##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 28, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File No. 1-7604
 CROWN CRAFTS, INC.
  Delaware
    
    58-0678148(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 916 South Burnside Avenue, Gonzales, Louisiana 70737
 
 þ o
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSIndex to ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
  
  
 December 28, 2008(Unaudited)
    
    
    March 30, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,214
    
    
    $
    7,930Accounts receivable (net of allowances of
$1,151 at December 28, 2008 and $1,268 at
March 30, 2008):Due from factor
    
    
    12,545
    
    
    
    16,081Other
    
    
    1,931
    
    
    
    2,197Inventories, net
    
    
    14,729
    
    
    
    13,777Prepaid expenses
    
    
    1,146
    
    
    
    1,064Assets held for sale
    
    
    644
    
    
    
    663Deferred income taxes
    
    
    733
    
    
    
    885Total current assets
    
    
    43,942
    
    
    
    42,597Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    205
    
    
    
    203Machinery and equipment
    
    
    2,366
    
    
    
    2,241Furniture and fixtures
    
    
    765
    
    
    
    7423,336
    
    
    
    3,186Less accumulated depreciation
    
    
    2,816
    
    
    
    2,597Property, plant and equipment  net
    
    
    520
    
    
    
    589Other assets:Goodwill, net
    
    
    13,884
    
    
    
    22,884Intangible assets, net
    
    
    5,931
    
    
    
    7,276Deferred income taxes
    
    
    39
    
    
    
    Other
    
    
    190
    
    
    
    131Total other assets
    
    
    20,044
    
    
    
    30,291Total Assets
    
    $
    64,506
    
    
    $
    73,477LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,779
    
    
    $
    5,614Accrued wages and benefits
    
    
    944
    
    
    
    1,179Accrued royalties
    
    
    1,700
    
    
    
    1,023Other accrued liabilities
    
    
    1,115
    
    
    
    711Current maturities of long-term debt
    
    
    2,292
    
    
    
    2,504Total current liabilities
    
    
    12,830
    
    
    
    11,031Non-current liabilities:Long-term debt
    
    
    18,891
    
    
    
    22,311Deferred income taxes
    
    
    
    
    
    
    402Total non-current liabilities
    
    
    18,891
    
    
    
    22,713Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock  $0.01 par value per share;
Authorized 74,000,000 shares; Issued
10,094,941 shares at December 28, 2008 and
10,039,942 shares at March 30, 2008
    
    
    101
    
    
    
    100Additional paid-in capital
    
    
    39,807
    
    
    
    39,247Treasury stock  at cost  889,051 shares at
December 28, 2008 and 562,647 shares at March
30, 2008
    
    
    (3,056
    )
    
    
    (2,071
    )Retained earnings (accumulated deficit)
    
    
    (4,067
    )
    
    
    2,457Total shareholders equity
    
    
    32,785
    
    
    
    39,733Total Liabilities and Shareholders Equity
    
    $
    64,506
    
    
    $
    73,477
 See notes to unaudited condensed consolidated financial statements.
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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedDecember 28,
    
    
    December 30,
    
    
    December 28,
    
    
    December 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    19,316
    
    
    $
    18,431
    
    
    $
    62,830
    
    
    $
    50,902Cost of products sold
    
    
    15,519
    
    
    
    13,853
    
    
    
    49,940
    
    
    
    38,055Gross profit
    
    
    3,797
    
    
    
    4,578
    
    
    
    12,890
    
    
    
    12,847Marketing and administrative expenses
    
    
    2,217
    
    
    
    2,584
    
    
    
    8,096
    
    
    
    7,960Goodwill impairment charge
    
    
    9,000
    
    
    
    
    
    
    
    9,000
    
    
    
    (Loss) income from operations
    
    
    (7,420
    )
    
    
    1,994
    
    
    
    (4,206
    )
    
    
    4,887Other income (expense):Interest expense
    
    
    (265
    )
    
    
    (244
    )
    
    
    (900
    )
    
    
    (475
    )Other  net
    
    
    37
    
    
    
    178
    
    
    
    87
    
    
    
    154(Loss) income before income taxes
    
    
    (7,648
    )
    
    
    1,928
    
    
    
    (5,019
    )
    
    
    4,566Income tax expense
    
    
    526
    
    
    
    692
    
    
    
    1,532
    
    
    
    1,705(Loss) income from continuing operations after income taxes
    
    
    (8,174
    )
    
    
    1,236
    
    
    
    (6,551
    )
    
    
    2,861(Loss) income from discontinued operations  net of income taxes
    
    
    (4
    )
    
    
    (12
    )
    
    
    27
    
    
    
    (110
    )Net (loss) income
    
    $
    (8,178
    )
    
    $
    1,224
    
    
    $
    (6,524
    )
    
    $
    2,751Weighted
average shares outstanding  basic
    
    
    9,265
    
    
    
    9,903
    
    
    
    9,353
    
    
    
    9,966Weighted
average shares outstanding  diluted
    
    
    9,265
    
    
    
    10,176
    
    
    
    9,353
    
    
    
    10,248Basic (loss) earnings per share:(Loss) income from continuing operations
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.29(Loss) income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total basic (loss) earnings per share
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.28Diluted (loss) earnings per share:(Loss) income from continuing operations
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.28(Loss) income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total diluted (loss) earnings per share
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.27
 See notes to unaudited condensed consolidated financial statements.
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Nine Months EndedDecember 28,
    
    
    December 30,2008
    
    
    2007Operating activities:Net (loss) income
    
    $
    (6,524
    )
    
    $
    2,751Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation of property, plant and equipment
    
    
    225
    
    
    
    259Amortization of intangibles
    
    
    1,311
    
    
    
    340Goodwill impairment charge
    
    
    9,000
    
    
    
    Deferred income taxes
    
    
    (288
    )
    
    
    1,390(Gain) loss on sale of property, plant and equipment
    
    
    (65
    )
    
    
    6Discount accretion
    
    
    182
    
    
    
    169Stock-based compensation
    
    
    542
    
    
    
    432Changes in assets and liabilities:Accounts receivable
    
    
    3,861
    
    
    
    (2,098
    )Inventories, net
    
    
    (952
    )
    
    
    (5,246
    )Prepaid expenses
    
    
    (83
    )
    
    
    (724
    )Other assets
    
    
    (84
    )
    
    
    9Accounts payable
    
    
    1,165
    
    
    
    4,968Accrued liabilities
    
    
    846
    
    
    
    680Net cash provided by operating activities
    
    
    9,136
    
    
    
    2,936Investing activities:Capital expenditures
    
    
    (158
    )
    
    
    (156
    )Acquisition costs to purchase Baby Products Line from Springs Global
    
    
    
    
    
    
    (356
    )Proceeds from disposition of assets
    
    
    86
    
    
    
    19Net cash used in investing activities
    
    
    (72
    )
    
    
    (493
    )Financing activities:Payments on long-term debt
    
    
    (1,879
    )
    
    
    (223
    )Repayments under revolving line of credit, net
    
    
    (1,935
    )
    
    
    (1,438
    )Purchase of treasury stock
    
    
    (985
    )
    
    
    (854
    )Issuance of common stock
    
    
    19
    
    
    
    40Net cash used in financing activities
    
    
    (4,780
    )
    
    
    (2,475
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,284
    
    
    
    (32
    )Cash and cash equivalents at beginning of period
    
    
    7,930
    
    
    
    33Cash and cash equivalents at end of period
    
    $
    12,214
    
    
    $
    1Supplemental cash flow information:Income taxes paid
    
    $
    1,218
    
    
    $
    984Interest paid
    
    
    626
    
    
    
    228Noncash investing activities:Debt issued to purchase Baby Products Line from Springs Global:Funded through revolving line of credit
    
    $
    
    
    
    $
    6,014Funded through long-term debt
    
    
    
    
    
    
    5,000Total debt issued to purchase Baby Products Line
from Springs Global
    
    $
    
    
    
    $
    11,014Adjustment to purchase price of Springs Baby Products
from resolution of pre-acquisition contingency
    
    $
    (58
    )
    
    $
    
 See notes to unaudited condensed consolidated financial statements.
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1.
    
    Basis of Presentation:The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP) applicable to interim financial information and the rules and regulations of
the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the
information and disclosures required by GAAP for complete financial statements. In the
opinion of management, such interim consolidated financial statements contain all adjustments
necessary to present fairly the financial position of Crown Crafts, Inc. and its subsidiaries
(collectively, the Company) as of December 28, 2008 and the results of its operations and
cash flows for the periods presented. Such adjustments include normal, recurring accruals.
Operating results for the three and nine-month periods ended December 28, 2008 are not
necessarily indicative of the results that may be expected for the year ending March 29, 2009.
For further information, refer to the Companys consolidated financial statements and notes
thereto included in the annual report on Form 10-K for the year ended March 30, 2008.Revenue Recognition:Sales are recorded when goods are shipped to customers and are reported net
of allowances for estimated returns and allowances in the consolidated statements of income.
Allowances for returns are estimated based on historical rates. Allowances for returns,
advertising allowances, warehouse allowances and volume rebates are recorded commensurate with
sales activity and the cost of such allowances are netted against sales in reporting the results
of operations. Shipping and handling costs, net of amounts reimbursed by customers, are
included in net sales.Use of Estimates:The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the date of the
consolidated balance sheets and the reported amounts of revenues and expenses during the periods
presented on the consolidated statements of income and cash flows. Significant estimates are made
with respect to the allowances related to accounts receivable for customer deductions for returns,
allowances and disputes. The Company has a certain amount of discontinued finished goods which
necessitate the establishment of inventory reserves which are highly subjective. Our impairment
test of goodwill is based on comparing the fair value of each of the reporting units of the Company
to such reporting units carrying value. Fair value is measured using a combination of the income
approach, utilizing the discounted cash flow method that incorporates our estimates of future
revenues and costs for our business, and the public company comparables approach, utilizing
multiples of profit measures. The estimates that we use to measure goodwill are consistent with
the plans and estimates that we use to manage our operations, and are based on the best information
available as of the date of the measurement. Actual results could differ from those estimates.Segment and Related Information:The Company operates primarily in one principal segment, infant
and toddler products. These products consist of infant and toddler bedding, infant bibs and
related soft goods.Impairment of Long-lived Assets, Identifiable Intangibles and Goodwill:The Company reviews for
impairment long-lived assets and certain identifiable intangible assets whenever events or changes
in circumstances indicate that the carrying amount of any asset may not be recoverable. In the
event of impairment, the asset is written down to its fair market value. Assets to be disposed of,
if any, are recorded at the lower of net book value or fair market value, less cost to sell at the
date management commits to a plan of disposal, and are classified as assets held for sale on the
consolidated balance sheets.The Company reported goodwill of $13.9 million and $22.9 million at December 28, 2008 and March 30,
2008, respectively. The Company tests the fair value of the goodwill of its reporting units
annually in a two-step approach (Impairment Test). The first step is the estimation of the fair
value of each reporting unit to ensure that its fair value exceeds its carrying value. If step one
indicates that a potential impairment exists, the second step is performed to measure the amount of
an impairment charge, if any. In the second step, these estimated fair values are used as the
hypothetical purchase price for the reporting units, and an allocation of such hypothetical
purchase price is made to the identifiable tangible and intangible assets and assigned liabilities
of the reporting units. The impairment charge is calculated as the amount, if any, that the
carrying value of the goodwill exceeds the residual amount of goodwill that results from this
hypothetical purchase price allocation. An Impairment Test must be performed more frequently if an
event occurs or circumstances change that suggest that the fair value of the goodwill of either of
the reporting units of the Company has more likely than not fallen below its carrying value.
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During the three months ended December 28, 2008, the market capitalization of the Company was below
its net book value, which the Company has concluded was a triggering event that required the
Company to perform an interim Impairment Test. Due to the complexity of estimating the fair value
of the goodwill of each reporting unit required in the step one analysis, and the complexity of
estimating the fair value of the identifiable tangible and intangible assets of the reporting units
in the step two analysis, the Company was not able to complete the interim Impairment Test by the
filing deadline for its Form 10-Q for the three-month period ended December 28, 2008. The Company
has estimated that the interim Impairment Test, when completed, will result in a probable pre-tax
impairment charge that will be in the range of $6 million to $12 million. During the three-month
period ended December 28, 2008, the Company recorded a pretax charge of $9 million, or $0.97 per
basic and diluted share, which is its best reasonable estimate of the probable impairment to the
goodwill of one or both of its reporting units. Based upon the completion of the interim
Impairment Test, the Company will record an adjustment, if any, to this estimated impairment charge
in the quarter ending March 29, 2009. This impairment charge, and any adjustment thereof, will not
have any effect on the cash expenditures of the Company, or any adverse effect on the covenant
calculations under the Companys debt agreements or the Companys overall compliance with these
covenants.Provisions for Income Taxes: The provisions for income taxes include all currently payable
federal, state and local taxes that are based upon the Companys taxable income and the change
during the fiscal years in net deferred income tax assets and liabilities. The Company provides
for deferred income taxes based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates that will be in effect when the differences
are expected to reverse. The effect on deferred tax assets and liabilities of any change in
statutory tax rates is recognized in income in the period that includes the enactment date.The Companys provision for income taxes is based upon an effective tax rate of 39.0%, which is
the sum of the top U.S. statutory federal income tax rate and a composite rate for state income
taxes (net of federal tax benefit) in the various states in which the Company operates.Beginning with the Companys adoption on April 2, 2007 of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), the
Company recognizes the effect of income tax positions only if those positions are more likely
than not of being sustained. Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs. Based on its recent evaluation,
the Company has concluded that there are no significant uncertain tax positions requiring
recognition in the Companys consolidated financial statements. Tax years still open to general
examination or other adjustment as of December 28, 2008 include tax years ended April 2, 2006,
April 1, 2007, and March 30, 2008. The 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. Prior to the adoption of FIN 48,
the Company recognized the effect of income tax positions only if such positions were probable
of being sustained.Royalty Payments:The Company has entered into agreements that provide for royalty payments
based on a percentage of sales with certain minimum guaranteed amounts. These royalty amounts
are accrued based upon historical sales rates adjusted for current sales trends by customers.
Total royalty expenses, net of royalty income, included in cost of sales amounted to $4.7
million and $3.2 million for the nine-month periods ended December 28, 2008 and December 30,
2007, respectively.(Loss) earnings Per Share:(Loss) earnings per share are calculated in accordance with SFAS No.
128, Earnings per Share,which requires dual presentation of basic and diluted (loss) earnings
per share on the face of the consolidated statements of income for all entities with complex
capital structures. (Loss) earnings per common share are based on the weighted average number
of shares outstanding during the period. Basic and diluted weighted average shares are
calculated in accordance with the treasury stock method, which assumes that the proceeds from
the exercise of all options would be used to repurchase common shares at market value. The
number of shares remaining after the exercise proceeds are exhausted represents the potentially
dilutive effect of the options.
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The following table sets forth the computation of basic and diluted net (loss) income per common
share for the three and nine-month periods ended December 28, 2008 and December 30, 2007.
 Three Months Ended
    
    
    Nine Months EndedDecember 28,
    
    
    December 30,
    
    
    December 28,
    
    
    December 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Amounts in thousands, except per share data)(Loss) income from continuing operations
    
    $
    (8,174
    )
    
    $
    1,236
    
    
    $
    (6,551
    )
    
    $
    2,861(Loss) income from discontinued operations
    
    
    (4
    )
    
    
    (12
    )
    
    
    27
    
    
    
    (110
    )Net (loss) income, basic and diluted
    
    $
    (8,178
    )
    
    $
    1,224
    
    
    $
    (6,524
    )
    
    $
    2,751Weighted average number of shares outstandingBasic
    
    
    9,265
    
    
    
    9,903
    
    
    
    9,353
    
    
    
    9,966Effect of dilutive securities
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    282Diluted
    
    
    9,265
    
    
    
    10,176
    
    
    
    9,353
    
    
    
    10,248(Loss) earnings per common shareBasicContinuing operations
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.29Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.28(Loss) earnings per common shareDilutedContinuing operations
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.28Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total
    
    $
    (0.88
    )
    
    $
    0.12
    
    
    $
    (0.70
    )
    
    $
    0.27
 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. Consistent with the guidance provided in Issue No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)
(EITF 01-9), by the Emerging Issues Task Force of the Financial Accounting Standards Board
(FASB), all such allowances are recorded as direct offsets to sales and such costs are accrued
commensurate with sales activities. When a customer requests deductions, the allowances are
reduced to reflect such payments.The Company analyzes the components of the allowances for customer deductions monthly and
adjusts the allowances to appropriate levels. The timing of the customer initiated funding
requests for advertising support can cause the net balance in the allowance account to fluctuate
from period to period. The timing of such funding requests should have no impact on the
consolidated statements of income since such costs are accrued commensurate with sales activity.Recently Issued Accounting Standards:In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements(SFAS No. 157),which defines fair value, establishes a framework for a
reporting entity to measure fair value in GAAP, and expands disclosure requirements related to
fair value measurements. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and for interim periods within those fiscal years. In
February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which delayed the
effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis, to fiscal years beginning after November 15, 2008. The Company has not yet
determined the impact that the adoption of SFAS No. 157 will have on its non-financial assets
and liabilities which are not recognized on a recurring basis; however, the Company does not
anticipate that it will materially impact the Companys consolidated financial statements.
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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities(SFAS No. 159). This statement provides companies an option to report
selected financial assets and liabilities at fair value. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, on
March 31, 2008, the Company adopted the provisions of SFAS No. 159. Upon adoption, the Company
did not elect the fair value option for any items within the scope of SFAS No. 159; therefore,
the adoption of SFAS No. 159 did not have an impact on the Companys consolidated financial
statements.In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations(SFAS No.
141(R)), which establishes principles and requirements for the reporting entity in a business
combination, including recognition and measurement in the financial statements of the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. This statement also establishes disclosure requirements to enable financial statement
users to evaluate the nature and financial effects of the business combination. SFAS No. 141(R)
applies prospectively to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited.2.
    
    Share-Based Compensation:The Company has two incentive stock plans, the 1995 Stock Option
Plan (1995 Plan) and the 2006 Omnibus Incentive Plan (2006 Plan). The Company granted
non-qualified stock options to employees and non-employee directors from the 1995 Plan through
the fiscal year ended April 2, 2006. In conjunction with the approval of the 2006 Plan by the
Companys stockholders at its Annual Meeting in August 2006, options may no longer be issued
from the 1995 Plan.The 2006 Plan is intended to attract and retain directors, officers and employees of the Company
and to motivate these persons to achieve performance objectives related to the Companys overall
goal of increasing stockholder value. The principal reason for adopting the 2006 Plan is to
ensure that the Company has a mechanism for long-term, equity-based incentive compensation to
directors, officers and employees. Awards granted under the 2006 Plan may be in the form of
qualified or non-qualified stock options, restricted stock, stock appreciation rights, long-term
incentive compensation units consisting of a combination of cash and shares of the 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 of directors, which selects
eligible employees and non-employee directors to participate in the 2006 Plan and determines the
type, amount and duration of individual awards.The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock
options under SFAS No. 123 (Revised 2004), Share-Based Payment(SFAS No. 123(R)), consistent
with the method previously used for pro forma disclosures under SFAS No. 123. The Company has
elected to use the modified prospective transition method permitted by SFAS No. 123(R). Under
the modified prospective transition method, SFAS No. 123(R) applies to stock options granted
on or after April 3, 2006 as well as the unvested portion of stock options that were
outstanding as of April 2, 2006, including those that are subsequently modified, repurchased
or cancelled. Under the modified prospective transition method, compensation expense
recognized during the fiscal year ended April 1, 2007 included compensation for all stock
options granted prior to, but not yet vested as of, April 2, 2006 in accordance with the
original provisions of SFAS No. 123. Prior periods were not restated to reflect the impact of
adopting SFAS No. 123(R).The Company recorded $160,000 and $542,000 of share-based compensation expense during the
three and nine-month periods ended December 28, 2008, respectively; and recorded $155,000 and
$432,000 of share-based compensation expense during the three and nine-month periods ended
December 30, 2007, respectively. No share-based compensation costs have been capitalized as
part of the cost of an asset as of December 28, 2008.Stock Options:The following table represents stock option activity for fiscal year 2009:
 Weighted-AverageExercise Price
    
    
    Number of OptionsOutstanding at March 30, 2008
    
    $
    2.15
    
    
    
    651,330Granted
    
    
    3.58
    
    
    
    200,000Exercised
    
    
    0.77
    
    
    
    (24,999
    )Forfeited
    
    
    3.77
    
    
    
    (3,000
    )Outstanding at December 28, 2008
    
    $
    2.53
    
    
    
    823,331Exercisable at December 28, 2008
    
    $
    2.01
    
    
    
    568,331
 7




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##### Table of Contents



During the quarter ended June 29, 2008, the Company granted 200,000 non-qualified stock options
to certain employees at the closing price of the Companys common stock on the date of grant,
which options vest over a two-year period, assuming continued service. The following
assumptions were used for the stock options granted during the quarter ended June 29, 2008:
 Dividend Yield
    
    
    Expected Volatility
    
    
    55.00
    %Risk free interest rate
    
    
    3.54
    %Expected life in years
    
    
    5.75Forfeiture rate
    
    
    5.00
    %
 For the three and nine-month periods ended December 28, 2008, the Company recognized
compensation expense associated with stock options as follows (in thousands):
 Three-month period
    
    Nine-month periodCost of
    
    Marketing &
    
    
    
    
    
    Cost of
    
    Marketing &Products
    
    Administrative
    
    Total
    
    Products
    
    Administrative
    
    TotalSold
    
    Expenses
    
    Expense
    
    Sold
    
    Expenses
    
    ExpenseOptions granted in fiscal year
2007
    
    $
    
    
    
    $
    (2
    )
    
    $
    (2
    )
    
    $
    23
    
    
    $
    71
    
    
    $
    94Options granted in fiscal year
2008
    
    
    9
    
    
    
    25
    
    
    
    34
    
    
    
    29
    
    
    
    74
    
    
    
    103Options granted in fiscal year
2009
    
    
    10
    
    
    
    31
    
    
    
    41
    
    
    
    25
    
    
    
    75
    
    
    
    100Total stock option compensation
    
    $
    19
    
    
    $
    54
    
    
    $
    73
    
    
    $
    77
    
    
    $
    220
    
    
    $
    297
 For the three and nine-month periods ended December 30, 2007, the Company recognized
compensation expense associated with stock options as follows (in thousands):
 Three-month period
    
    Nine-month periodCost of
    
    Marketing &
    
    
    
    
    
    Cost of
    
    Marketing &Products
    
    Administrative
    
    Total
    
    Products
    
    Administrative
    
    TotalSold
    
    Expense
    
    Expense
    
    Sold
    
    Expense
    
    ExpenseOptions granted in fiscal year 2007
    
    $
    12
    
    
    $
    36
    
    
    $
    48
    
    
    $
    38
    
    
    $
    121
    
    
    $
    159Options granted in fiscal year 2008
    
    
    9
    
    
    
    24
    
    
    
    33
    
    
    
    14
    
    
    
    36
    
    
    
    50Unvested options at April 2, 2007
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2Total stock option compensation
    
    $
    21
    
    
    $
    61
    
    
    $
    82
    
    
    $
    52
    
    
    $
    159
    
    
    $
    211
 Non-vested Stock:The fair value of non-vested stock granted is determined based on the number
of shares granted multiplied by the closing price of the Companys common stock on the date of
grant. All non-vested stock granted under the 2006 Plan vests based upon continued service.On August 25, 2006, the Company granted 375,000 shares of non-vested stock to certain employees
with a fair value of $3.15 as of the date of the stock grants. These shares have four-year
cliff vesting. The Company recognized $73,000 and $221,000 of compensation expense related to
these non-vested stock grants during each of the three and nine-month periods ended December 28,
2008 and December 30, 2007, respectively, which was included in marketing and administrative
expenses in the
accompanying consolidated statements of income. The deferred amount of these non-vested stock
grants is being amortized by monthly charges to earnings over the remaining portion of the
vesting period.At December 28, 2008, the amount of unrecognized compensation expense related to these stock
grants was $493,000. The amount of compensation expense related to non-vested stock grants to
be recognized in future periods will be affected by any future non-vested stock grants and by
the separation from the Company of any of these employees whose stock grants are unvested as of
such employees separation date.
 8




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##### Table of Contents



During the quarter ended September 28, 2008, the Company granted 30,000 shares of non-vested
stock to its non-employee directors with a fair value of $3.87 as of the date of the stock
grants. These shares vest over a two-year period. The Company recognized $14,000 and $24,000
of compensation expense related to these non-vested stock grants during the three and nine-month
periods ended December 30, 2008, which was included in marketing and administrative expenses in
the accompanying consolidated statements of income. The deferred amount of these non-vested
stock grants is being amortized by monthly charges to earnings over the remaining portion of the
vesting period.At December 28, 2008, the amount of unrecognized compensation expense related to these stock
grants was $92,000. The amount of compensation expense related to non-vested stock grants to be
recognized in future periods will be affected by any future non-vested stock grants and by the
discontinuance of service on the Companys board of any of these non-employee directors whose
stock grants are unvested as of the date of such non-employee directors discontinued service.3.
    
    Inventory:Major classes of inventory were as follows (in thousands):
 December 28,
    
    
    March 30,2008
    
    
    2008Raw Materials
    
    $
    58
    
    
    $
    40Finished Goods
    
    
    14,671
    
    
    
    13,737Total inventory
    
    $
    14,729
    
    
    $
    13,777
 Inventory is recorded net of reserves for inventories classified as irregular or discontinued of
$0.4 million at December 28, 2008 and $0.3 million at March 30, 2008.4.
    
    Financing ArrangementsFactoring Agreement:The Company assigns the majority of its trade accounts receivable to a
commercial factor. Under the terms of the factoring agreement, which expires in July 2010,
the factor remits payments to the Company on the average due date of each group of invoices
assigned. If a customer fails to pay the factor on the due date, the Company is charged
interest at prime less 1.0%, which was 2.25% at December 28, 2008, until payment is received.
The factor bears credit losses with respect to assigned accounts receivable from approved
customers that are within approved credit limits. The Company bears losses resulting from
returns, allowances, claims and discounts. The Companys factor may at any time terminate or
limit its approval of shipments to a particular customer. If such a termination occurs, the
Company must either assume the credit risks for shipments after the date of such termination
or cease shipments to such customer.Long-term debt:At December 28, 2008 and March 30, 2008, long term debt consisted of (in
thousands):
 December 28,
    
    
    March 30,2008
    
    
    2008Revolving line of credit
    
    $
    15,448
    
    
    $
    17,383Term loan
    
    
    2,292
    
    
    
    4,167Non-interest bearing notes
    
    
    4,000
    
    
    
    4,000Original issue discount
    
    
    (557
    )
    
    
    (739
    )Capital leases
    
    
    
    
    
    
    421,183
    
    
    
    24,815Less current maturities
    
    
    2,292
    
    
    
    2,504$
    18,891
    
    
    $
    22,311
 The Companys credit facilities at December 28, 2008 consisted of the following:Revolving Line of Creditof up to $26 million, including a $1.5 million sub-limit for letters
of credit, with an interest rate of prime minus 1.00% (2.25% at December 28, 2008) for base
rate borrowings or LIBOR plus 2.25% (4.15% at December 28,
2008), maturing on July 11, 2010 and secured by a first lien on all assets of the Company.
The Company had $4.1 million available under the revolving line of credit based on eligible
accounts receivable and inventory balances as of December 28, 2008. As of December 28, 2008,
letters of credit of $0.5 million were outstanding against the $1.5 million sub-limit for
letters of credit.
 9




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##### Table of Contents



Term Loan
 Subordinated Notes
  Fiscal
    
    Revolver
    
    
    Term Loan
    
    
    Sub Notes
    
    
    Total2009
    
    
    
    
    
    $
    625
    
    
    
    
    
    
    $
    6252010
    
    
    
    
    
    
    1,667
    
    
    
    
    
    
    
    1,6672011
    
    $
    15,448
    
    
    
    
    
    
    $
    2,000
    
    
    
    17,4482012
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000Total
    
    $
    15,448
    
    
    $
    2,292
    
    
    $
    4,000
    
    
    $
    21,740
 Acquisitions
 Kimberly Grant:
  Gross
    
    
    Estimated
    
    
    
    
    
    
    Aggregate Amortization ExpenseCarrying
    
    
    Useful
    
    
    Accumulated
    
    
    Periods Ended December 28, 2008Amount
    
    
    Life
    
    
    Amortization
    
    
    Three-month period
    
    
    Nine-month periodTradename
    
    $
    466,387
    
    
    15 years
    
    $
    62,191
    
    
    $
    7,773
    
    
    $
    23,319Existing designs
    
    
    35,924
    
    
    1 year
    
    
    35,924
    
    
    
    
    
    
    
    Non-compete
    
    
    97,689
    
    
    15 years
    
    
    12,981
    
    
    
    1,629
    
    
    
    4,887Totals
    
    $
    600,000
    
    
    
    
    
    
    $
    111,096
    
    
    $
    9,402
    
    
    $
    28,206
  Springs:
 10




---



##### Table of Contents



Gross
    
    
    Estimated
    
    
    
    
    
    
    Aggregate Amortization ExpenseCarrying
    
    
    Useful
    
    
    Accumulated
    
    
    Periods Ended December 28, 2008Amount
    
    
    Life
    
    
    Amortization
    
    
    Three-month period
    
    
    Nine-month periodLicenses & existing
designs
    
    $
    1,655,188
    
    
    2 years
    
    $
    965,528
    
    
    $
    206,898
    
    
    $
    620,694Licenses & future
designs
    
    
    1,846,822
    
    
    4 years
    
    
    538,672
    
    
    
    115,425
    
    
    
    346,275Non-compete
    
    
    114,981
    
    
    4 years
    
    
    33,551
    
    
    
    7,185
    
    
    
    21,555Customer relationships
    
    
    3,759,288
    
    
    10 years
    
    
    443,714
    
    
    
    93,793
    
    
    
    284,671Totals
    
    $
    7,376,279
    
    
    
    
    
    
    $
    1,981,465
    
    
    $
    423,301
    
    
    $
    1,273,195
    Three-Month
    
    
    Nine-MonthPeriod Ended
    
    
    Period EndedDecember 30, 2007
    
    
    December 30, 2007Net sales
    
    $
    20,434
    
    
    $
    64,923Total operating expenses
    
    
    18,586
    
    
    
    61,059Income from continuing operations
    
    $
    1,129
    
    
    $
    2,086Income from continuing operations per shareBasic
    
    $
    0.11
    
    
    $
    0.21Diluted
    
    $
    0.11
    
    
    $
    0.20
 11




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##### Table of Contents



Discontinued Operations:
 Treasury Stock:
  
       Three-month period ended
    
    Nine-month period endedDecember 28, 2008
    
    December 30, 2007
    
    $ change
    
    % change
    
    December 28, 2008
    
    December 30, 2007
    
    change
    
    changeNet sales by categoryBedding, blankets and accessories
    
    $
    16,305
    
    
    $
    14,770
    
    
    $
    1,535
    
    
    
    10.4
    %
    
    $
    52,683
    
    
    $
    38,601
    
    
    $
    14,082
    
    
    
    36.5
    %Bibs and bath
    
    
    3,011
    
    
    
    3,661
    
    
    
    (650
    )
    
    
    -17.8
    %
    
    
    10,147
    
    
    
    12,301
    
    
    
    (2,154
    )
    
    
    -17.5
    %Total net sales
    
    
    19,316
    
    
    
    18,431
    
    
    
    885
    
    
    
    4.8
    %
    
    
    62,830
    
    
    
    50,902
    
    
    
    11,928
    
    
    
    23.4
    %Cost of products sold
    
    
    15,519
    
    
    
    13,853
    
    
    
    1,666
    
    
    
    12.0
    %
    
    
    49,940
    
    
    
    38,055
    
    
    
    11,885
    
    
    
    31.2
    %Gross profit
    
    
    3,797
    
    
    
    4,578
    
    
    
    (781
    )
    
    
    -17.1
    %
    
    
    12,890
    
    
    
    12,847
    
    
    
    43
    
    
    
    0.3
    %% of net sales
    
    
    19.7
    %
    
    
    24.8
    %
    
    
    
    
    
    
    
    
    
    
    20.5
    %
    
    
    25.2
    %Marketing and administrative expenses
    
    
    2,217
    
    
    
    2,584
    
    
    
    (367
    )
    
    
    -14.2
    %
    
    
    8,096
    
    
    
    7,960
    
    
    
    136
    
    
    
    1.7
    %% of net sales
    
    
    11.5
    %
    
    
    14.0
    %
    
    
    
    
    
    
    
    
    
    
    12.9
    %
    
    
    15.6
    %Goodwill impairment charge
    
    
    9,000
    
    
    
    
    
    
    
    9,000
    
    
    
    100.0
    %
    
    
    9,000
    
    
    
    
    
    
    
    9,000
    
    
    
    100.0
    %Interest expense
    
    
    265
    
    
    
    244
    
    
    
    21
    
    
    
    8.6
    %
    
    
    900
    
    
    
    475
    
    
    
    425
    
    
    
    89.5
    %Other income (expense)
    
    
    37
    
    
    
    178
    
    
    
    (141
    )
    
    
    -79.2
    %
    
    
    87
    
    
    
    154
    
    
    
    (67
    )
    
    
    -43.5
    %Income tax expense
    
    
    526
    
    
    
    692
    
    
    
    (166
    )
    
    
    -24.0
    %
    
    
    1,532
    
    
    
    1,705
    
    
    
    (173
    )
    
    
    -10.1
    %(Loss) income from continuing operations after taxes
    
    
    (8,174
    )
    
    
    1,236
    
    
    
    (9,410
    )
    
    
    -761.3
    %
    
    
    (6,551
    )
    
    
    2,861
    
    
    
    (9,412
    )
    
    
    -329.0
    %Discontinued operations  net of taxes
    
    
    (4
    )
    
    
    (12
    )
    
    
    8
    
    
    
    -66.7
    %
    
    
    27
    
    
    
    (110
    )
    
    
    137
    
    
    
    -124.5
    %Net (loss) income
    
    
    (8,178
    )
    
    
    1,224
    
    
    
    (9,402
    )
    
    
    -768.1
    %
    
    
    (6,524
    )
    
    
    2,751
    
    
    
    (9,275
    )
    
    
    -337.2
    %% of net sales
    
    
    -42.3
    %
    
    
    6.6
    %
    
    
    
    
    
    
    
    
    
    
    -10.4
    %
    
    
    5.4
    %
 12




---



##### Table of Contents



Net Sales:
    Gross Profit:
  Marketing and Administrative Expenses
  Goodwill Impairment Charge:
 13




---



##### Table of Contents



Interest Expense:
 Income Tax Expense:
        14




---



##### Table of Contents



The Companys business is impacted by general economic conditions and related uncertainties
affecting markets in which the Company operates.
  The Company could become obligated to record a further impairment charge related to its goodwill.
  15




---



##### Table of Contents



Total Number of
    
    Approximate DollarShares Purchased as
    
    Value of Shares ThatTotal Number of
    
    
    
    
    
    Part of Publicly
    
    May Yet be PurchasedShares
    
    Average Price
    
    Announced Plans or
    
    Under the Plans orPeriod
    
    Purchased
    
    Paid Per Share (1)
    
    Programs
    
    ProgramsSeptember 29, 2008
through November 2,
2008
    
    
    100,000
    (2)
    
    $
    2.68
    
    
    
    0
    
    
    $
    0November 3, 2008
through November
30, 2008
    
    
    109,755
    (3)
    
    $
    2.69
    
    
    
    0
    
    
    $
    0December 1, 2008 through
December 28, 2008
    
    
    
    
    
    $
    
    
    
    
    0
    
    
    $
    0Total
    
    
    209,755
    
    
    $
    2.69
    
    
    
    0
    
    
    $
    0
 
 (1)
    
    Includes broker fees of $0.03 per share.(2)
    
    These shares of common stock were repurchased by the
Company in a privately-negotiated transaction on October
14, 2008.(3)
    
    These shares of common stock were repurchased by the
Company in a privately-negotiated transaction on November
3, 2008. 
   
   
   16




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##### Table of Contents



ExhibitNo.
    
    Exhibit10.1
    
    Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (1)10.2
    
    First Amendment to Employment Agreement dated November 6, 2008 by and between the Company and
E. Randall Chestnut (2)10.3
    
    First Amendment to Amended and Restated Severance Protection Agreement dated November 6, 2008
by and between the Company and E. Randall Chestnut (2)10.4
    
    First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Amy Vidrine Samson (2)10.5
    
    First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Nanci Freeman (2)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (3)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (3)32.1
    
    Section 1350 Certification by the Companys Chief Executive Officer (3)32.2
    
    Section 1350 Certification by the Companys Chief Financial Officer (3)
 
 (1)
    
    Incorporated herein by reference to Registrants Current Report on Form 8-K/A
dated November 7, 2008.(2)
    
    Incorporated herein by reference to Registrants Current Report on Form 8-K
dated November 7, 2008.(3)
    
    Filed herewith.   CROWN CRAFTS, INC.Date:  February 11, 2009
    /s/ Olivia W. ElliottOLIVIA W. ELLIOTTChief Financial Officer
(duly authorized signatory and
Principal Financial Officer) 17




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##### Table of Contents



Index to Exhibits
 ExhibitNo.
    
    Exhibit10.1
    
    Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (1)10.2
    
    First Amendment to Employment Agreement dated November 6, 2008 by and between the Company and
E. Randall Chestnut (2)10.3
    
    First Amendment to Amended and Restated Severance Protection Agreement dated November 6, 2008
by and between the Company and E. Randall Chestnut (2)10.4
    
    First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Amy Vidrine Samson (2)10.5
    
    First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and
between the Company and Nanci Freeman (2)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (3)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (3)32.1
    
    Section 1350 Certification by the Companys Chief Executive Officer (3)32.2
    
    Section 1350 Certification by the Companys Chief Financial Officer (3)
 
 (1)
    
    Incorporated herein by reference to Registrants Current Report on Form 8-K/A
dated November 7, 2008.(2)
    
    Incorporated herein by reference to Registrants Current Report on Form 8-K dated
November 7, 2008.(3)
    
    Filed herewith. 18