any. In the second step, these estimated fair values are used as the
hypothetical purchase price for the reporting units, and an allocation of such hypothetical
purchase price is made to the identifiable tangible and intangible assets and assigned liabilities
of the reporting units. The impairment charge is calculated as the amount, if any, that the
carrying value of the goodwill exceeds the residual amount of goodwill that results from this
hypothetical purchase price allocation. An Impairment Test must be performed more frequently if an
event occurs or circumstances change that suggest that the fair value of the goodwill of either of
the reporting units of the Company has more likely than not fallen below its carrying value.
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4
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During the three months ended December 28, 2008, the market capitalization of the Company was below
its net book value, which the Company has concluded was a triggering event that required the
Company to perform an interim Impairment Test. Due to the complexity of estimating the fair value
of the goodwill of each reporting unit required in the step one analysis, and the complexity of
estimating the fair value of the identifiable tangible and intangible assets of the reporting units
in the step two analysis, the Company was not able to complete the interim Impairment Test by the
filing deadline for its Form 10-Q for the three-month period ended December 28, 2008. The Company
has estimated that the interim Impairment Test, when completed, will result in a probable pre-tax
impairment charge that will be in the range of $6 million to $12 million. During the three-month
period ended December 28, 2008, the Company recorded a pretax charge of $9 million, or $0.97 per
basic and diluted share, which is its best reasonable estimate of the probable impairment to the
goodwill of one or both of its reporting units. Based upon the completion of the interim
Impairment Test, the Company will record an adjustment, if any, to this estimated impairment charge
in the quarter ending March 29, 2009. This impairment charge, and any adjustment thereof, will not
have any effect on the cash expenditures of the Company, or any adverse effect on the covenant
calculations under the Companys debt agreements or the Companys overall compliance with these
covenants.
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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 years in net deferred income tax assets and liabilities. The Company provides
for deferred income taxes based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates that will be in effect when the differences
are expected to reverse. The effect on deferred tax assets and liabilities of any change in
statutory tax rates is recognized in income in the period that includes the enactment date.
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The Companys provision for income taxes is based upon an effective tax rate of 39.0%, which is
the sum of the top U.S. statutory federal income tax rate and a composite rate for state income
taxes (net of federal tax benefit) in the various states in which the Company operates.
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Beginning with the Companys adoption on April 2, 2007 of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48), the
Company recognizes the effect of income tax positions only if those positions are more likely
than not of being sustained. Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs. Based on its recent evaluation,
the Company has concluded that there are no significant uncertain tax positions requiring
recognition in the Companys consolidated financial statements. Tax years still open to general
examination or other adjustment as of December 28, 2008 include tax years ended April 2, 2006,
April 1, 2007, and March 30, 2008. The Companys policy is to accrue interest expense and
penalties as appropriate on any estimated unrecognized tax benefits as a charge to interest
expense in the Companys consolidated statements of income. Prior to the adoption of FIN 48,
the Company recognized the effect of income tax positions only if such positions were probable
of being sustained.
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Royalty Payments:
The Company has entered into agreements that provide for royalty payments
based on a percentage of sales with certain minimum guaranteed amounts. These royalty amounts
are accrued based upon historical sales rates adjusted for current sales trends by customers.
Total royalty expenses, net of royalty income, included in cost of sales amounted to $4.7
million and $3.2 million for the nine-month periods ended December 28, 2008 and December 30,
2007, respectively.
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(Loss) earnings Per Share:
(Loss) earnings per share are calculated in accordance with SFAS No.
128,
Earnings per Share,
which requires dual presentation of basic and diluted (loss) earnings
per share on the face of the consolidated statements of income for all entities with complex
capital structures. (Loss) earnings per common share are based on the weighted average number
of shares outstanding during the period. Basic and diluted weighted average shares are
calculated in accordance with the treasury stock method, which assumes that the proceeds from
the exercise of all options would be used to repurchase common shares at market value. The
number of shares remaining after the exercise proceeds are exhausted represents the potentially
dilutive effect of the options.
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5
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The following table sets forth the computation of basic and diluted net (loss) income per common
share for the three and nine-month periods ended December 28, 2008 and December 30, 2007.
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Three Months Ended
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Nine Months Ended
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December 28,
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December 30,
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December 28,
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December 30,
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2008
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2007
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2008
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2007
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(Amounts in thousands, except per share data)
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(Loss) income from continuing operations
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$
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(8,174
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)
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$
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1,236
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$
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(6,551
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)
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$
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2,861
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(Loss) income from discontinued operations
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(4
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)
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(12
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)
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27
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(110
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)
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Net (loss) income, basic and diluted
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$
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(8,178
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)
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$
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1,224
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$
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(6,524
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)
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$
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2,751
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Weighted average number of shares outstanding
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Basic
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9,265
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9,903
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9,353
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9,966
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Effect of dilutive securities
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273
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282
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Diluted
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9,265
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10,176
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9,353
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10,248
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(Loss) earnings per common share
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Basic
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|
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Continuing operations
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$
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(0.88
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)
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$
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0.12
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$
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(0.70
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)
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$
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0.29
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Discontinued operations
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(0.01
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)
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Total
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$
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(0.88
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)
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$
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0.12
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$
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(0.70
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)
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$
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0.28
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(Loss) earnings per common share
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|
|
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Diluted
|
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|
|
|
|
|
|
|
|
|
|
|
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Continuing operations
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$
|
(0.88
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)
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|
$
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0.12
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$
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(0.70
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)
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|
$
|
0.28
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|
Discontinued operations
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|
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|
|
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(0.01
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)
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|
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Total
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$
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(0.88
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)
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$
|
0.12
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$
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(0.70
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)
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$
|
0.27
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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.
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The allowances for customer deductions, which are netted against accounts receivable in the
consolidated balance sheets, consist of agreed upon advertising support, markdowns and warehouse
and other allowances. Consistent with the guidance provided in Issue No. 01-9
, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)
(EITF 01-9), by the Emerging Issues Task Force of the Financial Accounting Standards Board
(FASB), all such allowances are recorded as direct offsets to sales and such costs are accrued
commensurate with sales activities. When a customer requests deductions, the allowances are
reduced to reflect such payments.
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The Company analyzes the components of the allowances for customer deductions monthly and
adjusts the allowances to 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.
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Recently Issued Accounting Standards:
In September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements
(SFAS No. 157)
,
which defines fair value, establishes a framework for a
reporting entity to measure fair value in GAAP, and expands disclosure requirements related to
fair value measurements. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and for interim periods within those fiscal years. In
February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which delayed the
effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis, to fiscal years beginning after November 15, 2008. The Company has not yet
determined the impact that the adoption of SFAS No. 157 will have on its non-financial assets
and liabilities which are not recognized on a recurring basis; however, the Company does not
anticipate that it will materially impact the Companys consolidated financial statements.
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6
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In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities
(SFAS No. 159). This statement provides companies an option to report
selected financial assets and liabilities at fair value. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, on
March 31, 2008, the Company adopted the provisions of SFAS No. 159. Upon adoption, the Company
did not elect the fair value option for any items within the scope of SFAS No. 159; therefore,
the adoption of SFAS No. 159 did not have an impact on the Companys consolidated financial
statements.
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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.
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2.
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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.
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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.
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The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock
options under SFAS No. 123 (Revised 2004),
Share-Based Payment
(SFAS No. 123(R)), consistent
with the method previously used for pro forma disclosures under SFAS No. 123. The Company has
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).
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The Company recorded $160,000 and $542,000 of share-based compensation expense during the
three and nine-month periods ended December 28, 2008, respectively; and recorded $155,000 and
$432,000 of share-based compensation expense during the three and nine-month periods ended
December 30, 2007, respectively. No share-based compensation costs have been capitalized as
part of the cost of an asset as of December 28, 2008.
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Stock Options:
The following table represents stock option activity for fiscal year 2009:
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Weighted-Average
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Exercise Price
|
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Number of Options
|
|
Outstanding at March 30, 2008
|
|
$
|
2.15
|
|
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|
651,330
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|
Granted
|
|
|
3.58
|
|
|
|
200,000
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|
Exercised
|
|
|
0.77
|
|
|
|
(24,999
|
)
|
Forfeited
|
|
|
3.77
|
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
Outstanding at December 28, 2008
|
|
$
|
2.53
|
|
|
|
823,331
|
|
|
|
|
|
|
|
|
Exercisable at December 28, 2008
|
|
$
|
2.01
|
|
|
|
568,331
|
|
|
|
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|
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|
7
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|
During the quarter ended June 29, 2008, the Company granted 200,000 non-qualified stock options
to certain employees at the closing price of the Companys common stock on the date of grant,
which options vest over a two-year period, assuming continued service. The following
assumptions were used for the stock options granted during the quarter ended June 29, 2008:
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|
|
|
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|
Dividend Yield
|
|
|
|
|
Expected Volatility
|
|
|
55.00
|
%
|
Risk free interest rate
|
|
|
3.54
|
%
|
Expected life in years
|
|
|
5.75
|
|
Forfeiture rate
|
|
|
5.00
|
%
|
|
|
For the three and nine-month periods ended December 28, 2008, the Company recognized
compensation expense associated with stock options as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period
|
|
Nine-month period
|
|
|
Cost of
|
|
Marketing &
|
|
|
|
|
|
Cost of
|
|
Marketing &
|
|
|
|
|
Products
|
|
Administrative
|
|
Total
|
|
Products
|
|
Administrative
|
|
Total
|
|
|
Sold
|
|
Expenses
|
|
Expense
|
|
Sold
|
|
Expenses
|
|
Expense
|
Options granted in fiscal year
2007
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
23
|
|
|
$
|
71
|
|
|
$
|
94
|
|
Options granted in fiscal year
2008
|
|
|
9
|
|
|
|
25
|
|
|
|
34
|
|
|
|
29
|
|
|
|
74
|
|
|
|
103
|
|
Options granted in fiscal year
2009
|
|
|
10
|
|
|
|
31
|
|
|
|
41
|
|
|
|
25
|
|
|
|
75
|
|
|
|
100
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
19
|
|
|
$
|
54
|
|
|
$
|
73
|
|
|
$
|
77
|
|
|
$
|
220
|
|
|
$
|
297
|
|
|
|
|
|
|
|
|
For the three and nine-month periods ended December 30, 2007, the Company recognized
compensation expense associated with stock options as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period
|
|
Nine-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 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.
|
|
|
|
On August 25, 2006, the Company granted 375,000 shares of non-vested stock to certain employees
with a fair value of $3.15 as of the date of the stock grants. These shares have four-year
cliff vesting. The Company recognized $73,000 and $221,000 of compensation expense related to
these non-vested stock grants during each of the three and nine-month periods ended December 28,
2008 and 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 28, 2008, the amount of unrecognized compensation expense related to these stock
grants was $493,000. 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 of these employees whose stock grants are unvested as of
such employees separation date.
|
8
|
|
During the quarter ended September 28, 2008, the Company granted 30,000 shares of non-vested
stock to its non-employee directors with a fair value of $3.87 as of the date of the stock
grants. These shares vest over a two-year period. The Company recognized $14,000 and $24,000
of compensation expense related to these non-vested stock grants during the three and nine-month
periods ended December 30, 2008, 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 28, 2008, the amount of unrecognized compensation expense related to these stock
grants was $92,000. 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
discontinuance of service on the Companys board of any of these non-employee directors whose
stock grants are unvested as of the date of such non-employee directors discontinued service.
|
|
3.
|
|
Inventory:
Major classes of inventory were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
March 30,
|
|
|
|
2008
|
|
|
2008
|
|
Raw Materials
|
|
$
|
58
|
|
|
$
|
40
|
|
Finished Goods
|
|
|
14,671
|
|
|
|
13,737
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
14,729
|
|
|
$
|
13,777
|
|
|
|
|
|
|
|
|
|
|
Inventory is recorded net of reserves for inventories classified as irregular or discontinued of
$0.4 million at December 28, 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, which expires in July 2010,
the factor remits payments to the Company on the average due date of each group of invoices
assigned. If a customer fails to pay the factor on the due date, the Company is charged
interest at prime less 1.0%, which was 2.25% at December 28, 2008, until payment is received.
The factor bears credit losses with respect to assigned accounts receivable from approved
customers that are within approved credit limits. The Company bears losses resulting from
returns, allowances, claims and discounts. The Companys factor may at any time terminate or
limit its approval of shipments to a particular customer. If such a termination occurs, the
Company must either assume the credit risks for shipments after the date of such termination
or cease shipments to such customer.
|
|
|
|
Long-term debt:
At December 28, 2008 and March 30, 2008, long term debt consisted of (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
March 30,
|
|
|
|
2008
|
|
|
2008
|
|
Revolving line of credit
|
|
$
|
15,448
|
|
|
$
|
17,383
|
|
Term loan
|
|
|
2,292
|
|
|
|
4,167
|
|
Non-interest bearing notes
|
|
|
4,000
|
|
|
|
4,000
|
|
Original issue discount
|
|
|
(557
|
)
|
|
|
(739
|
)
|
Capital leases
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
21,183
|
|
|
|
24,815
|
|
Less current maturities
|
|
|
2,292
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
|
$
|
18,891
|
|
|
$
|
22,311
|
|
|
|
|
|
|
|
|
|
|
The Companys credit facilities at December 28, 2008 consisted of 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% (2.25% at December 28, 2008) for base
rate borrowings or LIBOR plus 2.25% (4.15% at December 28,
2008), maturing on July 11, 2010 and secured by a first lien on all assets of the Company.
The Company had $4.1 million available under the revolving line of credit based on eligible
accounts receivable and inventory balances as of December 28, 2008. As of December 28, 2008,
letters of credit of $0.5 million were outstanding against the $1.5 million sub-limit for
letters of credit.
|
9
The financing agreement for the 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 28, 2008.
Term Loan
of an original amount of $5 million, with an interest rate of prime plus 0.50%
(3.75% at December 28, 2008) and requiring equal monthly installments of principal until
final maturity on November 1, 2009.
Subordinated Notes
of $4 million. The notes do not bear interest and are due in two equal
installments of $2 million each, the first of which is payable on July 11, 2010, and the
second of which is payable on July 11, 2011. The original issue discount of $1.1 million on
this non-interest bearing obligation at a market interest rate of 7.25% is being amortized
over the life of the notes.
Minimum annual maturities as of December 28, 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
Revolver
|
|
|
Term Loan
|
|
|
Sub Notes
|
|
|
Total
|
|
2009
|
|
|
|
|
|
$
|
625
|
|
|
|
|
|
|
$
|
625
|
|
2010
|
|
|
|
|
|
|
1,667
|
|
|
|
|
|
|
|
1,667
|
|
2011
|
|
$
|
15,448
|
|
|
|
|
|
|
$
|
2,000
|
|
|
|
17,448
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,448
|
|
|
$
|
2,292
|
|
|
$
|
4,000
|
|
|
$
|
21,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and nine-month periods ended December 28, 2008 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
Aggregate Amortization Expense
|
|
|
|
Carrying
|
|
|
Useful
|
|
|
Accumulated
|
|
|
Periods Ended December 28, 2008
|
|
|
|
Amount
|
|
|
Life
|
|
|
Amortization
|
|
|
Three-month period
|
|
|
Nine-month period
|
|
Tradename
|
|
$
|
466,387
|
|
|
15 years
|
|
$
|
62,191
|
|
|
$
|
7,773
|
|
|
$
|
23,319
|
|
Existing designs
|
|
|
35,924
|
|
|
1 year
|
|
|
35,924
|
|
|
|
|
|
|
|
|
|
Non-compete
|
|
|
97,689
|
|
|
15 years
|
|
|
12,981
|
|
|
|
1,629
|
|
|
|
4,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
600,000
|
|
|
|
|
|
|
$
|
111,096
|
|
|
$
|
9,402
|
|
|
$
|
28,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCIP recorded $18,000 and $55,000 of amortization expense related to the intangible assets
acquired from Kimberly Grant, Inc. during the three and nine-month periods ended December 30,
2007.
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.
During the three-month period ended September 28, 2008, the resolution of the final
pre-acquisition contingency resulted in a further reduction to the purchase price of $0.1
million. The Company also capitalized $0.4 million of direct costs associated with this
acquisition for a total capitalized acquisition cost of $11.3 million.
10
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 three and nine-month periods ended
December 28, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
Aggregate Amortization Expense
|
|
|
|
Carrying
|
|
|
Useful
|
|
|
Accumulated
|
|
|
Periods Ended December 28, 2008
|
|
|
|
Amount
|
|
|
Life
|
|
|
Amortization
|
|
|
Three-month period
|
|
|
Nine-month period
|
|
Licenses & existing
designs
|
|
$
|
1,655,188
|
|
|
2 years
|
|
$
|
965,528
|
|
|
$
|
206,898
|
|
|
$
|
620,694
|
|
Licenses & future
designs
|
|
|
1,846,822
|
|
|
4 years
|
|
|
538,672
|
|
|
|
115,425
|
|
|
|
346,275
|
|
Non-compete
|
|
|
114,981
|
|
|
4 years
|
|
|
33,551
|
|
|
|
7,185
|
|
|
|
21,555
|
|
Customer relationships
|
|
|
3,759,288
|
|
|
10 years
|
|
|
443,714
|
|
|
|
93,793
|
|
|
|
284,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,376,279
|
|
|
|
|
|
|
$
|
1,981,465
|
|
|
$
|
423,301
|
|
|
$
|
1,273,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCIP recorded $283,000 of amortization expense related to the intangible assets acquired from
Springs Global during the three months ended December 30, 2007.
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 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
(unaudited) 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 direct expenses reported by the baby products line of
Springs Global for the one and seven-month periods ended November 4, 2007 (derived on a pro rata
basis using the abbreviated statements of revenues and direct expenses for the nine-month period
ended September 29, 2007, because the Company does not have actual results of revenues and
direct expenses for the one and seven-month periods ended November 4, 2007) were combined with
the revenues and expenses reported by the Company for the three and nine-month periods ended
December 30, 2007. This activity was performed to provide the following unaudited proforma
financial information, which presents a summary of the Companys consolidated results of
operations for the three and nine-month periods ended December 30, 2007, as if the acquisition
of the baby products line from Springs Global had occurred on April 2, 2007. This unaudited
proforma financial information includes adjustments to reflect the amortization expense related
to 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
|
|
|
Nine-Month
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
|
December 30, 2007
|
|
|
December 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
20,434
|
|
|
$
|
64,923
|
|
Total operating expenses
|
|
|
18,586
|
|
|
|
61,059
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1,129
|
|
|
$
|
2,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
11
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 $6.0 million to repurchase shares of the Companys common stock
from July 1, 2007 through July 1, 2008. Pursuant to this program, the Company repurchased
679,296 shares at a cost of $2.5 million.
On October 14, 2008 and November 3, 2008, the Company, in privately-negotiated transactions,
repurchased (i) 100,000 shares of its common stock at a purchase price, including broker fees, of
$2.68 per share and (ii) 109,755 shares of its common stock at a purchase price, including broker
fees, of $2.69 per share, respectively.
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 and toddler products segments within the consumer products
industry. The Companys offices are located in Compton, California; Gonzales, Louisiana; Rogers,
Arkansas; Roslyn Heights, New York; and a foreign representative office in Shanghai, China.
The infant and toddler products segment consists of infant and toddler bedding, bibs, soft goods
and accessories. Sales of the Companys products are generally made directly to retailers, which
are primarily mass merchants, chain stores, juvenile specialty stores, internet accounts,
wholesale clubs and catalogue and direct mail houses. The Companys products are manufactured
primarily in China and marketed under a variety of Company-owned trademarks, under trademarks
licensed from others and as private label goods.
The infant and toddler consumer products industry is highly competitive. The Company competes with
a variety of distributors and manufacturers (both branded and private label), including Kids Line,
LLC and CoCaLo, Inc., divisions of Russ Berrie and Co., Inc. in its infant and juvenile segment;
Summer Infant, Inc.; Lambs & Ivy; The Betesh Group; Carters, Inc.; Luv n Care, Ltd.; Danara
International, Ltd.; Triboro Quilt Manufacturing, Inc.; and Gerber Childrenswear, Inc., on the
basis of quality, design, price, brand name recognition, service and packaging. The Companys
ability to compete depends principally on styling, price, service to the retailer and continued
high regard for the Companys products and trade names.
RESULTS OF OPERATIONS
The following table contains results of operations for the three and nine-month periods ended
December 28, 2008 and December 30, 2007 and the dollar and percentage changes for those periods
(in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended
|
|
Nine-month period ended
|
|
|
December 28, 2008
|
|
December 30, 2007
|
|
$ change
|
|
% change
|
|
December 28, 2008
|
|
December 30, 2007
|
|
change
|
|
change
|
Net sales by category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedding, blankets and accessories
|
|
$
|
16,305
|
|
|
$
|
14,770
|
|
|
$
|
1,535
|
|
|
|
10.4
|
%
|
|
$
|
52,683
|
|
|
$
|
38,601
|
|
|
$
|
14,082
|
|
|
|
36.5
|
%
|
Bibs and bath
|
|
|
3,011
|
|
|
|
3,661
|
|
|
|
(650
|
)
|
|
|
-17.8
|
%
|
|
|
10,147
|
|
|
|
12,301
|
|
|
|
(2,154
|
)
|
|
|
-17.5
|
%
|
Total net sales
|
|
|
19,316
|
|
|
|
18,431
|
|
|
|
885
|
|
|
|
4.8
|
%
|
|
|
62,830
|
|
|
|
50,902
|
|
|
|
11,928
|
|
|
|
23.4
|
%
|
Cost of products sold
|
|
|
15,519
|
|
|
|
13,853
|
|
|
|
1,666
|
|
|
|
12.0
|
%
|
|
|
49,940
|
|
|
|
38,055
|
|
|
|
11,885
|
|
|
|
31.2
|
%
|
Gross profit
|
|
|
3,797
|
|
|
|
4,578
|
|
|
|
(781
|
)
|
|
|
-17.1
|
%
|
|
|
12,890
|
|
|
|
12,847
|
|
|
|
43
|
|
|
|
0.3
|
%
|
% of net sales
|
|
|
19.7
|
%
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
20.5
|
%
|
|
|
25.2
|
%
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
2,217
|
|
|
|
2,584
|
|
|
|
(367
|
)
|
|
|
-14.2
|
%
|
|
|
8,096
|
|
|
|
7,960
|
|
|
|
136
|
|
|
|
1.7
|
%
|
% of net sales
|
|
|
11.5
|
%
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
12.9
|
%
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
9,000
|
|
|
|
|
|
|
|
9,000
|
|
|
|
100.0
|
%
|
|
|
9,000
|
|
|
|
|
|
|
|
9,000
|
|
|
|
100.0
|
%
|
Interest expense
|
|
|
265
|
|
|
|
244
|
|
|
|
21
|
|
|
|
8.6
|
%
|
|
|
900
|
|
|
|
475
|
|
|
|
425
|
|
|
|
89.5
|
%
|
Other income (expense)
|
|
|
37
|
|
|
|
178
|
|
|
|
(141
|
)
|
|
|
-79.2
|
%
|
|
|
87
|
|
|
|
154
|
|
|
|
(67
|
)
|
|
|
-43.5
|
%
|
Income tax expense
|
|
|
526
|
|
|
|
692
|
|
|
|
(166
|
)
|
|
|
-24.0
|
%
|
|
|
1,532
|
|
|
|
1,705
|
|
|
|
(173
|
)
|
|
|
-10.1
|
%
|
(Loss) income from continuing operations after taxes
|
|
|
(8,174
|
)
|
|
|
1,236
|
|
|
|
(9,410
|
)
|
|
|
-761.3
|
%
|
|
|
(6,551
|
)
|
|
|
2,861
|
|
|
|
(9,412
|
)
|
|
|
-329.0
|
%
|
Discontinued operations net of taxes
|
|
|
(4
|
)
|
|
|
(12
|
)
|
|
|
8
|
|
|
|
-66.7
|
%
|
|
|
27
|
|
|
|
(110
|
)
|
|
|
137
|
|
|
|
-124.5
|
%
|
Net (loss) income
|
|
|
(8,178
|
)
|
|
|
1,224
|
|
|
|
(9,402
|
)
|
|
|
-768.1
|
%
|
|
|
(6,524
|
)
|
|
|
2,751
|
|
|
|
(9,275
|
)
|
|
|
-337.2
|
%
|
% of net sales
|
|
|
-42.3
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
-10.4
|
%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
12
Net Sales:
Sales of bedding, blankets and accessories increased for the three-month period of
fiscal year 2009 as compared to the same period in fiscal year 2008. Sales increased by $3.1
million due to the acquisition of the baby products line of Springs Global on November 5, 2007,
and increased by $1.9 million due to shipments of new bedding and blanket programs. These
increases were offset by $3.5 million in lower replenishment orders or discontinued programs.
Sales of bedding, blankets and accessories increased for the nine-month period of fiscal year
2009 as compared to the same period in fiscal year 2008. Sales increased by $13.0 million due
to the Springs Global acquisition and increased by $7.3 million due to shipments of new bedding
and blanket programs. These increases were offset by $6.2 million in lower replenishment orders
or discontinued programs.
Bib and bath sales decreased for the three-month period of fiscal year 2009 as compared to the
same period in fiscal year 2008. Sales decreased by $1.3 million due to programs that were
discontinued or had lower replenishment orders. Offsetting this decrease was an increase of
$0.6 million related to sales of new designs and promotions, including $0.2 million of initial
program shipments.
Bib and bath sales decreased for the nine-month period of fiscal year 2009 as compared to the
same period in fiscal year 2008. Sales decreased by $4.9 million due to programs that were
discontinued or had lower replenishment orders. Offsetting this decrease was an increase of
$2.7 million related to sales of new designs and promotions, including $0.6 million of initial
program shipments.
Gross Profit:
Gross profit decreased in amount and as a percentage of net sales for the
three-month period of fiscal year 2009 as compared to the same period of fiscal year 2008. The
decrease in the percentage is due primarily to increased amortization costs of $101,000 in the
current year associated with the acquisition of the baby products line of Springs Global and
costs of $84,000 related to the establishment of a Foreign Representative Office in China. The
Company has also experienced an increase in product costs from Asia. These increased costs were
offset somewhat by a $292,000 charge in the prior year related to the warehousing and shared
services agreement entered into in conjunction with the Springs Global acquisition.
Gross profit was nearly unchanged in amount, but decreased as a percentage of net sales for the
nine-month period of fiscal year 2009 as compared to the same period of fiscal year 2008. The
decrease in the percentage is due primarily to increased amortization costs of $742,000 in the
current year associated with the acquisition of the baby products line of Springs Global as well
as costs of $317,000 related to the establishment in late fiscal year 2008 of a Foreign
Representative Office in China, increased product development and design costs of $243,000 and
increased testing costs of $161,000. In addition, the Company has experienced an increase in
product costs from Asia. Offsetting these increased costs were charges in the prior year of
$215,000 charge related to vinyl bibs and $292,000 related to the warehousing and shared
services agreement entered into in conjunction with the Springs Global acquisition.
Marketing and Administrative Expenses
: Marketing and administrative expenses for the
three-month period of fiscal year 2009 decreased in amount and as a percentage of net sales as
compared to the same period of fiscal year 2008 due primarily to lower incentive-based salaries.
Marketing and administrative expenses for the nine-month period of fiscal year 2009 increased in
amount but decreased as a percentage of net sales as compared to the same period of fiscal year
2008. In the current year, the Company incurred increased costs for amortization of
approximately $229,000 related to the acquisition of the baby products line of Springs Global,
and $195,000 in expenses associated with the Governance and Standstill Agreement entered into on
July 1, 2008 with Wynnefield Small Cap Value, L.P. and its affiliates. These increases were
partially offset by $476,000 of costs incurred in the prior year associated with the Companys
proxy contest.
Goodwill Impairment Charge:
During the three-month period ended December 28, 2008, the market capitalization of the Company was below its net book value, which the Company concluded was a triggering event that required the Company to perform an interim impairment test of the goodwill of its reporting units. Due to the complexity of estimating the fair value of the goodwill of each reporting unit required in step one of the
impairment test, and the complexity of estimating the fair values of the identifiable tangible and intangible assets of the reporting units in step two of the impairment test, the Company was not able to complete the interim impairment test by the deadline for filing its Form 10-Q for the quarter ended December 28, 2008. The Company has estimated that the interim impairment test, when completed, will result in a probable pre-tax impairment charge that will be in the range of $6 million to
$12 million. During the three-month period ended December 28, 2008, the Company recorded a pre-tax charge of $9 million, which is its best reasonable estimate of the probable impairment to the goodwill of one or both of its reporting units. Based upon the completion of the interim impairment test, the Company will record an adjustment, if any, to this estimated impairment charge in the quarter ending March 29, 2009.
13
Interest Expense:
The increase in interest expense for the three and nine-month periods of fiscal
year 2009 as compared to the same periods in fiscal year 2008 is due to a higher revolving line of
credit balance and a new term loan executed in conjunction with the acquisition of the baby
products line of Springs Global on November 5, 2007.
Income Tax Expense:
The effective tax rate for the three-month period ended December 28, 2008 was 6.9%, which reflects that the goodwill impairment charge does not result in a tax benefit. Excluding the goodwill impairment charge, the estimated annual tax provision was an annualized rate of 39%. The effective tax rate for the three and nine-month periods ended December 30, 2007 was 36% and 37%, respectively.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $9.1 million for the nine-month period ended December
28, 2008, compared to net cash provided by operating activities of $2.9 million for the nine-month
period ended December 30, 2007. The change in cash provided by operating activities was primarily
due to changes in accounts receivable and inventory balances and amortization expense, offset by
changes in accounts payable and deferred income tax balances. Net cash used in investing
activities was $72,000 in the current year compared to $493,000 in the prior year. Cash used in
the prior year was primarily for acquisition costs to purchase the baby products line from Springs
Global. Net cash used in financing activities was $4.8 million in the current year compared to
$2.5 million in the prior year. Cash used in both years was primarily for net repayments on the
revolving line of credit, payments on long-term debt and treasury stock purchases. Total debt
outstanding under the Companys credit facilities increased from $15.3 million at December 30, 2007
to $21.2 million at December 28, 2008. The increase is due to debt incurred to purchase the baby
products line from Springs Global on November 5, 2007 and borrowings on the revolving line of
credit drawn down due to uncertainties in the United States credit markets.
On December 28, 2008, the Company had $12.2 million in cash and $4.1 million available under its
$26 million revolving credit facility, based on eligible accounts receivable and inventory balances
as of that date. Also, $1.0 million was available for letters of credit against the $1.5 million
sub-limit for letters of credit associated with the revolving credit facility.
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
its cash balance, its cash flow from operations, and its availability from the revolving line of
credit will be adequate to meet liquidity needs.
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 2010, the factor remits payments to the
Company on the average due date of each group of invoices assigned. If a customer fails to pay the
factor on the due date, the Company is charged interest at prime less 1.0%, which was 2.25% at
December 28, 2008, until payment is received. The factor bears credit losses with respect to
assigned accounts receivable from approved customers that are within approved credit limits. The
Company bears losses resulting from returns, allowances, claims and discounts. The Companys
factor may at any time terminate or limit its approval of shipments to a particular customer. If
such a termination occurs, the Company must either assume the credit risks for shipments after the
date of such termination or cease shipments to such customer.
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.
14
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 28, 2008, 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.
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. 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.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 in the
Companys Form 10-K for the year ended March 30, 2008, other than as set forth below.
The Companys business is impacted by general economic conditions and related uncertainties
affecting markets in which the Company operates.
Current economic conditions, including the credit crisis affecting global financial markets and the
possibility of an extended global recession, could adversely impact the Companys business. These
conditions could result in reduced demand for some of the Companys products, increased order
cancellations and returns, an increased risk of excess and obsolete inventories, increased pressure
on the prices of the Companys products, and greater difficulty in obtaining necessary financing on
favorable terms. Also, although the Companys use of a commercial factor significantly reduces the
risk associated with collecting accounts receivable, the factor may at any time terminate or limit
its approval of shipments to a particular customer, and the likelihood of the factors doing so may
increase as a result of current economic conditions. Such an action by the factor would result in
the loss of future sales to the affected customer.
The Company could become obligated to record a further impairment charge related to its goodwill.
Although the Company reviews the carrying value of its goodwill annually, it must continually
evaluate whether any events or circumstances have occurred which would prompt it to perform an
interim review of its goodwill. The Company must record an impairment charge whenever, on a
reporting-unit basis, the carrying value of its goodwill exceeds its fair value. The estimates of
the fair value of the Companys reporting units are based on certain judgments and estimates of the
future cash flows of the respective reporting units and the Companys interpretation of economic
indicators and market valuations. A prolonged global recession or a further decline in the
market capitalization of the Company could adversely affect these measurements to a degree
sufficient to cause a deterioration of the fair value of one or both of the Companys reporting
units below their carrying value, thus prompting a further impairment charge related to the
Companys goodwill.
15
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 28, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2008
through November 2,
2008
|
|
|
100,000
|
(2)
|
|
$
|
2.68
|
|
|
|
0
|
|
|
$
|
0
|
|
November 3, 2008
through November
30, 2008
|
|
|
109,755
|
(3)
|
|
$
|
2.69
|
|
|
|
0
|
|
|
$
|
0
|
|
December 1, 2008 through
December 28, 2008
|
|
|
|
|
|
$
|
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
209,755
|
|
|
$
|
2.69
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes broker fees of $0.03 per share.
|
|
(2)
|
|
These shares of common stock were repurchased by the
Company in a privately-negotiated transaction on October
14, 2008.
|
|
(3)
|
|
These shares of common stock were repurchased by the
Company in a privately-negotiated transaction on November
3, 2008.
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
16
ITEM 6. EXHIBITS
|
|
|
Exhibit
No.
|
|
Exhibit
|
|
10.1
|
|
Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (1)
|
|
|
|
10.2
|
|
First Amendment to Employment Agreement dated November 6, 2008 by and between the Company and
E. Randall Chestnut (2)
|
|
|
|
10.3
|
|
First Amendment to Amended and Restated Severance Protection Agreement dated November 6, 2008
by and between the Company and E. Randall Chestnut (2)
|
|
|
|
10.4
|
|
First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Amy Vidrine Samson (2)
|
|
|
|
10.5
|
|
First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Nanci Freeman (2)
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (3)
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (3)
|
|
|
|
32.1
|
|
Section 1350 Certification by the Companys Chief Executive Officer (3)
|
|
|
|
32.2
|
|
Section 1350 Certification by the Companys Chief Financial Officer (3)
|
|
|
|
(1)
|
|
Incorporated herein by reference to Registrants Current Report on Form 8-K/A
dated November 7, 2008.
|
|
(2)
|
|
Incorporated herein by reference to Registrants Current Report on Form 8-K
dated November 7, 2008.
|
|
(3)
|
|
Filed herewith.
|
SIGNATURE
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.
|
|
|
Date: February 11, 2009
|
/s/ Olivia W. Elliott
|
|
|
OLIVIA W. ELLIOTT
|
|
|
Chief Financial Officer
(duly authorized signatory and
Principal Financial Officer)
|
|
17
Index to Exhibits
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibit
|
|
10.1
|
|
Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (1)
|
|
10.2
|
|
First Amendment to Employment Agreement dated November 6, 2008 by and between the Company and
E. Randall Chestnut (2)
|
|
10.3
|
|
First Amendment to Amended and Restated Severance Protection Agreement dated November 6, 2008
by and between the Company and E. Randall Chestnut (2)
|
|
10.4
|
|
First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Amy Vidrine Samson (2)
|
|
10.5
|
|
First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Nanci Freeman (2)
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (3)
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (3)
|
|
32.1
|
|
Section 1350 Certification by the Companys Chief Executive Officer (3)
|
|
32.2
|
|
Section 1350 Certification by the Companys Chief Financial Officer (3)
|
|
|
|
(1)
|
|
Incorporated herein by reference to Registrants Current Report on Form 8-K/A
dated November 7, 2008.
|
|
(2)
|
|
Incorporated herein by reference to Registrants Current Report on Form 8-K dated
November 7, 2008.
|
|
(3)
|
|
Filed herewith.
|
18
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