CROWN CRAFTS, INC.
2 0 1 1 A N N U A L R E P O R T
D E A R F E L L O W S T O C K H O L D E R S :
As we mark the 10-year anniversary of our corporate reorganization, we thought it would be an appropriate time to
both look back at the numerous and meaningful accomplishments we have achieved together and look ahead to the
exciting growth opportunities that lie before us.
It is still hard to comprehend just how troubled our Com-
fiscal 2011 sales from channels that barely existed two
pany was – with unprofitable businesses, restricted financial
years ago, including sales of Company-branded products
flexibility due to a heavy debt burden and lender-imposed
internationally and sales into premier restaurant chains,
limitations on various activities including acquisitions –
food and drug chains and the rapidly growing dollar store
when this management team took the reins in 2001. The
segment. Similarly, our total sales of Company-branded
Company had a stock price of $0.18 per share and was no
products increased by 22% from a year ago as our customers
longer traded on a major stock exchange.
and their consumers continue to embrace our innovative,
In order to resuscitate Crown Crafts, we had to systemat-
high-quality and attractively designed products.
ically rebuild the business through deliberate and decisive
Second, we have tremendous faith in our people. With-
actions, such as the following:
out question, we have some of the most talented, creative
■ Selling the unprofitable businesses and focusing solely
and dedicated people in the industry. We believe we gain
on serving the steadily growing infant and juvenile con-
a distinct competitive advantage from their unwavering
sumer products markets
commitment to superb customer service and seemingly
■ Reducing the overall cost structure through a corporate
endless energy as we look to further establish the Company
staff reorganization, among other cost containment efforts
as the premier player in this stable niche of the specialty
■ Restructuring the debt and capital structure to create a
retail industry.
stronger balance sheet and operating cash flow
Finally, in this slowly recovering global economy, our
■ Extinguishing warrants held by our lenders that, if
strong balance sheet and operating cash flow provide
exercised, would have given them approximately two-
us the financial flexibility we will need to accelerate our
thirds of the common stock of the Company
organic growth, as well as remain vigilant for additional
■ Listing the Company’s stock on the NASDAQ Stock Market
attractively valued acquisitions that would further extend
■ Acquiring several strategic assets to expand our distinc-
our product line or geographic reach.
tive, value-added product line
We are excited about what is to come for Crown Crafts
■ Diversifying our distribution channels and end markets
and look forward to updating you as we move ahead in
■ Expanding our international reach
Through these steps, we were able to return the Company
...we were able to return the Company to profitability
to profitability and begin rewarding our stockholders with
steadily increasing value, including the resumption of
quarterly dividends in 2010.
Today, Crown Crafts is a strong, industry-leading com-
and begin rewarding our stockholders with steadily
increasing value...
pany and is well-positioned to be an industry consolidator
this new era of sustained profitable growth. In the mean-
in fragmented markets, thanks in large part to our healthy
time, we would like to thank our business associates,
balance sheet that is virtually debt-free. And although such
customers, suppliers and lenders for their continued support.
macroeconomic conditions as raw material costs, freight
Similarly, we would like to thank you, our stockholders, for
rates and labor costs in Asia created some headwinds for us
your ongoing interest and investment in Crown Crafts.
in fiscal 2011, we remain highly optimistic about the busi-
ness for several reasons.
Sincerely,
First and foremost, we have the utmost confidence in
our strategic long-term growth plan that comprises diver-
sifying product categories and channels of distribution,
elevating and
leveraging our Company brands and
E. Randall Chestnut
optimizing our operational efficiencies. During the past
Chairman, President and Chief Executive Officer
year, we made significant progress on all three fronts.
For example, we generated approximately 7% of our
June 13, 2011
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 3, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7604
Crown Crafts, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
916 S. Burnside Ave.
Gonzales, Louisiana
(Address of principal executive offices)
58-0678148
(I.R.S. Employer Identification No.)
70737
(Zip Code)
Registrant's Telephone Number, including area code: (225) 647-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common Stock, $0.01 par value
Name of exchange on which registered
The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.
Yes No
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 No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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
Accelerated filer
Non-Accelerated filer
(Do not check if a smaller reporting company)
Smaller Reporting Company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 24, 2010 (the last business
day of the Company’s most recently completed second fiscal quarter) was $28.9 million.
As of June 1, 2011, 9,621,323 shares of the Company’s common stock were outstanding.
Documents Incorporated by Reference:
Portions of the registrant’s Proxy Statement for its 2011 Annual Meeting of Stockholders are incorporated into Part III hereof by reference.
Business.
Risk Factors.
Properties.
Legal Proceedings.
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Financial Statements and Supplementary Data.
Controls and Procedures.
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 5.
Item 7.
Item 8.
Item 9A.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits and Financial Statement Schedules.
PART IV
Cautionary Notice Regarding Forward-Looking Statements
Page
3
6
9
9
9
11
16
16
18
18
18
18
18
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Certain of the statements made herein under the caption “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and elsewhere, including information incorporated herein by
reference to other documents, are “forward-looking statements” within the meaning of, and subject to the
protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements
with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions
and future performance and involve known and unknown risks, uncertainties and other factors, many of which may
be beyond our control and which may cause the actual results, performance or achievements of Crown Crafts, Inc. to
be materially different from future results, performance or achievements expressed or implied by such forward-
looking statements.
All statements other than statements of historical fact are statements that could be forward-looking
statements. You can identify these forward-looking statements through our use of words such as “may,”
“anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,”
“plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions
of the future. These forward-looking statements may not be realized due to a variety of factors, including, without
limitation, those described in Part I, Item 1A. “Risk Factors,” and elsewhere in this report and those described from
time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”) under the Exchange
Act.
All written or oral forward-looking statements that are made by or are attributable to us are expressly
qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this
report or the respective date of the document from which they are incorporated herein by reference. We have no
obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of
this report, or after the respective dates on which such statements otherwise are made, whether as a result of new
information, future events or otherwise.
2
ITEM 1. Business
Description of Business
PART I
Crown Crafts, Inc. (the “Company”) operates indirectly through its wholly-owned subsidiaries, Crown Crafts
Infant Products, Inc. and Hamco, Inc., in the infant and toddler products segment within the consumer products
industry. The infant and toddler segment consists of infant and toddler bedding, bibs, disposable products, soft
goods and accessories. Sales of the Company’s products are generally made directly to retailers, which are primarily
mass merchants, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores,
restaurants, internet accounts, wholesale clubs and catalog retailers. The Company’s products are manufactured
primarily in Asia and marketed under a variety of Company-owned trademarks, under trademarks licensed from
others and as private label goods.
The Company's fiscal year ends on the Sunday nearest March 31. References herein to “fiscal year 2011” or
“2011” and “fiscal year 2010” or “2010” represent the 53- and 52-week periods ended April 3, 2011 and March 28,
2010, respectively.
Through April 2007, the Company’s operations included those of an additional subsidiary, Churchill
Weavers, Inc. (“Churchill”). On February 2, 2007, the Company announced that it would liquidate Churchill. In
accordance with accounting guidelines, in fiscal years 2011 and 2010, the real property that continues to be held in
Churchill, which has no other material assets, is classified as held for sale in the Company’s consolidated balance
sheets, and the operations of Churchill are classified as discontinued operations in the Company’s consolidated
statements of income.
Products
The Company's primary focus is on infant, toddler and juvenile products, including crib and toddler
bedding; blankets; nursery accessories; room décor; disposable and reusable bibs and floor mats; burp cloths;
bathing accessories; disposable placemats, cup labels, toilet seat covers and changing mats; diaper bags; pet beds
and blankets; and other infant, toddler, juvenile and pet soft goods.
Sales and Marketing
The Company’s products are marketed through a national sales force consisting of salaried sales executives
and employees located in Compton, California; Gonzales, Louisiana; and Rogers, Arkansas. Products are also
marketed by independent commissioned sales representatives located throughout the United States and
Canada. Sales outside the United States and Canada are made primarily through distributors.
Substantially all products are sold to retailers for resale to consumers. The Company's subsidiaries introduce
new products throughout the year and participate at the ABC Kids Expo, the National Restaurant Association
Restaurant, Hotel-Motel Show, the Super Zoo Expo, the Global Pet Expo and the General Merchandising and Health
Beauty Wellness Conferences presented by the Global Market Development Center.
Product Design and Styling
The Company believes that its creative team is one of its key strengths. Product design ideas are drawn
from various sources and are reviewed and modified by the design staff to ensure consistency within the Company’s
existing product offerings and the themes and images associated with such existing products. In order to respond
effectively to changing consumer preferences, the Company’s designers and stylists attempt to stay abreast of
emerging lifestyle trends in color, fashion and design. When designing products under the Company’s various
licensed brands, the Company’s designers coordinate their efforts with the licensors’ design teams to provide for a
more fluid design approval process and to effectively incorporate the image of the licensed brand into the
product. The Company’s product designs are both created internally and obtained from numerous additional
sources, including independent artists, decorative fabric manufacturers and apparel designers. The Company’s
designs include traditional, contemporary, textured and whimsical patterns across a broad spectrum of retail price
points. Utilizing state of the art computer technology, the Company continually develops new designs throughout
3
the year for all of its product groups. This continual development cycle affords the Company design flexibility,
multiple opportunities to present new products to customers and the ability to provide timely responses to
customer demands and changing market trends. The Company also creates designs for exclusive sale by certain of
its customers under the Company’s brands, as well as the customers’ private label brands.
Order Backlog
Management estimates the backlog of customer orders was $5.5 million and $5.8 million at June 1, 2011 and
June 4, 2010, respectively. Historically the majority of these unfilled orders are shipped within approximately four
weeks. There is no assurance that the backlog at any point in time will translate into sales in any particular
subsequent period. Due to the prevalence of quick-ship programs adopted by its customers, the Company does not
believe that its backlog is a meaningful or material indicator of future business.
Employees
At June 1, 2011, the Company had 157 employees, none of whom is represented by a labor union or is
otherwise a party to a collective bargaining agreement. The Company attracts and maintains qualified personnel by
paying competitive salaries and benefits and offering opportunities for advancement. The Company considers its
relationship with its employees to be good.
Competition
The infant and toddler consumer products industry is highly competitive. The Company competes with a
variety of distributors and manufacturers (both branded and private label), including large infant and juvenile
product companies and specialty infant and juvenile product manufacturers, on the basis of quality, design, price,
brand name recognition, service and packaging. The Company’s ability to compete depends principally on styling,
price, service to the retailer and continued high regard for the Company’s products and trade names.
Raw Materials
The principal raw materials used in the manufacture of the Company’s product offerings are as follows:
Product Group
Comforters, sheets and related accessories
Reusable bibs
Principal Raw Materials
Printed, woven and solid color cotton and poly-cotton and
polyester fabrics, with polyester fibers used as filling materials
Cotton/polyester knit terry, cotton woven terry and water-
resistant fabrications
Disposable placemats and floor mats
Polyethylene (PE)
Disposable bibs, toilet seat covers and changing mats
Cellulose and non-woven paper
Reusable floor mats
Polyethylene vinyl acetate (PEVA)
Although the Company normally maintains relationships with a limited number of suppliers, the Company
believes that these raw materials are readily available from several alternative sources in quantities sufficient to meet
the Company's requirements.
The Company uses significant quantities of cotton, either in the form of cotton or cotton-blended fabrics.
Cotton is subject to ongoing price fluctuations because it is an agricultural product impacted by changing weather
patterns, disease and supply and demand considerations, both domestically and internationally. In addition, the
price of oil affects key components of the raw material prices in our products (e.g., 100% polyester fill, polyester
fabrics, PE, PEVA and packaging). Significant increases in the prices of cotton and oil could adversely affect the
Company's operations.
4
Product Sourcing
The Company's products are produced by foreign and domestic manufacturers, with the largest
concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery
and price, including the impact of quotas and duties. The Company’s management and quality assurance personnel
visit the third-party facilities regularly to monitor product quality and to ensure compliance with labor
requirements. In addition, the Company closely monitors the currency exchange rate. The impact of future
fluctuations in the exchange rate or changes in safeguards cannot be predicted with certainty at this time.
The Company maintains a foreign representative office located in Shanghai, China, which is responsible for
the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for
social compliance and quality.
The Company’s products are warehoused and distributed from facilities located in Los Angeles County,
California.
Customers
The Company's customers consist principally of mass merchants, mid-tier retailers, juvenile specialty stores,
value channel stores, grocery and drug stores, restaurants, internet accounts, wholesale clubs and catalog
retailers. The Company does not generally enter into long-term or other purchase agreements with its
customers. The table below sets forth those customers that represented at least 10% of the Company’s gross sales in
fiscal years 2011 and 2010.
Wal-Mart Stores, Inc.
Toys R Us
Target Corporation
Fiscal Year
2011
2010
38 %
22 %
11 %
43 %
21 %
*
* Amount represented less than 10% of the Company's
gross sales for this fiscal year.
Seasonality and Inventory Management
In each of fiscal years 2011 and 2010, the Company’s sales were lowest in the first quarter and highest in the
fourth quarter, although there has been some variation in the seasonal demand for the Company’s products from
year to year. Sales are generally higher in periods when customers take initial shipments of new products, as these
orders typically include enough products for initial sets for each store and additional quantities for the customer’s
distribution centers. The timing of these initial shipments varies by customer and depends on when the customer
finalizes store layouts for the upcoming year and whether the customer has any mid-year introductions of
products. Sales may also be higher or lower, as the case may be, in periods when customers are opening new stores
or closing existing stores. Consistent with the expected introduction of specific product offerings, the Company
carries necessary levels of inventory to meet the anticipated delivery requirements of its customers. Customer
returns of merchandise shipped are historically less than 1% of gross sales.
International Sales
Sales to customers in countries other than the United States represented 2% of the Company’s gross sales in
each of fiscal years 2011 and 2010. International sales are based upon the location that predominately represents
the final destination of the products delivered to the Company’s customers.
5
Government Regulation and Environmental Control
The Company is subject to various federal, state and local environmental laws and regulations, which
regulate, among other things, product safety and the discharge, storage, handling and disposal of a variety of
substances and wastes, and to laws and regulations relating to employee safety and health, principally the
Occupational Safety and Health Administration Act and regulations thereunder. The Company believes that it
currently complies in all material respects with applicable environmental, health and safety laws and regulations and
that future compliance with such existing laws or regulations will not have a material adverse effect on its capital
expenditures, earnings or competitive position. However, there is no assurance that such requirements will not
become more stringent in the future or that the Company will not have to incur significant costs to comply with such
requirements.
Trademarks, Copyrights and Patents
The Company considers its intellectual property to be of material importance to its business. Sales of
products marketed under the Company’s trademarks, primarily NoJo®, accounted for 23% of the Company’s total
gross sales during fiscal year 2011. Protection for these trademarks is obtained through domestic and foreign
registrations. The Company also markets designs which are subject to copyrights and design patents owned by the
Company.
Licensed Products
Certain products are manufactured and sold pursuant to licensing agreements for trademarks. Also, many
of the designs used by the Company are copyrighted by other parties, including trademark licensors, and are
available to the Company through copyright license agreements. The licensing agreements are generally for an
initial term of one to three years and may or may not be subject to renewal or extension. Sales of licensed products
represented 50% of the Company’s gross sales in fiscal year 2011, which included 38% of sales under the Company's
license agreements with affiliated companies of The Walt Disney Company (“Disney”). The table below sets forth the
Company’s license agreements with Disney as of June 1, 2011.
License Agreement
Expiration
Toddler Bedding
Infant Bedding and Décor
International Distribution
Disposable Products
December 31, 2011
December 31, 2012
March 31, 2013
December 31, 2013
The Company's commitment for minimum guaranteed royalty payments under its license agreements as of
April 3, 2011 was $3.1 million, including $1.8 million, $1.1 million and $210,000 due in fiscal years 2012, 2013 and
2014, respectively. The Company believes that its future sales of licensed products will exceed the amounts required
to satisfy the minimum royalty guarantees. The Company's total royalty expense was $7.3 million and $7.0 million for
fiscal years 2011 and 2010, respectively.
ITEM 1A. Risk Factors
The following risk factors as well as the other information contained in this report and other filings with the SEC
should be considered in evaluating the Company’s business. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also impair our business operations. If any of the following risks actually
occur, operating results may be affected in future periods.
The loss of one or more of the Company’s key customers could result in a material loss of revenues.
The Company’s top three customers represented approximately 71% of gross sales in fiscal year
2011. Although the Company does not enter into contracts with its key customers, it expects them to continue to be
a significant portion of its gross sales in the future. The loss of one or more of these customers could result in a
material decrease in the Company’s revenue and operating income.
6
The loss of one or more of the Company’s licenses could result in a material loss of revenues.
Sales of licensed products represented 50% of the Company’s gross sales in fiscal year 2011, which included
38% of sales associated with the Company’s license agreements with Disney. The Company could experience a
material loss of revenues if it is unable to renew its major license agreements or obtain new licenses.
Economic conditions could adversely affect the Company’s raw material prices.
The Company uses significant quantities of cotton, either in the form of cotton fabric or cotton/polyester
fabric. Cotton is subject to ongoing price fluctuations because it is an agricultural product impacted by changing
weather patterns, disease and other factors, such as supply and demand considerations, both domestically and
internationally. In addition, increased oil prices affect key components of the raw material prices in our
products. Significant increases in the prices of cotton and oil could adversely affect the raw material prices in our
products (e.g., 100% polyester fill, polyester fabrics, PE, PEVA and packaging). If the Company is unable to pass these
cost increases along to its customers, its profitability could be adversely affected.
The Company’s inability to anticipate and respond to consumers’ tastes and preferences could adversely
affect the Company’s revenues.
Sales are driven by consumer demand for the Company’s products. There can be no assurance that the
demand for the Company’s products will not decline or that the Company will be able to anticipate and respond to
changes in demand. The Company’s failure to adapt to these changes could lead to lower sales and excess
inventory, which could have a material adverse effect on the Company’s financial condition and operating results.
The Company’s business is impacted by general economic conditions and related uncertainties affecting
markets in which the Company operates.
Economic conditions, including the availability of credit and the possibility of a global recession, could
adversely impact the Company’s business. These conditions could result in reduced demand for some of the
Company’s products, increased order cancellations and returns, an increased risk of excess and obsolete inventories
and increased pressure on the prices of the Company’s products. Also, although the Company’s 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 factor doing so may
increase due to a change in economic conditions. Such an action by the factor would result in the loss of future sales
to the affected customer.
Currency exchange rate fluctuations and other supplier-related risks could increase the Company’s expenses.
largest
The Company’s products are manufactured by foreign contract manufacturers, with the
concentration being in China. Difficulties encountered by these suppliers, such as fire, accident, natural disasters,
outbreaks of contagious diseases or economic and political instability could halt or disrupt production of the
Company’s products. Also, the prices paid by the Company to these suppliers could increase if raw materials, labor
or other costs increase. In addition, restrictive actions by foreign governments, a strengthening of the Chinese
currency versus the U.S. dollar or changes in import duties or import or export restrictions could increase the prices
at which the Company purchases finished goods. If the Company is unable to pass these cost increases along to its
customers, its profitability could be adversely affected.
Changes in international trade regulations and other risks associated with foreign trade could adversely
affect the Company’s sourcing.
The Company sources its products primarily from foreign contract manufacturers, with the largest
concentration being in China. The adoption of regulations related to the importation of product, including quotas,
duties, taxes and other charges or restrictions on imported goods, and changes in U.S. customs procedures could
result in an increase in the cost of the Company’s products. Delays in customs clearance of goods or the disruption
of international transportation lines used by the Company could result in the Company being unable to deliver
goods to customers in a timely manner or the potential loss of sales altogether.
7
The Company’s ability to comply with its financing agreement is subject to future performance and other
factors.
The Company’s ability to make scheduled payments of principal and interest on its debts, to refinance its
maturing indebtedness, to fund capital expenditures or to comply with its debt covenants will depend upon future
performance. The Company’s future performance is, to a certain extent, subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control. The breach of any of these covenants could
result in a default under the Company’s financing agreement. Upon the occurrence of an event of default, the
Company’s lenders could declare all amounts outstanding under such credit facilities to be immediately due and
payable. If a default were to occur, there can be no assurance that the Company’s assets would be sufficient to repay
in full that indebtedness.
The Company’s debt covenants may affect its liquidity or limit its ability to pursue acquisitions, incur debt,
make investments, sell assets or complete other significant transactions.
The Company’s financing agreement contains usual and customary covenants regarding significant
transactions, including restrictions on other indebtedness, liens, transfers of assets, investments and acquisitions,
merger or consolidation transactions, transactions with affiliates and changes
in or amendments to the
organizational documents for the Company and its subsidiaries. Unless waived by the Company’s primary lender,
these covenants could limit the Company’s ability to pursue opportunities to expand its business operations,
respond to changes in business and economic conditions and obtain additional financing, or otherwise engage in
transactions that the Company considers beneficial.
The strength of the Company’s competitors may impact the Company’s ability to maintain and grow its sales,
which could decrease the Company’s revenues.
The infant and toddler consumer products industry is highly competitive. The Company competes with a
variety of distributors and manufacturers, both branded and private label. The Company’s ability to compete
successfully depends principally on styling, price, service to the retailer and continued high regard for the Company’s
products and trade names. Several of these competitors are larger than the Company and have greater financial
resources than the Company. Increased competition could result in a material decrease in the Company’s revenues.
Recalls or product liability claims could increase costs or reduce sales.
The Company must comply with the Consumer Product Safety Improvement Act, which imposes strict
standards to protect children from potentially harmful products and which requires that the Company’s products be
tested to ensure that they are within acceptable levels for lead and phthalates. The Company must also comply with
related regulations developed by the Consumer Product Safety Commission and similar state regulatory
authorities. The Company’s products could be subject to involuntary recalls and other actions by these authorities,
and concerns about product safety may lead the Company to voluntarily recall, accept returns or discontinue the
sale of selected products. Product liability claims could exceed or fall outside the scope of the Company’s insurance
coverage. Recalls or product liability claims could result in decreased consumer demand for the Company’s
products, damage to the Company’s reputation, a diversion of management’s attention from its business, and
increased customer service and support costs, any or all of which could adversely affect the Company’s operating
results.
Customer pricing pressures could result in lower selling prices, which could negatively affect the Company’s
operating results.
The Company’s customers could place pressure on the Company to reduce the prices of its products. The
Company continuously strives to stay ahead of its competition in sourcing, which allows the Company to obtain
lower cost products while maintaining high standards for quality. There can be no assurance that the Company
could respond to a decrease in sales prices by proportionately reducing its costs, which could adversely affect the
Company’s operating results.
8
The Company’s success is dependent upon retaining key management personnel.
The Company’s ability to retain qualified executive management and other key personnel is vital to the
Company’s success. If the Company were unable to retain or attract qualified individuals, the Company’s growth and
operating results could be materially impacted.
A stockholder could lose all or a portion of his investment in the Company.
The Company’s common stock has historically experienced a degree of price variability, and the price could
be subject to rapid and substantial fluctuations. The Company’s common stock has also historically been thinly
traded, a circumstance that exists when there is a relatively small volume of buy and sell orders for the Company’s
common stock at any given point in time. In such situations, a stockholder may be unable to liquidate his position in
the Company’s common stock at the desired price. Also, as an equity investment, a stockholder’s investment in the
Company is subordinate to the interests of the Company’s creditors, and a stockholder could lose all or a substantial
portion of his investment in the Company in the event of a voluntary or involuntary bankruptcy filing.
ITEM 2. Properties
The Company's headquarters are located in Gonzales, Louisiana. The Company rents 17,761 square feet at
this location under a lease that expires January 31, 2012. Management believes that its properties are suitable for the
purposes for which they are used, are in generally good condition and provide adequate capacity for current and
anticipated future operations. The Company's business is somewhat seasonal so that during certain times of the year
these facilities are fully utilized, while at other times of the year the Company has excess capacity in these
facilities. The table below sets forth certain information regarding the Company's principal real property as of June 1,
2011:
Location
Gonzales, Louisiana
Berea, Kentucky (*)
Compton, California
Los Angeles County, California
Rogers, Arkansas
Shanghai, People’s Republic of China
Use
Administrative and sales office
Vacant
Offices, warehouse and distribution center
Warehouse and distribution center
Sales office
Office
Owned/
Approximate
Leased
Square Feet
17,761
Leased
53,056 Owned
Leased
157,400
Leased
55,104
Leased
1,625
Leased
1,550
* This property is classified as held for sale in the Company’s consolidated balance sheet (see “Business” in Item 1).
ITEM 3. 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 Company’s financial condition, results of operations or cash flows.
PART II
ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Description of Securities
The Company is authorized to issue up to 75,000,000 shares of capital stock, 74,000,000 of which are
classified as common stock, par value $0.01 per share, and 1,000,000 of which are classified as preferred stock, par
value $0.01 per share. On June 1, 2011, there were 9,621,323 shares of the Company's Series A common stock issued
and outstanding. No shares of the Company’s preferred stock or any other series of common stock have been issued.
9
Market Information and Price
The Company's common stock is traded on the NASDAQ Capital Market under the symbol “CRWS”. On June
1, 2011, the closing stock price of the Company’s common stock was $4.90 per share. The table below sets forth the
high and low closing price per share of the Company's common stock and the cash dividends per share declared on
the Company’s common stock for each quarter of fiscal years 2011 and 2010.
Quarter
Fiscal Year 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Cash
Dividends
Declared
$
$
4.44 $
4.78
5.70
5.45
2.25 $
3.27
3.45
3.50
3.15 $
3.89
4.70
4.37
1.86 $
2.65
2.50
2.56
0.02
0.02
0.02
0.03
-0-
-0-
-0-
0.02
Holders of Common Stock
As of June 1, 2011, there were approximately 279 registered holders of the Company’s Series A common
stock.
Dividends
In addition to the cash dividends declared as set forth in the table above, the Company’s Board of Directors
in May 2011 declared a quarterly cash dividend on the Company’s common stock of $0.03 per share to stockholders
of record at the close of business on June 17, 2011 and payable on July 8, 2011. The Company’s credit facility permits
the Company to declare quarterly cash dividends of up to $500,000 on its common stock.
Issuer Purchases of Equity Securities
The table below sets forth information regarding the Company’s repurchase of its outstanding common
stock during the 14-week period ended April 3, 2011.
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares
That May Yet
be Purchased
Under the
Plans or
Programs
Total
Number of
Shares
Purchased (1)
Average
Price Paid Per
Share
0 $
3,836 $
0 $
3,836 $
0
5.05
0
5.05
0 $
0 $
0 $
0 $
0
0
0
0
Period
December 27, 2010 through January 30, 2011
January 31, 2011 through February 27, 2011
February 28, 2011 through April 3, 2011
Total
(1) The shares purchased from January 31, 2011 through February 28, 2011 consist of shares of common stock
surrendered to the Company in payment of the exercise price and income tax withholding obligations relating to
the exercise of stock options.
10
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is a summary of certain factors that management considers important in reviewing
the Company’s results of operations, liquidity, capital resources and operating results. This discussion should be read
in conjunction with the consolidated financial statements and related notes included elsewhere in this report.
Results of Operations
The following table contains results of operations for fiscal years 2011 and 2010 and the dollar and
percentage changes for those periods (in thousands, except percentages).
Net sales by category
Bedding, blankets and accessories
Bibs, bath and disposable products
Total net sales
Cost of products sold
Gross profit
% of net sales
Marketing and administrative expenses
% of net sales
Interest expense
Other income (expense)
Income tax expense
Income from continuing operations
Discontinued operations - net of taxes
Net income
% of net sales
2011
2010
Change
Change
$
$
66,315
23,656
89,971
69,880
20,091
22.3 %
12,459
13.8 %
460
3
2,772
4,403
(97 )
4,306
4.8 %
$
66,378
19,688
86,066
65,837
20,229
23.5 %
11,469
13.3 %
692
(63 )
3,103
4,902
(122 )
4,780
5.6 %
(63 )
3,968
3,905
4,043
(138 )
990
(232 )
66
(331 )
(499 )
25
(474 )
-0.1 %
20.2 %
4.5 %
6.1 %
-0.7 %
8.6 %
-33.5 %
-104.8 %
-10.7 %
-10.2 %
-20.5 %
-9.9 %
Net Sales: Sales of bedding, blankets and accessories were virtually the same for fiscal years 2011 and 2010
as the increases from new bedding and blanket programs were matched by decreases from discontinued programs
and lower replenishment orders.
Sales of bib, bath and disposable products increased in fiscal year 2011 as compared to the prior year
primarily as a result of an increase of $3.0 million in the aggregate due to the Company’s acquisition of substantially
all of the assets of Neat Solutions, Inc. on July 2, 2009 (the “Neat Solutions Acquisition”) and the Company’s
acquisition of the Bibsters® product line of disposable infant bibs from The Procter & Gamble Company on May 27,
2010 (the “Bibsters® Acquisition”).
Gross Profit: Gross profit decreased in amount and as a percentage of net sales in fiscal year 2011 from fiscal
year 2010. The decreases were due to higher raw material costs, primarily cotton, as well as an increase in labor,
transportation and currency costs associated with the Company’s sourcing activities in China. The Company also
sustained higher royalty shortfalls in fiscal 2011 from several of its licensors and had higher levels of promotional
sales, which were at contribution margins that were lower than in fiscal year 2010. Offsetting these cost increases
were decreased amortization costs of $483,000 associated with the Company’s acquisition of the baby products line
of Springs Global US, Inc. on November 5, 2007.
Marketing and Administrative Expenses: Marketing and administrative expenses for fiscal year 2011 increased
in amount and as a percentage of net sales as compared to fiscal year 2010. The Company incurred increased
advertising costs of $324,000 in the current year as compared to the prior year. The Company also incurred certain
costs in the current year which were not incurred in the prior year, primarily $254,000 in professional fees associated
with certain corporate governance matters and $401,000 of costs in connection with the proxy contest related to the
2010 annual meeting of stockholders.
Interest Expense: The decrease in interest expense for fiscal year 2011 as compared to fiscal year 2010 is due
to lower average balances on the Company’s revolving line of credit and term loan.
11
Income Tax Expense: The Company’s provision for income taxes on continuing operations is based on
effective tax rates that were virtually unchanged at 38.6% for fiscal year 2011 as compared to 38.8% for fiscal year
2010.
The Company has endeavored to increase its prices to offset inflationary increases in its raw materials and
other costs, but there is no assurance that the Company will be successful in maintaining such price increases or in
effecting such price increases in a manner that will provide a timely match to the cost increases.
Known Trends and Uncertainties
The Company’s financial results are closely tied to sales to the Company’s top three customers, which
represented approximately 71% of the Company’s gross sales in fiscal year 2011. A significant downturn
experienced by any or all of these customers could lead to pressure on the Company’s revenues. The Company has
also faced higher raw material costs, primarily cotton, as well as increases in labor, transportation and currency costs
associated with the Company’s sourcing activities in China. Continued increases in these costs will adversely affect
the profitability of the Company if it cannot pass the cost increases along to its customers in the form of price
increases or if the timing of price increases do not closely match the cost increases. For a further discussion of trends,
uncertainties and other factors that could impact the Company’s operating results, see “Risk Factors” in Item 1A.
Financial Position, Liquidity and Capital Resources
Net cash provided by operating activities was $2.0 million for the year ended April 3, 2011, compared to
$10.5 million for the year ended March 28, 2010. The decrease in cash provided by operating activities was primarily
due to changes in inventory and accounts receivable balances.
Net cash used in investing activities was $1.8 million in fiscal year 2011 compared $5.1 million in the prior
year. Cash used in investing activities was primarily associated with the Bibsters® Acquisition in fiscal year 2011 and
the Neat Solutions Acquisition in fiscal year 2010.
Net cash used in financing activities was $109,000 in the current year compared to $20.6 million in the prior
year. There were net borrowings of $2.9 million in the current year on the Company’s revolving line of credit
compared to $18.6 million in net repayments in the prior year, the largest portion of which came from a reduction of
the Company’s cash reserves in December 2009. The Company had built up its cash reserves in the prior year by
drawing on its revolving line of credit in order to preserve its ability to meet its working capital needs in the event
that its primary lender should suffer an adverse liquidity event that would jeopardize the Company’s ability to access
its revolving line of credit. The Company also paid $752,000 in dividends in the current year as compared to none in
the prior year and had $333,000 in higher repayments of the Company’s term debt obligations in the current year.
Total debt outstanding under the Company’s credit facilities before the reduction for the original issue
discount on the Company’s non-interest bearing notes increased from $5.4 million at March 28, 2010 to $6.3 million
at April 3, 2011. The increase is due primarily to a $2.1 million cash outlay to fund the Bibsters® Acquisition and
$752,000 in dividend payments, which was offset by net repayments from the Company’s operating cash flow.
The Company’s ability to make scheduled payments of principal, to pay the interest on its maturing
indebtedness, to fund capital expenditures or to comply with its debt covenants will depend upon future
performance. The Company’s 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 flow from operations and availability on its revolving line of credit will be
adequate to meet its liquidity needs.
12
At April 3, 2011 and March 28, 2010, the Company’s long-term debt consisted of the following (in
thousands):
Revolving line of credit
Non-interest bearing notes
Original issue discount
Less current maturities
April 3,
2011
March 28,
2010
$
$
4,336 $
2,000
(48 )
6,288
1,952
4,336 $
1,422
4,000
(232 )
5,190
1,952
3,238
The Company’s credit facilities at April 3, 2011 consisted of the following:
Revolving Line of Credit under a financing agreement with The CIT Group/Commercial Services, Inc. (“CIT”), a
subsidiary of CIT Group Inc., of up to $26.0 million, including a $1.5 million sub-limit for letters of credit, with an
interest rate of prime plus 1.00% (4.25% at April 3, 2011) for base rate borrowings or LIBOR plus 3.00% (3.24615% at
April 3, 2011), maturing on July 11, 2013 and secured by a first lien on all assets of the Company. As of April 3, 2011,
the Company had elected to pay interest on the revolving line of credit under the LIBOR option. Also under the
financing agreement, a monthly fee is assessed based on 0.25% of the average unused portion of the $26.0 million
revolving line of credit, less any outstanding letters of credit. This unused line fee amounted to $47,000 and $18,000
during fiscal years 2011 and 2010, respectively. At April 3, 2011, there was a balance due on the revolving line of
credit of $4.3 million, there was a $500,000 letter of credit outstanding and the Company had $18.6 million available
under the revolving line of credit based on eligible accounts receivable and inventory balances.
The financing agreement contains usual and customary covenants for agreements of that 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.
Subordinated Notes totaling $2.0 million which do not bear interest and are due on July 11, 2011. The
original issue discount of $48,000 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 of the Company’s credit facilities as of April 3, 2011 are as follows (in thousands):
Fiscal
Year
2012
2013
2014
Total
Revolver
$
Sub Notes
- $
-
4,336
4,336 $
2,000 $
-
-
2,000 $
Total
2,000
-
4,336
6,336
$
To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company
assigns the majority of its trade accounts receivable to CIT pursuant to factoring agreements. Under the terms of the
factoring agreements, which expire on July 11, 2013, CIT remits payments to the Company on the average due date
of each group of invoices assigned. If a customer fails to pay CIT by the due date, the Company is charged interest at
prime plus 1.0%, which was 4.25% at April 3, 2011, until payment is received. The Company incurred interest
expense of $77,000 and $67,000 in fiscal years 2011 and 2010, respectively, as a result of the failure of the Company’s
customers to pay CIT by the due date. CIT bears credit losses with respect to assigned accounts receivable from
approved shipments, while the Company bears the responsibility for adjustments from customers related to returns,
allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular
customer. If such a termination or limitation were to occur, the Company would either assume the credit risks for
shipments to the customer after the date of such termination or limitation or cease shipments to such customer. The
13
Company incurred factoring fees under the agreements of $539,000 and $619,000 during fiscal years 2011 and 2010,
respectively.
Critical Accounting Policies and Estimates
The Company prepares its financial statements in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”), as
well as the Securities Act, the Exchange Act and the rules and regulations thereunder as administered by the
SEC. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”),
which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has
been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by
nongovernmental entities.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of
revenues and expenses during the reporting period. The listing below, while not inclusive of all of the Company's
accounting policies, sets forth those accounting policies which the Company's management believes embody the
most significant judgments due to the uncertainties affecting their application and the likelihood that materially
different amounts would be reported under different conditions or using different assumptions.
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 is netted against
sales in reporting the results of operations. Shipping and handling costs, net of amounts reimbursed by customers,
are not material and are included in net sales.
Allowances Against Accounts Receivable: The Company’s 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 Company’s allowances occurs on a per-invoice basis. The allowances for customer deductions, which
are netted against accounts receivable in the consolidated balance sheets, consist of agreed upon advertising
support, markdowns and warehouse and other allowances. 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 or credits issued against the customer’s account balance. The
Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances
to the appropriate levels. The timing of the customer initiated funding requests for advertising support can cause
the net balance in the allowance account to fluctuate from period to period. The timing of such funding requests
should have a minimal impact on the consolidated statements of income since such costs are accrued
commensurate with sales activity.
To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company
assigns the majority of its receivables under factoring agreements with CIT. In the event a factored receivable
becomes uncollectible due to creditworthiness, CIT bears the risk of loss. The Company’s management must make
estimates of the uncollectiblity of its non-factored accounts receivable when evaluating the adequacy of its
allowance for doubtful accounts, which it accomplishes by specifically analyzing accounts receivable, historical bad
debts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’
payment terms. The Company’s accounts receivable at April 3, 2011 amounted to $18.7 million, net of allowances of
$1.4 million. Of this amount, $17.8 million was due from CIT under the factoring agreements, which represents the
maximum amount of loss that the Company could incur if CIT failed completely to perform its obligations
thereunder.
14
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. Royalty expense is included in cost of sales and
amounted to $7.3 million and $7.0 million for fiscal years 2011 and 2010, respectively.
Inventory Valuation: The preparation of the Company's financial statements requires careful determination
of the appropriate dollar amount of the Company's inventory balances. Such amount is presented as a current asset
in the Company's consolidated balance sheets and is a direct determinant of cost of goods sold in the consolidated
statements of income and, therefore, has a significant impact on the amount of net income reported in the
accounting periods. The basis of accounting for inventories is cost, which is the sum of expenditures and charges,
both direct and indirect, incurred to acquire inventory, bring it to a condition suitable for sale, and store it until it is
sold. Once cost has been determined, the Company’s inventory is then stated at the lower of cost or market, with
cost determined using the first-in, first-out ("FIFO") method, which assumes that inventory quantities are sold in the
order in which they are acquired. The determination of the indirect charges and their allocation to the Company's
judgment and estimates. If
is complex and requires significant management
finished goods
management made different judgments or utilized different estimates, then differences would result in the valuation
of the Company's inventories and in the amount and timing of the Company's cost of goods sold and resulting net
income for the reporting period.
inventories
On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical
deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected
to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to
exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no
longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this
allowance is established or increased during an accounting period, an expense is recorded in cost of goods sold in
the Company's consolidated statements of income. Only when inventory for which an allowance has been
established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management
judgment is required in determining the amount and adequacy of this allowance. In the event that actual results
differ from management's estimates or these estimates and judgments are revised in future periods, the Company
may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of
which could materially impact the Company's financial position and results of operations.
Depreciation and Amortization: The Company’s consolidated balance sheets reflect property, plant and
equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company
capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and
amortization are computed using the straight-line method over the estimated useful lives of the assets, which are
three to eight years for property, plant and equipment, and one to sixteen years for intangible assets other than
goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated
useful life of the asset, whichever is shorter.
Valuation of Long-Lived Assets, Identifiable Intangible Assets and Goodwill: In addition to the depreciation and
amortization procedures set forth above, 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 estimated costs 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.
The Company tests the carrying value of its goodwill annually on the first day of the Company’s fiscal
year. An additional impairment test is performed during the year whenever an event or change in circumstances
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.
15
Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal,
state, local and foreign taxes that are based on the Company's taxable income and the change during the fiscal year
in net deferred income tax assets and liabilities. The Company provides for deferred income taxes based on the
difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be
in effect when the differences are expected to reverse. The Company’s policy is to recognize the effect that a change
in enacted tax rates would have on net deferred income tax assets and liabilities in the period that the tax rates are
changed.
The Company's provision for income taxes on continuing operations is based on effective tax rates of 38.6%
and 38.8% in fiscal years 2011 and 2010, respectively. These effective tax rates are 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.
Management evaluates items of income, deductions and credits reported on the Company’s various federal
and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if
those positions are more likely than not to be sustained. Recognized income tax positions are measured at the
largest amount that has a greater than 50% likelihood 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 Company’s consolidated
financial statements. Tax years still open to federal or state general examination or other adjustment as of April 3,
2011 were the tax years ended March 30, 2008, March 29, 2009, March 28, 2010 and April 3, 2011, as well as the tax
year ended April 1, 2007 for several states. The Company’s policy is to accrue interest expense and penalties as
appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s
consolidated statements of income.
Recently Issued Accounting Standards
On May 12, 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU is intended to
improve consistency across jurisdictions to ensure that U.S. GAAP and International Financial Reporting Standards
(“IFRSs”) fair value measurement and disclosure requirements are described in the same way. For public entities, the
amendments in this ASU are to be applied prospectively effective for annual periods beginning after December 15,
2011, and early application is not permitted. The Company does not anticipate that its adoption of ASU No. 2011-04
on April 2, 2012 will impact its consolidated financial statements.
ITEM 8. Financial Statements and Supplementary Data
See pages 20 and F-1 through F-21 hereof.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time
period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed in the reports filed under the
Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period
covered by this report, the Company carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures. Based upon and as of the date of
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures are effective.
16
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the
Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, management
conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework and
the criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management has concluded that internal
control over financial reporting was effective as of April 3, 2011.
The Company’s internal control system was designed to provide reasonable assurance to the Company’s
management and Board of Directors regarding the reliability of financial reporting and the preparation and fair
presentation of financial statements in accordance with GAAP. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only a
reasonable, rather than absolute, assurance that the Company’s financial statements are free of any material
misstatement, whether caused by error or fraud.
Changes in Internal Control Over Financial Reporting
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the Company’s internal control over financial reporting as required by
Rule 13a-15(d) under the Exchange Act and, in connection with such evaluation, determined that no changes
occurred during the Company’s fourth fiscal quarter ended April 3, 2011 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
17
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information with respect to the Company's directors and executive officers will be set forth in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held in 2011 (the "Proxy Statement")
under the captions "Proposal 1 – Election of Directors" and “Executive Officers” and is incorporated herein by
reference. The information with respect to Item 405 of Regulation S-K will be set forth in the Proxy Statement under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. The
information with respect to Item 406 of Regulation S-K will be set forth in the Proxy Statement under the caption
“Code of Business Conduct and Ethics” and is incorporated herein by reference. The information with respect to Item
407 of Regulation S-K will be set forth in the Proxy Statement under the captions “Board Committees and Meetings”
and “Report of the Audit Committee” and is incorporated herein by reference.
ITEM 11. Executive Compensation
The information set forth under the caption "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information set forth under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement is incorporated herein by reference.
Securities Authorized for Issuance under Equity Compensation Plans
The table below sets forth information regarding shares of the Company’s common stock that may be
issued upon the exercise of options, warrants and other rights granted to employees, consultants or directors under
all of the Company’s existing equity compensation plans as of April 3, 2011.
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
Plan Category
Equity compensation plans approved by
security holders:
2006 Omnibus Incentive Plan
695,000 $
3.51
337,000
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information set forth under the captions “Director Independence” and "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by reference.
ITEM 14. Principal Accountant Fees and Services
The information set forth under the caption “Proposal 2 – Ratification of Appointment of Independent
Auditor” in the Proxy Statement is incorporated herein by reference.
18
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1). Financial Statements
PART IV
The following consolidated financial statements of the Company are filed with this report and included in
Part II, Item 8:
- Report of Independent Registered Public Accounting Firm
- Consolidated Balance Sheets as of April 3, 2011 and March 28, 2010
- Consolidated Statements of Income for the Fiscal Years Ended April 3, 2011 and March 28, 2010
- Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended April 3, 2011
and March 28, 2010
- Consolidated Statements of Cash Flows for the Fiscal Years Ended April 3, 2011 and March 28, 2010
- Notes to Consolidated Financial Statements
(a)(2). Financial Statement Schedule
The following financial statement schedule of the Company is filed with this report:
Schedule II — Valuation and Qualifying Accounts
Page 20
All other schedules not listed above have been omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
19
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SCHEDULE II
Column A
Accounts Receivable Valuation Accounts:
Year Ended March 28, 2010
Allowance for doubtful accounts
Allowance for customer deductions
Year Ended April 3, 2011
Allowance for doubtful accounts
Allowance for customer deductions
_________
Valuation and Qualifying Accounts
Column B
Balance at
Beginning of
Period
Column C
Column D
Column E
Charged to
Expenses(1) Deductions(2)
(in thousands)
Balance at
End of Period
$
$
$
$
0 $
1,581 $
20 $
5,970 $
16 $
6,317 $
4
1,234
4 $
1,234 $
0 $
7,113 $
4 $
6,952 $
0
1,395
(1)
(2)
Charge to the allowance for doubtful accounts for fiscal year 2010 represents the allowance recorded in
connection with the Neat Solutions Acquisition.
Deductions from the allowance for doubtful accounts represent the amount of accounts written off
reduced by any subsequent recoveries.
20
(a)(3). Exhibits
Exhibits required to be filed by Item 601 of SEC Regulation S-K are included as Exhibits to this report as
follows:
Exhibit
Number Description of Exhibits
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10 —
10.11 —
10.12 —
10.13 —
10.14
—
10.15 —
10.16 —
—
—
Asset Purchase Agreement dated as of July 2, 2009 by and among Hamco, Inc., Neat Solutions, Inc. and
each of the shareholders of Neat Solutions, Inc. (11)
Purchase Agreement for Bibsters Intellectual Property dated as of May 27, 2010 by and between
Hamco, Inc. and The Procter & Gamble Company. (14)
— Amended and Restated Certificate of Incorporation of the Company. (3)
— Amended and Restated Bylaws of the Company. (15)
—
—
Instruments defining the rights of security holders are contained in the Amended and Restated
Certificate of Incorporation of the Company. (3)
Instruments defining the rights of security holders are contained in the Amended and Restated Bylaws
of the Company (15)
— Crown Crafts, Inc. 2006 Omnibus Incentive Plan (As Amended August 11, 2009). (10)
— Form of Incentive Stock Option Agreement. (6)
— Form of Non-Qualified Stock Option Agreement (Employees). (6)
— Form of Non-Qualified Stock Option Agreement (Directors). (6)
— Form of Restricted Stock Grant Agreement (Form A). (6)
— Form of Restricted Stock Grant Agreement (Form B). (6)
—
—
—
—
—
—
—
—
—
Employment Agreement dated July 23, 2001 by and between the Company and E. Randall Chestnut.
(1)
Amended and Restated Severance Protection Agreement dated April 20, 2004 by and between the
Company and E. Randall Chestnut. (4)
Amended and Restated Employment Agreement dated April 20, 2004 by and between the Company
and Amy Vidrine Samson. (4)
Amended and Restated Employment Agreement dated April 20, 2004 by and between the Company
and Nanci Freeman. (4)
Financing Agreement dated as of July 11, 2006 by and among the Company, Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (5)
Stock Pledge Agreement dated as of July 11, 2006 by and among the Company, Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (5)
Mortgage, Assignment of Leases and Rents, Fixture Filing and Security Agreement dated July 11, 2006
from Churchill Weavers, Inc. to The CIT Group/Commercial Services, Inc. (5)
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to Wachovia Bank,
National Association. (5)
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to Banc of America
Strategic Solutions, Inc. (5)
Secured Subordinated Promissory Note dated July 11, 2006 issued by the Company to The Prudential
Insurance Company of America. (5)
Security Agreement dated as of July 11, 2006 by and among the Company, Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc. and Wachovia Bank, National Association, as Agent. (5)
Mortgage, Assignment of Leases and Rents, Fixture Filing and Security Agreement dated July 11, 2006
from Churchill Weavers, Inc. to Wachovia Bank, National Association, as Agent. (5)
Noncompetition and Non-Disclosure Agreement dated as of November 5, 2007 by and between
Springs Global US, Inc. and Crown Crafts Infant Products, Inc. (7)
First Amendment to Financing Agreement dated as of November 5, 2007 by and among Crown Crafts,
Inc., Churchill Weavers,
Inc. and The CIT
Inc., Crown Crafts
Group/Commercial Services, Inc. (7)
First Amendment to Mortgage, Assignment of Leases and Rents, and Security Agreement dated
November 5, 2007 from Churchill Weavers, Inc. to The CIT Group/Commercial Services, Inc. (7)
Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott
(8)
Infant Products,
Inc., Hamco,
21
10.17 —
10.18 —
10.19 —
10.20 —
10.21
—
10.22
—
10.23
—
10.24
—
First Amendment to Employment Agreement dated November 6, 2008 by and between the Company
and E. Randall Chestnut. (9)
First Amendment to Amended and Restated Severance Protection Agreement dated November 6,
2008 by and between the Company and E. Randall Chestnut. (9)
First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Amy Vidrine Samson. (9)
First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Nanci Freeman. (9)
Third Amendment to Financing Agreement dated as of July 2, 2009 by and among Crown Crafts, Inc.,
Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial
Services, Inc. (11)
Fifth Amendment to Financing Agreement dated as of February 9, 2010 by and among Crown Crafts,
Inc., Churchill Weavers,
Inc. and The CIT
Inc., Crown Crafts
Group/Commercial Services, Inc. (12)
Sixth Amendment to Financing Agreement dated as of March 5, 2010 by and among Crown Crafts, Inc.,
Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial
Services, Inc. (13)
Seventh Amendment to Financing Agreement dated as of May 27, 2010 by and among Crown Crafts,
Inc. and The CIT
Inc., Crown Crafts
Inc., Churchill Weavers,
Group/Commercial Services, Inc. (14)
Infant Products,
Infant Products,
Inc., Hamco,
Inc., Hamco,
14.1
21.1
23.1
31.1
31.2
32.1
32.2
— Code of Ethics. (4)
— Subsidiaries of the Company. (16)
— Consent of KPMG LLP. (16)
— Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer. (16)
— Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer. (16)
— Section 1350 Certification by the Company’s Chief Executive Officer. (16)
— Section 1350 Certification by the Company’s Chief Financial Officer. (16)
__________________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 23, 2001.
Incorporated herein by reference to Registrant’s Registration Statement on Form 8-A/A dated August
13, 2003.
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
December 28, 2003.
Incorporated herein by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended
March 28, 2004.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 17, 2006.
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated August 24,
2006.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated November 9,
2007.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K/A dated November 7,
2008.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated November 7,
2008.
Incorporated herein by reference to Registrant’s Proxy Statement on Schedule 14A dated July 3, 2009.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 6, 2009.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated February 10, 2010.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 8, 2010.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated May 27, 2010.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated April 4, 2011.
(10)
(11)
(12)
(13)
(14)
(15)
(16) Filed herewith.
22
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CROWN CRAFTS, INC.
By:
/s/ E. Randall Chestnut
E. Randall Chestnut
Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signatures
Title
/s/ E. Randall Chestnut
E. Randall Chestnut
Chairman of the Board, President and
Chief Executive Officer (Principal Executive Officer)
/s/ Jon C. Biro
Jon C. Biro
/s/ Melvin L. Keating
Melvin L. Keating
/s/ Sidney Kirschner
Sidney Kirschner
/s/ Joseph Kling
Joseph Kling
/s/ Zenon S. Nie
Zenon S. Nie
/s/ Donald Ratajczak
Donald Ratajczak
Director
Director
Director
Director
Director
Director
Date
June 9, 2011
June 9, 2011
June 9, 2011
June 9, 2011
June 9, 2011
June 9, 2011
June 9, 2011
/s/ Olivia W. Elliott
Olivia W. Elliott
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
June 9, 2011
23
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of April 3, 2011 and March 28, 2010
Consolidated Statements of Income for the Fiscal Years Ended April 3, 2011 and
March 28, 2010
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended
April 3, 2011 and March 28, 2010
Consolidated Statements of Cash Flows for the Fiscal Years Ended April 3, 2011 and
March 28, 2010
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-3
F-4
F-5
F-6
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Crown Crafts, Inc.
We have audited the accompanying consolidated balance sheets of Crown Crafts, Inc. and subsidiaries as of April 3,
2011 and March 28, 2010, and the related consolidated statements of income, changes in shareholders’ equity, and
cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also
have audited financial statement Schedule II included in Item 15. These consolidated financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Crown Crafts, Inc. and subsidiaries as of April 3, 2011 and March 28, 2010, and the results of their
operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth
therein.
/s/ KPMG LLP
Baton Rouge, Louisiana
June 13, 2011
F-1
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 3, 2011 and March 28, 2010
April 3, 2011
March 28, 2010
(amounts in thousands, except
share and per share amounts)
$
205
$
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable (net of allowances of $1,395 at April 3, 2011 and $1,238 at March 28, 2010):
Due from factor
Other
Inventories
Prepaid expenses
Temporary investments - restricted
Assets held for sale
Deferred income taxes
Total current assets
Property, plant and equipment - at cost:
Vehicles
Land, buildings and improvements
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
Property, plant and equipment - net
Intangible assets - at cost:
Goodwill
Customer relationships
Other intangible assets
Less accumulated amortization
Intangible assets - net
Other assets:
Deferred income taxes
Other
Total other assets
Total Assets
Current liabilities:
Accounts payable
Accrued wages and benefits
Accrued royalties
Income taxes currently payable
Other accrued liabilities
Current maturities of long-term debt
Total current liabilities
Non-current liabilities:
Long-term debt
Commitments and contingencies
LIABILITIES AND SHAREHOLDERS' EQUITY
$
$
Shareholders' equity:
Preferred stock - $0.01 par value per share; Authorized 1,000,000 shares; No shares issued at April 3,
2011 and March 28, 2010
Common stock - $0.01 par value per share; Authorized 74,000,000 shares; Issued 10,830,772 shares at
April 3, 2011 and 10,288,940 shares at March 28, 2010
Additional paid-in capital
Treasury stock - at cost - 1,248,162 shares at April 3, 2011 and 1,074,025 shares at March 28, 2010
Accumulated deficit
Total shareholders' equity
Total Liabilities and Shareholders' Equity
$
See notes to consolidated financial statements.
F-2
17,819
834
13,560
2,360
-
275
230
35,283
58
215
2,622
730
3,625
3,153
472
1,126
5,411
6,674
13,211
5,290
7,921
1,904
122
2,026
45,702
5,050
1,167
1,181
409
212
1,952
9,971
4,336
-
-
$
$
108
42,227
(4,358 )
(6,582 )
31,395
45,702
$
75
17,633
388
10,453
1,625
505
396
399
31,474
58
212
2,537
764
3,571
3,020
551
864
5,083
5,496
11,443
4,086
7,357
1,904
106
2,010
41,392
5,563
838
1,051
1,048
205
1,952
10,657
3,238
-
-
103
41,007
(3,580 )
(10,033 )
27,497
41,392
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended April 3, 2011 and March 28, 2010
Net sales
Cost of products sold
Gross profit
Marketing and administrative expenses
Income from operations
Other income (expense):
Interest and amortization of debt discount and expense
Other - net
Income before income tax expense
Income tax expense
Income from continuing operations
Loss from discontinued operations - net of income taxes
Net income
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Basic earnings per share:
Income from continuing operations
Loss from discontinued operations - net of income taxes
Total basic earnings per share
Diluted earnings per share:
Income from continuing operations
Loss from discontinued operations - net of income taxes
Total diluted earnings per share
Cash dividends declared per share
2011
2010
(amounts in thousands,
except per share amounts)
$
$
$
$
$
$
$
89,971 $
69,880
20,091
12,459
7,632
(460 )
3
7,175
2,772
4,403
(97 )
4,306 $
86,066
65,837
20,229
11,469
8,760
(692 )
(63 )
8,005
3,103
4,902
(122 )
4,780
9,497
9,193
9,670
9,295
0.46 $
(0.01 )
0.45 $
0.46 $
(0.01 )
0.45 $
0.53
(0.01 )
0.52
0.53
(0.01 )
0.52
0.09 $
0.02
See notes to consolidated financial statements.
F-3
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fiscal years ended April 3, 2011 and March 28, 2010
Common Shares
Treasury Shares
Number of
Shares
Amount
Number of
Shares
Additional
Paid-in
Capital
(Dollar amounts in thousands)
Amount
Accumulated
Deficit
Total
Shareholders'
Equity
Balances –
March 29, 2009
Issuance of shares
Stock-based
compensation
Net tax effect of
stock-based
compensation
Acquisition of
treasury stock
Net income
Dividends declared
Balances –
March 28, 2010
Issuance of shares
Stock-based
compensation
Net tax effect of
stock-based
compensation
Acquisition of
treasury stock
Net income
Dividends declared
Balances –
April 3, 2011
10,098,441 $
101
(889,051 ) $
(3,056 ) $
39,995 $
(14,629 ) $
22,411
190,499
2
163
760
89
(184,974 )
(524 )
4,780
(184 )
165
760
89
(524 )
4,780
(184 )
10,288,940
103 (1,074,025 )
(3,580 )
41,007
(10,033 )
27,497
541,832
5
351
732
137
(174,137 )
(778 )
4,306
(855 )
356
732
137
(778 )
4,306
(855 )
10,830,772 $
108 (1,248,162 ) $
(4,358 ) $
42,227 $
(6,582 ) $
31,395
See notes to consolidated financial statements.
F-4
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended April 3, 2011 and March 28, 2010
Operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment
Amortization of intangibles
Impairment charge - assets held for sale
Deferred income taxes
(Gain) loss on sale of property, plant and equipment
Accretion of interest expense to original issue discount
Accretion of interest income to temporary investment - restricted
Stock-based compensation
Tax shortfall from stock-based compensation
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses
Other assets
Accounts payable
Accrued liabilities
Net cash provided by operating activities
Investing activities:
Capital expenditures
Maturity (purchase) of temporary investment - restricted
Proceeds from (cost of) disposition of assets
Payment to acquire the Bibsters product line
Payment to acquire the assets of Neat Solutions, Inc., net of liabilities
assumed
Net cash used in investing activities
Financing activities:
Payments on long-term debt
Borrowings (repayments) under revolving line of credit, net
Purchase of treasury stock
Issuance of common stock
Excess tax benefit from stock-based compensation
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Income taxes paid
Interest paid, net of interest received
Noncash investing activity:
Adjustment to purchase price of the assets of Neat Solutions, Inc., net of
liabilities assumed, from resolution of pre-acquisition contingency
Noncash financing activity:
Dividends declared but unpaid
See notes to consolidated financial statements.
F-5
2011
2010
(amounts in thousands)
$
4,306 $
4,780
257
1,224
121
169
(2 )
184
-
732
(14 )
(632 )
(2,807 )
(735 )
(5 )
(616 )
(173 )
2,009
(205 )
505
2
(2,072 )
-
(1,770 )
(2,000 )
2,914
(778 )
356
151
(752 )
(109 )
130
75
205 $
286
1,544
154
273
16
262
(5 )
760
(13 )
1,770
1,846
(503 )
30
(1,088 )
379
10,491
(165 )
(500 )
(2 )
-
(4,434 )
(5,101 )
(1,667 )
(18,640 )
(524 )
165
102
-
(20,564 )
(15,174 )
15,249
75
3,054 $
281
2,304
437
(28 )
-
(287 )
(184 )
$
$
Crown Crafts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal Years Ended April 3, 2011 and March 28, 2010
Note 1 – Description of Business
Crown Crafts, Inc. and its subsidiaries (collectively, the “Company”) operate in the infant and toddler
products segment within the consumer products industry. The infant and toddler products segment consists of
infant and toddler bedding, bibs, disposable products, soft goods and accessories. Sales of the Company’s products
are generally made directly to retailers, which are primarily mass merchants, mid-tier retailers, juvenile specialty
stores, value channel stores, grocery and drug stores, restaurants, internet accounts, wholesale clubs and catalog
retailers. The Company’s products are manufactured primarily in Asia and marketed under a variety of Company-
owned trademarks, under trademarks licensed from others and as private label goods.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements include the accounts of the
Company and have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the
Securities and Exchange Commission (“SEC”). All significant intercompany balances and transactions have been
eliminated in consolidation. References herein to GAAP are to topics within the FASB Accounting Standards
Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards
Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the
FASB to be applied by nongovernmental entities.
Fiscal Year: The Company's fiscal year ends on the Sunday nearest March 31. References herein to “fiscal
year 2011” or “2011”, and “fiscal year 2010” or “2010” represent the 53- and 52-week periods ended April 3, 2011 and
March 28, 2010, respectively.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of
revenues and expenses during the reporting period. Significant estimates are made with respect to the allowances
related to accounts receivable for customer deductions for returns, allowances and disputes. The Company also has
a certain amount of discontinued finished goods which necessitates the establishment of inventory reserves that are
highly subjective. Actual results could differ materially from those estimates.
Cash and Cash Equivalents: The Company considers all highly-liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Financial Instruments: The following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that value:
·
Cash and cash equivalents, accounts receivable and accounts payable – For those short term
instruments, the carrying value is a reasonable estimate of fair value.
·
Long term debt – The carrying value of the Company’s long term debt approximates fair value
because interest rates under the Company’s borrowings are variable, based on prevailing market
rates.
Segments and Related Information: The Company operates primarily in one principal segment, infant and
toddler products. These products consist of infant and toddler bedding, bibs, disposable products, soft goods and
accessories. Net sales of bedding, blankets and accessories amounted to $66.3 million and $66.4 million in fiscal
years 2011 and 2010, respectively. Net sales of bibs, bath and disposable products amounted to $23.7 million and
$19.7 million in fiscal years 2011 and 2010, respectively.
F-6
Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and
equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company
capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and
amortization are computed using the straight-line method over the estimated useful lives of the assets, which are
three to eight years for property, plant and equipment, and one to sixteen years for intangible assets other than
goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated
useful life of the asset, whichever is shorter.
Valuation of Long-Lived Assets, Identifiable Intangible Assets and Goodwill: In addition to the depreciation and
amortization procedures set forth above, 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 estimated costs to sell at
the date management commits to a plan of disposal, and are classified as assets held for sale on the accompanying
consolidated balance sheets.
The Company tests the carrying value of its goodwill of its reporting units annually as of the first day of the
Company’s fiscal year. An additional impairment test is performed during the year whenever an event or change in
circumstances 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.
for estimated
Revenue Recognition: Sales are recorded when goods are shipped to customers and are reported net of
the accompanying consolidated statements of
allowances
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 is netted against sales in reporting the results of operations. Shipping and handling costs, net of
amounts reimbursed by customers, are not material and are included in net sales.
returns and allowances
in
Allowances Against Accounts Receivable: The Company’s 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 Company’s allowances occurs on a per-invoice basis. The allowances for customer deductions,
which are netted against accounts receivable in the accompanying consolidated balance sheets, consist of agreed
upon advertising support, markdowns and warehouse and other allowances. 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 or credits issued against the customer’s account
balance. The Company analyzes the components of the allowances for customer deductions monthly and adjusts
the allowances to the appropriate levels. The timing of the customer-initiated funding requests for advertising
support can cause the net balance in the allowance account to fluctuate from period to period. The timing of such
funding requests should have a minimal impact on the consolidated statements of income since such costs are
accrued commensurate with sales activity.
To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company
assigns the majority of its trade accounts receivable under factoring agreements with The CIT Group/Commercial
Services, Inc. (“CIT”). In the event a factored receivable becomes uncollectible due to creditworthiness, CIT bears the
risk of loss. The Company’s management must make estimates of the uncollectiblity of its non-factored accounts
receivable when evaluating the adequacy of its allowance for doubtful accounts, which it accomplishes by
specifically analyzing accounts receivable, historical bad debts, customer concentrations, customer creditworthiness,
current economic trends and changes in its customers’ payment terms. The Company’s accounts receivable at April
3, 2011 amounted to $18.7 million, net of allowances of $1.4 million. Of this amount, $17.8 million was due from CIT
under the factoring agreements, which represents the maximum amount of loss that the Company could incur if CIT
failed completely to perform its obligations thereunder.
F-7
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 royalties are accrued based upon historical
sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of sales and amounted
to $7.3 million and $7.0 million in 2011 and 2010, respectively.
Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal,
state, local and foreign taxes that are based on the Company's taxable income and the change during the fiscal year
in net deferred income tax assets and liabilities. The Company provides for deferred income taxes based on the
difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be
in effect when the differences are expected to reverse. The Company’s policy is to recognize the effect that a change
in enacted tax rates would have on net deferred income tax assets and liabilities in the period that the tax rates are
changed.
Management evaluates items of income, deductions and credits reported on the Company’s various federal
and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if
those positions are more likely than not to be sustained. Recognized income tax positions are measured at the
largest amount that has a greater than 50% likelihood 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 accompanying
consolidated financial statements. Tax years open to federal or state general examination or other adjustment as of
April 3, 2011 were the tax years ended March 30, 2008, March 29, 2009, March 28, 2010 and April 3, 2011, as well as
the tax year ended April 1, 2007 for several states. The Company’s policy is to accrue interest expense and penalties
as appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s
consolidated statements of income.
Inventory Valuation: The preparation of the Company's financial statements requires careful determination
of the appropriate dollar amount of the Company's inventory balances. Such amount is presented as a current asset
in the accompanying consolidated balance sheets and is a direct determinant of cost of goods sold in the
accompanying consolidated statements of income and, therefore, has a significant impact on the amount of net
income in the reported accounting periods. The basis of accounting for inventories is cost, which is the sum of
expenditures and charges, both direct and indirect, incurred to acquire inventory, bring it to a condition suitable for
sale and store it until it is sold. Once cost has been determined, the Company’s inventory is then stated at the lower
of cost or market, with cost determined using the first-in, first-out ("FIFO") method, which assumes that inventory
quantities are sold in the order in which they are acquired. The determination of the indirect charges and their
allocation to the Company's finished goods inventories is complex and requires significant management judgment
and estimates. If management made different judgments or utilized different estimates, then differences would
result in the valuation of the Company's inventories and in the amount and timing of the Company's cost of goods
sold and the resulting net income for the reporting period.
On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical
deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected
to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to
exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no
longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this
allowance is established or increased during an accounting period, an expense is recorded in cost of goods sold in
the Company's consolidated statements of income. Only when inventory for which an allowance has been
established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management
judgment is required in determining the amount and adequacy of this allowance. In the event that actual results
differ from management's estimates or these estimates and judgments are revised in future periods, the Company
may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of
which could materially impact the Company's financial position and results of operations.
F-8
Earnings Per Share: The Company calculates basic earnings per share by using a weighted average of the
number of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in
accordance with the treasury stock method, which assumes that the proceeds from the exercise of all exercisable
options would be used to repurchase shares at market value. The net number of shares issued after the exercise
proceeds are exhausted represents the potentially dilutive effect of the exercisable options, which are added to basic
shares to arrive at diluted shares. The following table sets forth the computation of basic and diluted net income per
common share for fiscal years 2011 and 2010.
Income from continuing operations
Loss from discontinued operations, net of taxes
Net income
Weighted average number of common shares outstanding:
Basic
Effect of dilutive securities
Diluted
Basic earnings per common share:
Continuing operations
Discontinued operations
Total
Diluted earnings per common share:
Continuing operations
Discontinued operations
Total
2011
2010
(Amounts in thousands,
except per share data)
$
$
$
$
$
$
4,403 $
(97 )
4,306 $
9,497
173
9,670
0.46 $
(0.01 )
0.45 $
0.46 $
(0.01 )
0.45 $
4,902
(122 )
4,780
9,193
102
9,295
0.53
(0.01 )
0.52
0.53
(0.01 )
0.52
Recently-Issued Accounting Standards: On May 12, 2011, the FASB issued ASU No. 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs. This ASU is intended to improve consistency across jurisdictions to ensure that U.S. GAAP and
International Financial Reporting Standards (“IFRSs”) fair value measurement and disclosure requirements are
described in the same way. For public entities, the amendments in this ASU are to be applied prospectively effective
for annual periods beginning after December 15, 2011, and early application is not permitted. The Company does
not anticipate that its adoption of ASU No. 2011-04 on April 2, 2012 will impact its consolidated financial statements.
Note 3 – Acquisitions
Neat Solutions: On July 2, 2009, Hamco, Inc. (“Hamco”), a wholly-owned subsidiary of the Company, acquired
substantially all of the assets of Neat Solutions, Inc. (“Neat Solutions”), the privately-held developer of the Table
Topper® Stay-in-Place Mat® (the “Neat Solutions Acquisition”). Hamco paid a purchase price of $4.4 million, net of
certain specified liabilities assumed. In accordance with FASB ASC Topic 805, as revised, Hamco also recognized as
expense $195,000 of direct costs associated with the acquisition during fiscal year 2010, which was included in
marketing and administrative expenses in the accompanying consolidated statements of income.
The fair values of the assets acquired and liabilities assumed were determined by the Company with the
assistance of an independent third party. The Company in fiscal year 2011 resolved a pre-acquisition contingency
wherein a $28,000 inventory reserve was determined to no longer be necessary and was recharacterized as
goodwill.
F-9
The Company’s allocation of the acquisition cost, as adjusted by such resolution of the pre-acquisition
contingency, is as follows (in thousands):
Tangible assets:
Accounts receivable
Inventory
Prepaid expenses
Fixed assets
Other assets
Total tangible assets
Amortizable intangible assets:
Trademarks
Designs
Non-compete covenant
Customer relationships
Total amortizable intangible assets
Goodwill
Total acquired assets
Liabilities assumed - accounts payable
Amount
$
837
576
52
12
2
1,479
892
33
241
1,302
2,468
836
4,783
349
Net acquisition cost
$
4,434
Bibsters®: On May 27, 2010, Hamco paid $1.8 million to The Procter & Gamble Company (“P&G”) to acquire
certain intellectual property related to P&G’s line of Bibsters® disposable infant bibs. In a separate but related
transaction, Hamco also acquired the inventory associated with the Bibsters® product line from the exclusive licensee
of Bibsters® for P&G, whose license was terminated to coincide with the closing (collectively, the two transactions
represent the “Bibsters® Acquisition”). Hamco also recognized as expense $100,000 of direct costs associated with
the acquisition, which were included in marketing and administrative expenses during fiscal year 2011. The Bibsters®
Acquisition resulted in an increase of $1.7 million in net sales of bibs, bath and disposable products for fiscal year
2011. Because the operations of the Bibsters® product line have been integrated with Hamco, and because the
assets acquired do not exist as a discrete entity within the Company’s internal corporate structure, it is impracticable
to determine the earnings generated by the assets acquired from the Bibsters® product line since the acquisition
date. The Company believes that the pro forma impact of the acquisition is not material.
The fair values of the assets acquired were determined by the Company with the assistance of an
independent third party. The Company’s allocation of the acquisition cost is as follows (in thousands):
Amortizable intangible assets:
Trademarks
Patents
Customer relationships
Total amortizable intangible assets
Goodwill
Total intangible assets
Tangible assets - inventory
Amount
$
629
553
328
1,510
290
1,800
272
Total acquisition cost
$
2,072
F-10
Note 4 – Discontinued Operations
During the first quarter of fiscal year 2008, the operations of Churchill Weavers, Inc. (“Churchill”), a wholly-
owned subsidiary of the Company, ceased and all employees were terminated. The Company is actively marketing
Churchill’s land and building for sale, and a portion of the property was sold in July 2008. The Churchill property is
recorded at fair value, less estimated cost to sell, and is classified as assets held for sale in the accompanying
consolidated balance sheets. The Company determined that the fair value of the property had fallen below its
carrying value during fiscal years 2011 and 2010 and recorded impairment charges of $121,000 and $154,000,
respectively, which did not result in any cash expenditures, did not have an adverse effect on the Company’s
compliance with the covenants under its financing agreement and did not affect the Company’s availability under its
revolving line of credit. The operations of Churchill are classified as discontinued operations in the accompanying
consolidated statements of income.
The following table sets forth the loss from discontinued operations for fiscal years 2011 and 2010.
2011
2010
(Amounts in thousands)
Loss from discontinued operations
Impairment charge
$
Income tax benefit
Net loss from discontinued operations
$
(21 ) $
(121 )
(142 )
(45 )
(97 ) $
(37 )
(154 )
(191 )
(69 )
(122 )
Note 5 – Goodwill and Other Intangible Assets
Goodwill: The Company reported goodwill of $864,000 at March 28, 2010. The Company tests the fair value
of the goodwill of its reporting units annually as of the first day of the Company’s fiscal year in a two-step
approach. 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, then 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, by which the carrying value of the goodwill exceeds the implied amount of
goodwill that results from this hypothetical purchase price allocation. An additional interim impairment test must be
performed during the year whenever an event or change in circumstances occurs 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.
The Company performed the annual impairment test as of March 29, 2010 and concluded that the fair value
of the goodwill of the Company’s reporting units exceeded their carrying values as of that date. During fiscal year
2011, the Company recorded goodwill of $290,000 in connection with the Bibsters® Acquisition as the excess of the
consideration paid over the fair value of the identifiable tangible and intangible assets acquired, the entirety of
which is expected to be amortizable for tax purposes. The Company also in fiscal year 2011 resolved a pre-
acquisition contingency related to the Neat Solutions Acquisition wherein a $28,000 inventory reserve was
determined to no longer be necessary and was therefore recharacterized as a reduction to the goodwill originally
recorded in connection with the acquisition.
F-11
Other Intangible Assets: Other intangible assets as of April 3, 2011 consisted primarily of the capitalized costs
of recent acquisitions, other than tangible assets, goodwill and assumed liabilities. The carrying amount and
accumulated amortization of the Company’s other intangible assets as of April 3, 2011, their estimated useful life and
amortization expense for the fiscal years ended April 3, 2011 and March 28, 2010 are as follows (in thousands):
Carrying
Amount
Estimated
Useful
Life
Amortization Expense
Fiscal Year Ended
Accumulated
Amortization
April 3,
2011
March 28,
2010
Kimberly Grant Acquisition on December 29, 2006:
Tradename
Existing designs
Non-compete covenant
$
466
36
98
15 years
1 year
15 years
$
132 $
36
28
31 $
-
7
Total Kimberly Grant
Acquisition
600 14 years *
196
38
31
-
7
38
483
462
28
376
1,349
45
6
36
61
1,655
1,578
98
1,292
4,623
104
14
84
142
-
462
29
378
869
59
8
48
81
Springs Baby Products Acquisition on November 5, 2007:
Licenses & existing designs
Licenses & future designs
Non-compete covenant
Customer relationships
Total Springs Baby Acquisition
1,655
1,847
115
3,781
7,398
2 years
4 years
4 years
10 years
7 years *
Neat Solutions Acquisition on July 2, 2009:
Trademarks
Designs
Non-compete covenant
Customer relationships
Total Neat Solutions
Acquisition
Bibsters® Acquistion on May 27, 2010:
892
33
241
1,302
15 years
4 years
5 years
16 years
2,468 14 years *
344
196
148
Trademarks
Patents
Customer relationships
Total Bibsters® Acquistion
Internally developed
intangible assets
Total other intangible
assets
* Weighted-Average
629
553
328
15 years
10 years
14 years
1,510 13 years *
35
46
20
101
35
46
20
101
109
10 years
26
20
-
-
-
-
9
$
12,085
$
5,290 $
1,224 $
1,544
F-12
The table below sets forth estimated amortization expense for the following fiscal years (in thousands):
2012
2013
2014
2015
2016
Kimberly Grant Acquisition:
Tradename
Existing designs
Total Kimberly Grant Acquisition
Springs Baby Products Acquisition:
Licenses & future designs
Non-compete covenant
Customer relationships
Total Springs Baby Acquisition
Neat Solutions Acquisition:
Trademarks
Designs
Non-compete covenant
Customer relationships
Total Neat Solutions Acquisition
Bibsters® Acquistion:
Trademarks
Patents
Customer relationships
Total Bibsters® Acquistion
Internally developed intangible assets
Total other intangible assets
$
Note 6 – Inventories
$
31 $
7
38
31 $
7
38
31 $
7
38
31 $
7
38
269
17
378
664
60
8
48
81
197
42
55
23
120
11
1,030 $
-
-
378
378
60
8
48
81
197
42
55
23
120
11
744 $
-
-
378
378
60
3
48
81
192
42
55
23
120
11
739 $
-
-
378
378
60
-
13
81
154
42
55
23
120
11
701 $
31
7
38
-
-
378
378
60
-
-
81
141
42
55
23
120
11
688
Major classes of inventory were as follows (in thousands):
Raw Materials
Finished Goods
Total inventory
April 3,
2011
March 28,
2010
$
$
32 $
13,528
13,560 $
66
10,387
10,453
Note 7 - Financing Arrangements
Factoring Agreements: The Company assigns the majority of its trade accounts receivable to CIT under
factoring agreements. Under the terms of the factoring agreements, which expire in July 2013, CIT remits payments
to the Company on the average due date of each group of invoices assigned. If a customer fails to pay CIT by the due
date, the Company is charged interest at prime plus 1.0%, which was 4.25% at April 3, 2011, until payment is
received. The Company incurred interest expense of $77,000 and $67,000 in fiscal years 2011 and 2010, respectively,
as a result of the failure of the Company’s customers to pay CIT by the due date. CIT bears credit losses with respect
to assigned accounts receivable from approved shipments, while the Company bears the responsibility for
adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or
limit its approval of shipments to a particular customer. If such a termination or limitation were to occur, the
Company would either assume the credit risks for shipments to the customer after the date of such termination or
limitation or cease shipments to the customer. Factoring fees, which are included in marketing and administrative
expenses in the accompanying consolidated statements of income, were $539,000 and $619,000 during fiscal years
2011 and 2010, respectively. There were no advances from the factor at either April 3, 2011 or March 28, 2010.
F-13
Notes Payable and Other Credit Facilities: At April 3, 2011 and March 28, 2010, long term debt of the Company
consisted of (in thousands):
Revolving line of credit
Non-interest bearing notes
Original issue discount
Less current maturities
April 3, 2011
$
$
March 28, 2010
1,422
4,000
(232 )
5,190
1,952
3,238
$
4,336
2,000
6,288
1,952
4,336
(48 )
$
The Company’s credit facilities at April 3, 2011 consisted of the following:
Revolving Line of Credit under a financing agreement with CIT of up to $26.0 million, including a $1.5 million
sub-limit for letters of credit, bearing an interest rate of prime plus 1.00% (4.25% at April 3, 2011) for base rate
borrowings or LIBOR plus 3.00% (3.24615% at April 3, 2011), maturing on July 11, 2013 and secured by a first lien on
all assets of the Company. As of April 3, 2011, the Company had elected to pay interest on the revolving line of credit
under the LIBOR option. Also under the financing agreement, a monthly fee is assessed based on 0.25% of the
average unused portion of the $26.0 million revolving line of credit, less any outstanding letters of credit. This
unused fee amounted to $47,000 and $18,000 during fiscal years 2011 and 2010, respectively. At April 3, 2011, there
was a balance due on the revolving line of credit of $4.3 million, there was a $500,000 letter of credit outstanding and
the Company had $18.6 million available under the revolving line of credit based on its eligible accounts receivable
and inventory.
The financing agreement contains usual and customary covenants for agreements of that 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.
Subordinated Notes totaling $2.0 million. The notes do not bear interest and are due on July 11, 2011. The
original issue discount of $48,000 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 of the Company’s credit facilities as of April 3, 2011 are as follows (in thousands):
Fiscal Year
2012
2013
2014
Total
Note 8 – Income Taxes
Revolver
$
Sub Notes
- $
-
4,336
4,336 $
2,000 $
-
-
2,000 $
Total
2,000
-
4,336
6,336
$
The Company’s income tax provision for fiscal year 2011 is summarized below (in thousands):
Federal
State
Other, including foreign
Income tax expense on continuing operations
Income tax benefit on discontinued operations
Income tax reported in stockholders' equity
related to stock-based compensation
Total income tax provision
Current
Deferred
Total
$
$
2,183 $
350
43
2,576
(18 )
(137 )
2,421 $
165 $
31
-
196
(27 )
-
169 $
2,348
381
43
2,772
(45 )
(137 )
2,590
F-14
The Company’s income tax provision for fiscal year 2010 is summarized below (in thousands):
Federal
State
Other, including foreign
Income tax expense on continuing operations
Income tax benefit on discontinued operations
Income tax reported in stockholders' equity
related to stock-based compensation
Total income tax provision
Current
Deferred
Total
$
$
2,344 $
427
7
2,778
(17 )
(89 )
2,672 $
91 $
234
-
325
(52 )
-
273 $
2,435
661
7
3,103
(69 )
(89 )
2,945
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities as of April 3, 2011 and March 28, 2010 are as follows (in thousands):
Deferred tax assets:
Employee benefit accruals
Accounts receivable and inventory reserves
Deferred rent
Goodwill
Other intangible assets
State net operating loss carryforwards
Stock-based compensation
Total gross deferred tax assets
Less valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities:
Prepaid expenses
Property, plant and equipment
Total deferred tax liabilities
Net deferred income tax assets
April 3,
2011
March 28,
2010
$
$
377 $
448
55
174
1,147
934
595
3,730
(934 )
2,796
(649 )
(13 )
(662 )
2,134 $
303
356
55
288
987
913
672
3,574
(913 )
2,661
(313 )
(45 )
(358 )
2,303
In assessing the probability that the Company’s deferred tax assets will be realized, management of the
Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income
during the future periods in which the temporary differences giving rise to the deferred tax assets will become
deductible. The Company has also considered the scheduled inclusion into taxable income in future periods of the
temporary differences giving rise to the Company’s deferred tax liabilities. The valuation allowance as of April 3,
2011 and March 28, 2010 was related to state net operating loss carryforwards that the Company does not expect to
be realized. Based upon the Company’s expectations of the generation of sufficient taxable income during future
periods, the Company believes that it is more likely than not that the Company will realize its deferred tax assets, net
of the valuation allowance and the deferred tax liabilities.
Management evaluates items of income, deductions and credits reported on the Company’s various federal
and state income tax returns filed, and recognizes the effect of positions taken on those income tax returns only if
those positions are more likely than not to be sustained. Recognized income tax positions are measured at the
largest amount that has a greater than 50% likelihood 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 Company’s consolidated
financial statements. Tax years still open to federal or state general examination or other adjustment as of April 3,
2011 were the tax years ended March 30, 2008, March 29, 2009, March 28, 2010 and April 3, 2011, as well as the tax
F-15
year ended April 1, 2007 for several states. The Company’s policy is to accrue interest expense and penalties as
appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s
consolidated statements of income.
The Company's provision for income taxes on continuing operations is based upon effective tax rates of
38.6% and 38.8% in fiscal years 2011 and 2010, respectively. These effective tax rates are 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.
The following table reconciles income tax expense on income from continuing operations at the U.S. federal
income tax statutory rate to the net income tax provision reported for fiscal years 2011 and 2010 (in thousands):
Tax expense at statutory rate (34%)
State income taxes, net of Federal income tax benefit
Change in deferred taxes due to a change in state tax rate
Tax credits
Nondeductible expenses
Other, including foreign
Income tax expense on continuing operations
2011
2010
2,440 $
231
-
(21 )
77
45
2,772 $
2,722
351
85
(12 )
10
(53 )
3,103
$
$
Note 9 – Retirement Plans
The Company sponsors a defined contribution retirement savings plan with a cash or deferred arrangement
(the “Plan”), as provided by Section 401(k) of the Internal Revenue Code (“Code”). The Plan covers substantially all
employees, who may elect to contribute a portion of their compensation to the Plan, subject to maximum amounts
and percentages as prescribed in the Code. Each calendar year, the Board of Directors (the “Board”) determines the
portion, if any, of employee contributions that will be matched by the Company. For calendar years 2010 and 2009,
the employer matching contributions represented an amount equal to 100% of the first 2% of employee
contributions and 50% of the next 1% of employee contributions to the Plan. If an employee separates from the
Company prior to the full vesting of the funds in their account that represent the matching employer portion of their
account, then the unvested portion of the matching employer portion of their account is forfeited when they take a
distribution of their account. The Company utilizes such forfeitures as an offset to the aggregate matching
contributions. The Company's matching contribution to the Plan, net of the utilization of forfeitures, was $141,000
and $138,000 for fiscal years 2011 and 2010, respectively.
Note 10 – Stock-based Compensation
The Company has two incentive stock plans, the 1995 Stock Option Plan (the “1995 Plan”) and the 2006
Omnibus Incentive Plan (the “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 Company’s stockholders at its Annual Meeting in 2006, options may no longer be issued from
the 1995 Plan.
The 2006 Plan is intended to attract and retain directors, officers and employees of the Company and to
motivate these individuals to achieve performance objectives related to the Company’s overall goal of increasing
stockholder value. The principal reason for adopting the 2006 Plan was to ensure that the Company has a
mechanism for long-term, equity-based incentive compensation to its non-employee directors and to certain
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 Company’s 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, which determines which
employees and non-employee directors will be awarded grants under the 2006 Plan and determines the type,
amount and duration of such awards. At April 3, 2011, 337,000 shares of the Company’s common stock were
available for future issuance under the 2006 Plan.
F-16
Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock
Compensation, which requires a stock-based compensation to be accounted for using a fair-value-based
measurement. The Company recorded $732,000 and $760,000 of stock-based compensation during fiscal years 2011
and 2010, respectively. The Company records the compensation expense associated with stock-based awards
granted to individuals in the same expense classifications as the cash compensation paid to those same
individuals. No stock-based compensation costs were capitalized as part of the cost of an asset as of April 3, 2011.
Stock Options: The following table represents stock option activity for fiscal years 2011 and 2010:
Fiscal Year Ended
April 3, 2011
Fiscal Year Ended
March 28, 2010
Weighted-
Average
Exercise
Price
Number of
Options
Outstanding
Weighted-
Average
Exercise
Price
Number of
Options
Outstanding
$
2.94
4.23
(2.07 )
(3.86 )
825,832 $
110,000
(171,832 )
(17,000 )
2.54
3.02
(1.03 )
(0.53 )
819,831
170,000
(160,499 )
(3,500 )
3.31
747,000
2.94
825,832
3.19
567,000
2.80
555,832
Outstanding at
Beginning of Year
Granted
Exercised
Forfeited
Outstanding at
End of Year
Exercisable at
End of Year
The total intrinsic value of the stock options exercised during fiscal years 2011 and 2010 was $418,000 and
$267,000, respectively. As of April 3, 2011, the intrinsic value of the outstanding and exercisable stock options was
$1.1 million and $920,000, respectively.
The Company uses the Black-Scholes-Merton valuation formula to determine the estimated fair value of
stock options granted. The following table sets forth the assumptions used and the resulting grant-date fair value of
the non-qualified stock options granted to certain employees during fiscal years 2011 and 2010, which options vest
over a two-year period, assuming continued service.
Options issued
Grant Date
Dividend yield
Expected volatility
Risk free interest rate
Expected life in years
Forfeiture rate
Exercise price (grant-date closing price)
Fair value
2011
110,000
June 23, 2010
1.89 %
55.00 %
2.17 %
5.75
5.00 %
4.23
1.88
$
$
2010
170,000
August 12, 2009
-
50.00 %
2.70 %
5.75
5.00 %
3.02
1.49
$
$
Because the Company’s historical stock option exercise experience did not provide a reasonable basis upon
which to estimate the expected life of the stock options granted during each of the fiscal years 2011 and 2010, the
Company has elected to use the simplified method to estimate the expected life of the stock options granted, as
allowed by SEC Staff Accounting Bulletin No. 107 and the continued acceptance of the simplified method indicated
in SEC Staff Accounting Bulletin No. 110.
F-17
For the fiscal years ended April 3, 2011 and March 28, 2010, the Company recognized compensation
expense associated with stock options as follows (in thousands):
Options Granted in Fiscal Year
2009
2010
2011
Total stock option compensation
Options Granted in Fiscal Year
2008
2009
2010
Total stock option compensation
Cost of
Products
Fiscal Year Ended April 3, 2011
Marketing &
Administrative
Expenses
Sold
Total
Expense
$
$
13 $
37
34
84 $
38 $
86
34
158 $
51
123
68
242
Cost of
Products
Fiscal Year Ended March 28, 2010
Marketing &
Administrative
Expenses
Sold
Total
Expense
$
$
16 $
48
22
86 $
41 $
145
52
238 $
57
193
74
324
A summary of stock options outstanding and exercisable at April 3, 2011 is as follows:
Range of
Exercise
Prices
Number
of Options
Outstanding
Weighted Avg.
Remaining
Contractual
Life in
Years
Weighted Avg.
Exercise Price of
Options
Outstanding
Number
of Shares
Exercisable
Weighted Avg.
Exercise Price
of
Options
Exercisable
$
$
$
$
$
0.18
0.65 - $0.71
3.02 - $3.15
3.58
4.08 - $4.23
5,500
46,500
333,000
170,000
192,000
747,000
0.30 $
1.83 $
6.56 $
7.19 $
7.76 $
6.67 $
0.18
0.69
3.10
3.58
4.16
3.31
5,500 $
46,500 $
253,000 $
170,000 $
92,000 $
567,000 $
0.18
0.69
3.12
3.58
4.08
3.19
As of April 3, 2011, total unrecognized stock-option compensation costs amounted to $168,000, which will
be recognized as the underlying stock options vest over a period of up to two years. The amount of future stock-
option compensation expense could be affected by any future stock option grants and by the separation from the
Company of any employee or director who has stock options that are unvested as of such individual’s separation
date.
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 Company’s common stock on the date of grant. All non-vested stock
granted under the 2006 Plan vests based upon continued service, except as set forth below.
On August 25, 2006, the Board granted 375,000 shares of non-vested stock to certain employees with a fair
value of $3.15 per share, which were to originally have four-year cliff vesting. On August 11, 2009, the Board
amended the non-vested stock grant that had been awarded in 2006 to E. Randall Chestnut, Chairman, Chief
Executive Officer and President of the Company. Under the terms of the amended non-vested stock grant, the
vesting of 160,000 of the 320,000 shares awarded to Mr. Chestnut was accelerated from August 25, 2010 to August
12, 2009, which resulted in the acceleration of the recognition of $53,000 in compensation expense from fiscal year
2011 into fiscal year 2010. On August 25, 2010, the remaining 215,000 shares vested that had been awarded to
certain employees in 2006, including the remaining 160,000 of Mr. Chestnut’s original award, at an aggregate value
of $968,000.
F-18
The Board granted 30,000 shares of non-vested stock to its non-employee directors during each of the
quarters ended September 26, 2010, September 27, 2009 and September 28, 2008 with a weighted-average fair
value of $4.36, $3.02 and $3.87, respectively, as of the date of the stock grants. These shares vest over a two-year
period, assuming continued service, except as set forth below.
On May 27, 2010, the Company amended the stock grants that had been awarded to Sidney Kirschner in
2008 and 2009 as an inducement for Mr. Kirschner to resign from the Board. Under the terms of the amended non-
vested stock grants, the vesting of 2,500 of the 5,000 shares awarded in 2008 and all 5,000 of the shares awarded in
2009 was accelerated to May 27, 2010. The total value of Mr. Kirschner’s 7,500 shares that vested on May 27, 2010
amounted to $30,000.
In August 2010, 25,000 shares vested that had been granted to non-employee directors, having an
aggregate value of $113,000, and 5,000 shares were forfeited upon the departure from the Board of two non-
employee directors prior to the vesting of their shares.
The Board awarded 345,000 shares of non-vested stock to certain employees as of June 23, 2010 (the “Grant
Date”) in a series of grants which would have originally vested only if and when the closing price of the Company’s
common stock is at or above certain target levels for any ten trading days out of any period of 30 consecutive trading
days (the “Market Condition”), assuming continued service through the date the Market Condition is achieved.
As of July 29, 2010 (the “Modification Date”), the Company amended these non-vested stock grants to
require as a condition to vesting a five-year period of continuous service after the Modification Date in addition to
the achievement of the Market Condition. The amendment of these non-vested stock grants is being accounted for
as a modification. As such, the initial aggregate Grant Date fair value and the incremental cost resulting from the
modification, if any, will be recognized as compensation expense over the vesting term of the modified awards. The
Company, with the assistance of an independent third party, determined that the aggregate Grant Date fair value of
the original awards amounted to $1.2 million, and has further determined that there is no incremental cost resulting
from the modification. Therefore, the aggregate Grant Date fair value of $1.2 million will be recognized as
compensation expense over a period beginning on the Grant Date and ending on the fifth anniversary of the
Modification Date.
For the fiscal years ended April 3, 2011 and March 28, 2010, the Company recognized compensation
expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the
accompanying consolidated statements of income, as follows (in thousands):
Fiscal Year Ended April 3, 2011
Non-employee
Stock Granted in Fiscal Year
2007
2009
2010
2011
Employees
Directors
$
70 $
-
-
314
Total stock grant compensation
$
384
$
106 $
490
Fiscal Year Ended March 28, 2010
Non-employee
Stock Granted in Fiscal Year
2007
2009
2010
Total stock grant compensation
Employees
Directors
348 $
-
-
348
$
$
$
F-19
Total
Expense
70
- $
19
19
43
43
358
44
Total
Expense
348
- $
58
58
30
30
88 $
436
At April 3, 2011, the amount of unrecognized compensation expense related to non-vested stock grants
amounted to $998,000, which will be recognized over the remaining portion of the respective vesting periods
associated with each block of grants as set forth above. The amount of future compensation expense related to non-
vested stock grants could be affected by any future non-vested stock grants and by the separation from the
Company of any individual who has unvested grants as of such individual’s separation date.
Note 11 – Stockholders’ Equity
Dividends: The holders of the Company’s common stock are entitled to receive dividends when and as
declared by the Board. In February 2010, the Board recommenced the regular quarterly declaration of cash
dividends, with no cash dividends having previously been declared since 1999. Aggregate cash dividends of $0.09
and $0.02 per share, amounting to $855,000 and $184,000, were declared during fiscal years 2011 and 2010,
respectively. These dividends were within the limitations of the Company’s credit facility, which permits the
payment of cash dividends on the Company’s common stock of up to $500,000 per calendar quarter.
Stock Repurchases: In June 2007, the Board created a capital committee which has, from time to time,
adopted a program that would allow the Company to repurchase shares of the Company’s common stock. Pursuant
to this program, the Company repurchased 25,000 shares at a cost of $72,000 during the fiscal year ended March 28,
2010. There was no share repurchase program in effect as of April 3, 2011.
The Company also acquired treasury shares by way of the surrender to the Company from a non-employee
director and several employees shares of common stock to satisfy the exercise price and income tax withholding
obligations relating to the exercise of stock options and the vesting of shares of restricted stock. In this manner, the
Company acquired 174,000 treasury shares during fiscal year 2011 at a weighted-average market value of $4.47 per
share and acquired 160,000 treasury shares during fiscal year 2010 at a weighted-average market value of $2.83 per
share.
Note 12 - Major Customers
The table below indicates customers representing more than 10% of sales.
Wal-Mart Stores, Inc.
Toys R Us
Target Corporation
Fiscal Year
2011
2010
38 %
22 %
11 %
43 %
21 %
*
* Amount represented less than 10% of the Company's gross sales for this fiscal year.
Note 13 – Commitments and Contingencies
Total rent expense was $1.8 million for each of the fiscal years ended April 3, 2011 and March 28, 2010. The
Company’s commitments for minimum guaranteed rental payments as of April 3, 2011 are $1.4 million, $1.3 million,
$1.3 million and $208,000 for fiscal years 2012, 2013, 2014 and 2015, respectively.
Total royalty expense was $7.3 million and $7.0 million for the fiscal years 2011 and 2010, respectively. The
Company’s commitment for minimum guaranteed royalty payments under its license agreements as of April 3, 2011
is $3.1 million, including $1.8 million, $1.1 million and $210,000 for fiscal years 2012, 2013 and 2014, respectively.
The Company is a party to various routine legal proceedings primarily involving commercial claims and
workers’ compensation claims. While the outcome of these routine claims and legal proceedings cannot be
predicted with certainty, management believes that the outcomes of such proceedings in the aggregate, even if
determined adversely, would not have a material adverse effect on the Company’s consolidated financial position,
results of operations or cash flows.
F-20
Note 14 – Subsequent Events
The Company has determined that there are no subsequent events that require disclosure pursuant to FASB
ASC Topic 855, as revised.
F-21
C O R P O R A T E I N F O R M A T I O N
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
FORM 10-K
STOCKHOLDER INFORMATION &
BOARD OF DIRECTORS
E. Randall Chestnut
Chairman of the Board
KPMG LLP
A copy of the Company’s Annual
450 Laurel Street, Suite 1700
Report on Form 10-K as filed with the
President and Chief Executive Officer
Baton Rouge, Louisiana 70801
Securities and Exchange Commission
Crown Crafts, Inc.
ANNUAL MEETING
The Annual Meeting of
Stockholders will take place on
Tuesday, August 9, 2011,
at 10 a.m. CDT at the Company’s
Corporate Headquarters,
916 South Burnside Avenue,
Gonzales, Louisiana.
STOCK LISTING
The Company’s common stock is listed
on The NASDAQ Capital Market under
the trading symbol “CRWS”
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
250 Royall Street
Canton, Massachusetts 02021
(800) 568-3476
may be obtained without charge
by contacting:
Crown Crafts, Inc.
Zenon S. Nie
Lead Independent Director
Chairman of the Board
Investor Relations Department
Chief Executive Officer
P.O. Box 1028
The C.E.O. Advisory Board
Gonzales, Louisiana 70707-1028
Phone: (225) 647-9146
Email: investor@crowncrafts.com
INVESTOR RELATIONS COUNSEL
Jon C. Biro
Executive Vice President and
Chief Financial Officer
Consolidated Graphics, Inc.
Halliburton Investor Relations
Melvin L. Keating
14651 Dallas Parkway, Suite 800
Consultant
Dallas, Texas 75254
Phone: (972) 458-8000
www.halliburtonir.com
Twitter: HIR_Group
CROWN CRAFTS ON THE INTERNET
Quarterly and annual financial
information and Company
information may be accessed at
www.crowncrafts.com
Sidney Kirschner
Executive Vice President
Piedmont Healthcare
President and Chief Executive Officer
Piedmont Heart Institute
Joseph Kling
Consultant to the Toy, Infant and
Juvenile Industry
Donald Ratajczak
Consulting Economist
EXECUTIVE OFFICERS
E. Randall Chestnut
Chairman of the Board
President and Chief Executive Officer
Olivia W. Elliott
Vice President and
Chief Financial Officer
Nanci Freeman
President and Chief Executive Officer
Crown Crafts Infant Products, Inc
Design by Dix & Eaton
Crown Crafts, Inc.
916 South Burnside Avenue
Gonzales, Louisiana 70737
800-433-9560 • 225-647-9100
www.crowncrafts.com