##### 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 September 28, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 1-7604
 CROWN CRAFTS, INC.
 
 Delaware
    
    58-0678148(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
  
  
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



PART I  FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 4. Controls And Procedures
    
    
    14PART II  OTHER INFORMATION
    
    
    14Item 1. Legal Proceedings
    
    
    14Item 1A. Risk Factors
    
    
    14Item 3. Defaults Upon Senior Securities
    
    
    14Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15Item 5. Other Information
    
    
    15Item 6. Exhibits
    
    
    15SIGNATURES
    
    
    16INDEX TO EXHIBITS
    
    
    17EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



September 28, 2008(Unaudited)
    
    
    March 30, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,096
    
    
    $
    7,930Accounts receivable (net of allowances of $1,413 at September 28, 2008 and $1,268 at March 30, 2008):Due from factor
    
    
    15,136
    
    
    
    16,081Other
    
    
    3,391
    
    
    
    2,197Inventories, net
    
    
    14,884
    
    
    
    13,777Prepaid expenses
    
    
    818
    
    
    
    1,064Assets held for sale
    
    
    644
    
    
    
    663Deferred income taxes
    
    
    781
    
    
    
    885Total current assets
    
    
    47,750
    
    
    
    42,597Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    203
    
    
    
    203Machinery and equipment
    
    
    2,357
    
    
    
    2,241Furniture and fixtures
    
    
    755
    
    
    
    7423,315
    
    
    
    3,186Less accumulated depreciation
    
    
    2,754
    
    
    
    2,597Property, plant and equipment  net
    
    
    561
    
    
    
    589Other assets:Goodwill, net
    
    
    22,884
    
    
    
    22,884Intangible assets, net
    
    
    6,352
    
    
    
    7,276Other
    
    
    190
    
    
    
    131Total other assets
    
    
    29,426
    
    
    
    30,291Total Assets
    
    $
    77,737
    
    
    $
    73,477LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,688
    
    
    $
    5,614Accrued wages and benefits
    
    
    905
    
    
    
    1,179Accrued royalties
    
    
    1,671
    
    
    
    1,023Other accrued liabilities
    
    
    502
    
    
    
    711Current maturities of long-term debt
    
    
    2,500
    
    
    
    2,504Total current liabilities
    
    
    11,266
    
    
    
    11,031Non-current liabilities:Long-term debt
    
    
    25,018
    
    
    
    22,311Deferred income taxes
    
    
    101
    
    
    
    402Total non-current liabilities
    
    
    25,119
    
    
    
    22,713Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock  $0.01 par value per share; Authorized 74,000,000 shares; Issued 10,044,941 shares at
September 28, 2008 and 10,039,942 shares at March 30, 2008
    
    
    100
    
    
    
    100Additional paid-in capital
    
    
    39,634
    
    
    
    39,247Treasury
stock  at cost   679,296 shares at September 28, 2008 and 562,647 shares at March 30, 2008
    
    
    (2,493
    )
    
    
    (2,071
    )Retained earnings
    
    
    4,111
    
    
    
    2,457Total shareholders equity
    
    
    41,352
    
    
    
    39,733Total Liabilities and Shareholders Equity
    
    $
    77,737
    
    
    $
    73,477
 See notes to unaudited condensed consolidated financial statements.
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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    23,759
    
    
    $
    17,111
    
    
    $
    43,514
    
    
    $
    32,471Cost of products sold
    
    
    18,904
    
    
    
    13,148
    
    
    
    34,421
    
    
    
    24,202Gross profit
    
    
    4,855
    
    
    
    3,963
    
    
    
    9,093
    
    
    
    8,269Marketing and administrative expenses
    
    
    2,973
    
    
    
    2,972
    
    
    
    5,879
    
    
    
    5,376Income from operations
    
    
    1,882
    
    
    
    991
    
    
    
    3,214
    
    
    
    2,893Other income (expense):Interest expense
    
    
    (308
    )
    
    
    (119
    )
    
    
    (635
    )
    
    
    (231
    )Other  net
    
    
    38
    
    
    
    11
    
    
    
    50
    
    
    
    (24
    )Income before income taxes
    
    
    1,612
    
    
    
    883
    
    
    
    2,629
    
    
    
    2,638Income tax expense
    
    
    614
    
    
    
    337
    
    
    
    1,006
    
    
    
    1,013Income from continuing operations after income taxes
    
    
    998
    
    
    
    546
    
    
    
    1,623
    
    
    
    1,625Income (loss) from discontinued operations  net of income taxes
    
    
    37
    
    
    
    (5
    )
    
    
    31
    
    
    
    (98
    )Net income
    
    $
    1,035
    
    
    $
    541
    
    
    $
    1,654
    
    
    $
    1,527Weighted average shares
outstanding  basic
    
    
    9,363
    
    
    
    9,990
    
    
    
    9,389
    
    
    
    9,997Weighted average shares
outstanding  diluted
    
    
    9,635
    
    
    
    10,285
    
    
    
    9,662
    
    
    
    10,295Basic earnings per share:Income from continuing operations
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.16Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total basic earnings per share
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.15Diluted earnings per share:Income from continuing operations
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.17
    
    
    $
    0.16Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total diluted earnings per share
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.17
    
    
    $
    0.15
 See notes to unaudited condensed consolidated financial statements.
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Six Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007Operating activities:Net income
    
    $
    1,654
    
    
    $
    1,527Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation of property, plant and equipment
    
    
    161
    
    
    
    171Amortization of intangibles
    
    
    877
    
    
    
    37Deferred income taxes
    
    
    (197
    )
    
    
    787(Gain) loss on sale of property, plant and equipment
    
    
    (66
    )
    
    
    8Discount accretion
    
    
    120
    
    
    
    112Stock-based compensation
    
    
    382
    
    
    
    277Changes in assets and liabilities:Accounts receivable
    
    
    (191
    )
    
    
    898Inventories, net
    
    
    (1,106
    )
    
    
    (2,846
    )Prepaid expenses
    
    
    245
    
    
    
    316Other assets
    
    
    (70
    )
    
    
    11Accounts payable
    
    
    74
    
    
    
    2,262Accrued liabilities
    
    
    165
    
    
    
    45Net cash provided by operating activities
    
    
    2,048
    
    
    
    3,605Investing activities:Capital expenditures
    
    
    (135
    )
    
    
    (92
    )Proceeds from disposition of assets
    
    
    86
    
    
    
    14Net cash used in investing activities
    
    
    (49
    )
    
    
    (78
    )Financing activities:Payments on long-term debt
    
    
    (1,254
    )
    
    
    (11
    )Borrowings (repayments) under revolving line of credit, net
    
    
    3,837
    
    
    
    (2,742
    )Purchase of treasury stock
    
    
    (422
    )
    
    
    (335
    )Issuance of common stock
    
    
    6
    
    
    
    13Net cash provided by (used in) financing activities
    
    
    2,167
    
    
    
    (3,075
    )Net increase in cash and cash equivalents
    
    
    4,166
    
    
    
    452Cash and cash equivalents at beginning of period
    
    
    7,930
    
    
    
    33Cash and cash equivalents at end of period
    
    $
    12,096
    
    
    $
    485Supplemental cash flow information:Income taxes paid
    
    $
    1,218
    
    
    $
    382Interest paid
    
    
    439
    
    
    
    123Noncash investing activity:Adjustment 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 September 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 six-month periods ended September 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.
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 reviews the carrying value of goodwill annually and sooner if facts and
circumstances suggest that the asset has been impaired. Impairment of goodwill and write-downs,
if any, are measured based on estimates of future cash flows. Goodwill of $22.9 million is
stated net of accumulated amortization of $6.4 million at September 28, 2008 and March 30, 2008.
On April 1, 2002, the Company implemented Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets. As a result, the Company discontinued amortizing
goodwill but continued to amortize other long-lived intangible assets. In lieu of amortization,
the Company is required to perform an annual impairment review of its goodwill. The Company has
determined that the fair value of its goodwill exceeded the recorded value at April 2, 2007 and
March 31, 2008.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
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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 September 28, 2008 include tax
years ended April 3, 2005, 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 $3.0
million and $1.8 million for the six-month periods ended September 28, 2008 and September 30,
2007, respectively.Earnings Per Share:Earnings per share are calculated in accordance with SFAS No. 128,
Earnings per Share, which requires dual presentation of basic and diluted earnings per share
on the face of the consolidated statements of income for all entities with complex capital
structures. Earnings per common share are based on the weighted average number of shares
outstanding during the period. Basic and diluted weighted average shares are calculated in
accordance with the treasury stock method, which assumes that the proceeds from the exercise
of all options 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.The following table sets forth the computation of basic and diluted net income per common
share for the three and six-month periods ended September 28, 2008 and September 30, 2007.
 Three Months Ended
    
    
    Six Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Amounts in thousands, except per share data)Income from continuing operations
    
    $
    998
    
    
    $
    546
    
    
    $
    1,623
    
    
    $
    1,625Income (loss) from discontinued operations
    
    
    37
    
    
    
    (5
    )
    
    
    31
    
    
    
    (98
    )Net income, basic and diluted
    
    $
    1,035
    
    
    $
    541
    
    
    $
    1,654
    
    
    $
    1,527Weighted average number of shares outstandingBasic
    
    
    9,363
    
    
    
    9,990
    
    
    
    9,389
    
    
    
    9,997Effect of dilutive securities
    
    
    272
    
    
    
    295
    
    
    
    273
    
    
    
    298Diluted
    
    
    9,635
    
    
    
    10,285
    
    
    
    9,662
    
    
    
    10,295Earnings per common shareBasicContinuing operations
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.16Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.15Earnings per common shareDilutedContinuing operations
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.17
    
    
    $
    0.16Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Total
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.17
    
    
    $
    0.15
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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.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(R), consistent with the method previously used for pro forma
disclosures under SFAS No. 123. The Company elected to use the
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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 $217,000 and $382,000 of share-based compensation expense during the three
and six-month periods ended September 28, 2008, which affected basic and diluted earnings per
share by $0.02 and $0.04, respectively. The Company recorded $152,000 and $277,000 of
share-based compensation expense during the three and six-month periods ended September 30,
2007, which affected basic and diluted earnings per share by $0.02 and $0.03, respectively. No
share-based compensation costs have been capitalized as part of the cost of an asset as of
September 28, 2008.Stock Options:The following table represents stock option activity for fiscal year 2009:
 Weighted-Average
    
    
    Number of OptionsExercise Price
    
    
    OutstandingOutstanding at March 30, 2008
    
    $
    2.15
    
    
    
    651,330Granted
    
    
    3.58
    
    
    
    200,000Exercised
    
    
    3.57
    
    
    
    (4,999
    )Forfeited
    
    
    3.77
    
    
    
    (3,000
    )Outstanding at September 28,
2008
    
    $
    2.49
    
    
    
    843,331Exercisable at September 28,
2008
    
    $
    1.97
    
    
    
    588,331
 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 six-month periods ended September 28, 2008, the Company recognized
compensation expense associated with stock options as follows (in thousands):
 Three-month period
    
    
    Six-month periodCost of
    
    
    Marketing &
    
    
    
    
    
    
    Cost of
    
    
    Marketing &Products
    
    
    Administrative
    
    
    Total
    
    
    Products
    
    
    Administrative
    
    
    TotalSold
    
    
    Expenses
    
    
    Expense
    
    
    Sold
    
    
    Expenses
    
    
    ExpenseOptions granted in fiscal year
2007
    
    $
    12
    
    
    $
    36
    
    
    $
    48
    
    
    $
    23
    
    
    $
    73
    
    
    $
    96Options granted in fiscal year
2008
    
    
    11
    
    
    
    26
    
    
    
    37
    
    
    
    20
    
    
    
    49
    
    
    
    69Options granted in fiscal year
2009
    
    
    12
    
    
    
    37
    
    
    
    49
    
    
    
    15
    
    
    
    44
    
    
    
    59Unvested options at April 3, 2006
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Total stock option compensation
    
    $
    35
    
    
    $
    98
    
    
    $
    133
    
    
    $
    58
    
    
    $
    166
    
    
    $
    224
 7




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##### Table of Contents



For the three and six-month periods ended September 30, 2007, the Company recognized
compensation expense associated with stock options as follows (in thousands):
 Three-month period
    
    Six-month periodCost of
    
    Marketing &
    
    
    
    
    
    Cost of
    
    Marketing &Products
    
    Administrative
    
    Total
    
    Products
    
    Administrative
    
    TotalSold
    
    Expense
    
    Expense
    
    Sold
    
    Expense
    
    ExpenseOption grants in fiscal year 2007
    
    $
    15
    
    
    $
    46
    
    
    $
    61
    
    
    $
    26
    
    
    $
    85
    
    
    $
    111Option grants in fiscal year 2008
    
    
    5
    
    
    
    12
    
    
    
    17
    
    
    
    5
    
    
    
    12
    
    
    
    17Unvested options at April 3, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Total stock option compensation
    
    $
    20
    
    
    $
    58
    
    
    $
    78
    
    
    $
    31
    
    
    $
    98
    
    
    $
    129
 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 $74,000 and $148,000 of compensation expense related to these
non-vested stock grants during each of the three and six-month periods ended September 28, 2008
and September 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 September 28, 2008, the amount of unrecognized compensation expense related to these stock
grants amounted to $566,000. 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.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 $10,000 of compensation
expense related to these non-vested stock grants during the quarter ended September 28, 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 September 28, 2008, the amount of unrecognized compensation expense related to these stock
grants amounted to $106,000. 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):
 September 28, 2008
    
    
    March 30, 2008Raw Materials
    
    $
    42
    
    
    $
    40Finished Goods
    
    
    14,842
    
    
    
    13,737Total inventory
    
    $
    14,884
    
    
    $
    13,777
 Inventory is recorded net of reserves for inventories classified as irregular or discontinued of
$0.4 million at September 28, 2008 and $0.3 million at March 30, 2008.
 8




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##### Table of Contents



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, the factor remits payments to the
Company on the average due date of each group of invoices assigned. The factor bears credit
losses with respect to assigned accounts receivable that are within approved credit limits. The
Company bears losses resulting from returns, allowances, claims and discounts.Long-term debt:At September 28, 2008 and March 30, 2008, long term debt consisted of (in
thousands):
 September 28,
    
    
    March 30,2008
    
    
    2008Revolving line of credit
    
    $
    21,220
    
    
    $
    17,383Term loan
    
    
    2,917
    
    
    
    4,167Non-interest bearing notes
    
    
    4,000
    
    
    
    4,000Original issue discount
    
    
    (619
    )
    
    
    (739
    )Capital leases
    
    
    
    
    
    
    427,518
    
    
    
    24,815Less current maturities
    
    
    2,500
    
    
    
    2,504$
    25,018
    
    
    $
    22,311
 The Companys credit facilities at September 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% (4.00% at September 28, 2008) for base rate
borrowings or LIBOR plus 2.25% (4.74% at September 28, 2008), maturing on July 11, 2010 and
secured by a first lien on all assets of the Company. The Company had $1.7 million available
under the revolving line of credit based on eligible accounts receivable and inventory balances
as of September 28, 2008. As of September 28, 2008, letters of credit of $0.5 million were
outstanding against the $1.5 million sub-limit for letters of credit.The financing agreement for the $26 million revolving line of credit contains usual and
customary covenants for transactions of this type, including limitations on other indebtedness,
liens, transfers of assets, investments and acquisitions, merger or consolidation transactions,
dividends, transactions with affiliates and changes in or amendments to the organizational
documents for the Company and its subsidiaries. The Company was in compliance with these
covenants as of September 28, 2008.Term Loanof an original amount of $5 million, with an interest rate of prime plus 0.5% (5.50%
at September 28, 2008) and requiring equal monthly installments of principal until final
maturity on November 1, 2009.Subordinated Notesof $4 million. The notes do not bear interest and are due in two equal
installments of $2 million each, the first of which is payable on July 11, 2010, and the second
of which is payable on July 11, 2011. The original issue discount of $1.1 million on this
non-interest bearing obligation at a market interest rate of 7.25% is being amortized over the
life of the notes. The remaining unamortized discount of $619,000 is included in the
consolidated balance sheet as of September 28, 2008.Minimum annual maturities as of September 28, 2008 are as follows (in thousands):
 Fiscal
    
    Revolver
    
    
    Term Loan
    
    
    Sub Notes
    
    
    Total2009
    
    
    
    
    
    $
    1,250
    
    
    
    
    
    
    $
    1,2502010
    
    
    
    
    
    
    1,667
    
    
    
    
    
    
    
    1,6672011
    
    $
    21,220
    
    
    
    
    
    
    $
    2,000
    
    
    
    23,2202012
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000Total
    
    $
    21,220
    
    
    $
    2,917
    
    
    $
    4,000
    
    
    $
    28,137
 9




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##### Table of Contents



5.
    
    AcquisitionsKimberly Grant:On December 29, 2006, Crown Crafts Infant Products, Inc. (CCIP), a
wholly-owned subsidiary of the Company, acquired substantially all of the assets of Kimberly
Grant, Inc., a designer of various infant and toddler products. The purchase price consisted of
$550,000 paid at closing and $50,000 paid upon renewal of the acquired Kimberly Grant
trademark.The assets acquired were limited to certain intangible assets, the fair values of which were
determined by the Company. The Companys resulting allocation of the purchase price, the
estimated useful life of the assets acquired, the accumulated amortization and the amortization
expense as of and for the three and six-month periods ended September 28, 2008 is as follows:
 Gross
    
    Estimated
    
    
    
    
    
    Aggregate Amortization ExpenseCarrying
    
    Useful
    
    Accumulated
    
    Periods Ended September 28, 2008Amount
    
    Life
    
    Amortization
    
    Three-month period
    
    Six-month periodTradename
    
    $
    466,387
    
    
    15 years
    
    $
    54,418
    
    
    $
    7,773
    
    
    $
    15,546Existing designs
    
    
    35,924
    
    
    1 year
    
    
    35,924
    
    
    
    
    
    
    
    Non-compete
    
    
    97,689
    
    
    15 years
    
    
    11,352
    
    
    
    1,629
    
    
    
    3,258Totals
    
    $
    600,000
    
    
    
    
    
    
    $
    101,694
    
    
    $
    9,402
    
    
    $
    18,804
 CCIP recorded $18,000 and $37,000 of amortization expense related to the intangible assets
acquired from Kimberly Grant, Inc. during the three and six-month periods ended September 30,
2007.Springs:On November 5, 2007, CCIP acquired certain assets from, and assumed certain liabilities
of, Springs Global US, Inc. (Springs Global) with respect to the baby products line of Springs
Global. The purchase price consisted initially of $12.4 million for the inventory and certain
intangible assets, which was subject to an adjustment pending the completion of a final valuation
of the inventory purchased. Upon the completion of this valuation, $1.4 million was returned to
the Company for a net purchase price of $11.0 million. During the three-month period ended
September 28, 2008, the resolution of the final pre-acquisition contingency resulted in a further
reduction to the purchase price of $0.1 million. The Company also capitalized $0.4 million of
direct costs associated with this acquisition for a total capitalized acquisition cost of $11.3
million.The fair values of the intangible assets acquired were determined by the Company. The Companys
allocation of the intangible assets acquired, their estimated useful life, the accumulated
amortization and the amortization expense as of and for the three and six-month periods ended
September 28, 2008 is as follows:
 Gross
    
    Estimated
    
    
    
    
    
    Aggregate Amortization ExpenseCarrying
    
    Useful
    
    Accumulated
    
    Periods Ended September 28, 2008Amount
    
    Life
    
    Amortization
    
    Three-month period
    
    Six-month periodLicenses & existing
designs
    
    $
    1,655,188
    
    
    2 years
    
    $
    758,630
    
    
    $
    206,898
    
    
    $
    413,796Licenses & future
designs
    
    
    1,846,822
    
    
    4 years
    
    
    423,247
    
    
    
    115,425
    
    
    
    230,850Non-compete
    
    
    114,981
    
    
    4 years
    
    
    26,366
    
    
    
    7,185
    
    
    
    14,370Customer relationships
    
    
    3,759,288
    
    
    10 years
    
    
    349,921
    
    
    
    95,439
    
    
    
    190,878Totals
    
    $
    7,376,279
    
    
    
    
    
    
    $
    1,558,164
    
    
    $
    424,947
    
    
    $
    849,894
 Amortization expense related to these acquisitions affected basic and diluted earnings per share
by $0.05 and $0.09 for the three and six-month periods ended September 28, 2008, respectively.The Springs Global baby products line represented less than 2% of the total revenues of Springs
Global, and separate financial statements for the baby products line were not historically
prepared. Nonetheless, in connection with the acquisition, the management of Springs Global
furnished to the Company abbreviated statements of revenues and direct expenses with respect to
the baby products line of Springs Global for the nine-month period ended September 29, 2007
(unaudited) and the twelve-month period ended December 30, 2006. These statements excluded
charges for corporate overhead, interest expense and income taxes, but included estimates of
charges for customer service, cash management, purchasing, accounting and information technology
services that were directly charged to the baby products line and/or allocated to it based on a
relative percentage of sales in the baby products line to the total sales of Springs Global. The
periods covered by these statements are not coterminous with the Companys fiscal periods.
Additionally, such charges and allocations are not necessarily indicative of the costs that would
have been incurred if the Springs Global baby products line had been a separate entity, or if the
business had been owned and operated by the Company. Certain of the Companys costs incurred to
operate the Springs Global baby products line are anticipated to be less than those
 10




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##### Table of Contents



incurred by
Springs Global; however, no reliably verifiable information is available to adjust the estimated
results of operations of the Springs Global baby products line, and no pro forma adjustments have
been made to give effect to these anticipated reduced costs.
 For pro forma purposes, the revenues and direct expenses reported by the baby products line of
Springs Global for the three and six-month periods ended September 30, 2007 (derived on a pro
rata basis using the abbreviated statements of revenues and direct expenses for the nine-month
period ended September 29, 2007, because the Company does not have actual results of revenues and
direct expenses for the three and six-month periods ended September 30, 2007) were combined with
the revenues and expenses reported by the Company for the three and six-month periods ended
September 30, 2007. This activity was performed to provide the following unaudited proforma
financial information, which presents a summary of the Companys consolidated results of
operations for the three and six-month periods ended September 30, 2007, as if the acquisition of
the baby products line from Springs Global had occurred on April 2, 2007. This unaudited proforma
financial information includes adjustments to reflect the amortization expense related to the
intangible assets acquired and an estimate of the interest expense that would have been incurred,
but is not otherwise necessarily indicative of the consolidated results of operations that would
have been reported by the Company if the acquisition had occurred on April 2, 2007 (in
thousands):
 Three-Month
    
    
    Six-MonthPeriod Ended
    
    
    Period EndedSeptember 30, 2007
    
    
    September 30, 2007Net sales
    
    $
    23,120
    
    
    $
    44,489Total operating expenses
    
    
    22,569
    
    
    
    42,476Income from continuing operations
    
    $
    217
    
    
    $
    956Income from continuing operations per shareBasic
    
    $
    0.02
    
    
    $
    0.10Diluted
    
    $
    0.02
    
    
    $
    0.09
 6.
    
    Discontinued Operations:On February 2, 2007, the Company announced that it would
liquidate Churchill Weavers, Inc. (Churchill). During the first quarter of fiscal year
2008, Churchills operations ceased and all employees were terminated. The Company is
actively marketing Churchills land and building for sale. The property has been appraised
at greater than net book value. In accordance with accounting guidelines, the property is
classified as assets held for sale in the consolidated balance sheets, and the operations
of Churchill are classified as discontinued operations in the consolidated statements of
income.7.
    
    Treasury Stock:In June 2007, the board of directors of the Company created a capital
committee and authorized the committee to adopt a program that would allow the Company to
spend an aggregate of up to $6 million to repurchase shares of the Companys common stock
from July 1, 2007 through July 1, 2008. Pursuant to this program, the Company repurchased
679,296 shares at a cost of $2.5 million.
 
  The Company operates indirectly through its subsidiaries, Crown Crafts Infant Products, Inc.
and Hamco, Inc., primarily in the infant and toddler products segments within the consumer
products industry. The Companys offices are located in Compton, California; Gonzales,
Louisiana; Rogers, Arkansas; and Roslyn Heights, New York.The infant and toddler products segment consists of infant and toddler bedding, bibs, soft
goods and accessories. Sales of the Companys products are generally made directly to
retailers, which are primarily mass merchants, chain stores, juvenile specialty stores,
internet accounts, wholesale clubs and catalogue and direct mail houses. The Companys
products are manufactured primarily in China and marketed under a variety of Company-owned
trademarks, under trademarks licensed from others and as private label goods.
  11




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##### Table of Contents







Three-month period ended
    
    Six-month period endedSeptember 28,
    
    September 30,
    
    
    
    
    
    
    
    
    
    September 28,
    
    September 30,2008
    
    2007
    
    $ change
    
    % change
    
    2008
    
    2007
    

$
change
    

%
changeNet sales by categoryBedding, blankets and accessories
    
    $
    20,071
    
    
    $
    12,425
    
    
    $
    7,646
    
    
    
    61.5
    %
    
    $
    36,378
    
    
    $
    23,831
    
    
    $
    12,547
    
    
    
    52.6
    %Bibs and bath
    
    
    3,688
    
    
    
    4,686
    
    
    
    (998
    )
    
    
    -21.3
    %
    
    
    7,136
    
    
    
    8,640
    
    
    
    (1,504
    )
    
    
    -17.4
    %Total net sales
    
    
    23,759
    
    
    
    17,111
    
    
    
    6,648
    
    
    
    38.9
    %
    
    
    43,514
    
    
    
    32,471
    
    
    
    11,043
    
    
    
    34.0
    %Cost of products sold
    
    
    18,904
    
    
    
    13,148
    
    
    
    5,756
    
    
    
    43.8
    %
    
    
    34,421
    
    
    
    24,202
    
    
    
    10,219
    
    
    
    42.2
    %Gross profit
    
    
    4,855
    
    
    
    3,963
    
    
    
    892
    
    
    
    22.5
    %
    
    
    9,093
    
    
    
    8,269
    
    
    
    824
    
    
    
    10.0
    %% of net sales
    
    
    20.4
    %
    
    
    23.2
    %
    
    
    
    
    
    
    
    
    
    
    20.9
    %
    
    
    25.5
    %Marketing and administrative expenses
    
    
    2,973
    
    
    
    2,972
    
    
    
    1
    
    
    
    0.0
    %
    
    
    5,879
    
    
    
    5,376
    
    
    
    503
    
    
    
    9.4
    %% of net sales
    
    
    12.5
    %
    
    
    17.4
    %
    
    
    
    
    
    
    
    
    
    
    13.5
    %
    
    
    16.6
    %Interest expense
    
    
    308
    
    
    
    119
    
    
    
    189
    
    
    
    158.8
    %
    
    
    635
    
    
    
    231
    
    
    
    404
    
    
    
    174.9
    %Other income (expense)
    
    
    38
    
    
    
    11
    
    
    
    27
    
    
    
    245.5
    %
    
    
    50
    
    
    
    (24
    )
    
    
    74
    
    
    
    -308.3
    %Income tax expense
    
    
    614
    
    
    
    337
    
    
    
    277
    
    
    
    82.2
    %
    
    
    1,006
    
    
    
    1,013
    
    
    
    (7
    )
    
    
    -0.7
    %Income from continuing operations after taxes
    
    
    998
    
    
    
    546
    
    
    
    452
    
    
    
    82.8
    %
    
    
    1,623
    
    
    
    1,625
    
    
    
    (2
    )
    
    
    -0.1
    %Discontinued operations  net of taxes
    
    
    37
    
    
    
    (5
    )
    
    
    42
    
    
    
    -840.0
    %
    
    
    31
    
    
    
    (98
    )
    
    
    129
    
    
    
    -131.6
    %Net income
    
    
    1,035
    
    
    
    541
    
    
    
    494
    
    
    
    91.3
    %
    
    
    1,654
    
    
    
    1,527
    
    
    
    127
    
    
    
    8.3
    %% of net sales
    
    
    4.4
    %
    
    
    3.2
    %
    
    
    
    
    
    
    
    
    
    
    3.8
    %
    
    
    4.7
    %


Net Sales:








Gross
Profit:




12



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Marketing and Administrative Expenses
  Interest
Expense:
      13




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##### Table of Contents



The Companys business is impacted by general economic conditions and related uncertainties
affecting markets in which the Company operates.
  
   14




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##### Table of Contents



1.
    
    Election of two members to the board of directors to hold office for a
three-year term. The results of the voting were as follows:
 Director Nominee
    
    For
    
    Authority WithheldDonald Ratajczak
    
    
    8,764,641
    
    
    
    5,574Joseph Kling
    
    
    8,673,832
    
    
    
    96,383
 The following members of the board of directors currently serve in their respective
three-year terms, until the annual meeting to be held in the year set forth below:
 Director
    
    Year Term ExpiringSidney Kirschner
    
    
    2009Zenon S. Nie
    
    
    2009E. Randall Chestnut
    
    
    2010William T. Deyo, Jr
    
    
    2010Frederick G. Wasserman
    
    
    2010
 2.
    
    Transaction of such other matters as may properly come before the annual
meeting or any adjournment or postponement thereof. The results of the voting were as
follows:
 For
    
    Against
    
    Abstain7,966,243
    
    
    784,140
    
    
    
    19,832
  
   
  Exhibit No.
    
    Exhibit10.1
    
    Governance and Standstill Agreement dated July 1, 2008 by and among Crown Crafts,
Inc., Wynnefield Small Cap Value, L.P., Wynnefield Partners Small Cap Value
Offshore Fund, Ltd., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield
Capital Management, LLC, Wynnefield Capital, Inc., Channel Partnership II, L.P.,
Nelson Obus and Joshua Landes (1)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (2)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (2)32.1
    
    Section 1350 Certification by the Companys Chief Executive Officer (2)32.2
    
    Section 1350 Certification by the Companys Chief Financial Officer (2)
 
 (1)
    
    Incorporated herein by reference to Registrants Current Report on Form 8-K
dated July 1, 2008.(2)
    
    Filed herewith. 15




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##### Table of Contents



CROWN CRAFTS, INC.Date:  November 12, 2008
    /s/ Olivia W. ElliottOLIVIA W. ELLIOTTChief Financial Officer
(duly authorized signatory and
Principal Financial Officer) 16




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##### Table of Contents



Index to Exhibits
 Exhibit No.
    
    Exhibit10.1
    
    Governance and Standstill Agreement dated July 1, 2008 by and among Crown Crafts,
Inc., Wynnefield Small Cap Value, L.P., Wynnefield Partners Small Cap Value
Offshore Fund, Ltd., Wynnefield Partners Small Cap Value, L.P. I, Wynnefield
Capital Management, LLC, Wynnefield Capital, Inc., Channel Partnership II, L.P.,
Nelson Obus and Joshua Landes (1)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer (2)31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer (2)32.1
    
    Section 1350 Certification by the Companys Chief Executive Officer (2)32.2
    
    Section 1350 Certification by the Companys Chief Financial Officer (2)
 
 (1)
    
    Incorporated herein by reference to Registrants Current Report on Form 8-K dated July
1, 2008.(2)
    
    Filed herewith. 17