crown_10q-123012.htm

	December 30, 2012 (Unaudited)			April 1, 2012
	(amounts in thousands, except share and per share amounts)

ASSETS
Current assets:
Cash and cash equivalents	$	245		$	214
Accounts receivable (net of allowances of $450 at December 30, 2012 and $1,062 at April 1, 2012):
Due from factor		18,237			19,441
Other		524			882
Inventories		13,282			11,839
Prepaid expenses		2,137			2,427
Assets held for sale		-			275
Total current assets		34,425			35,078
Property, plant and equipment - at cost:
Vehicles		192			187
Land, buildings and leasehold improvements		491			217
Machinery and equipment		2,489			2,351
Furniture and fixtures		747			747
Property, plant and equipment - gross		3,919			3,502
Less accumulated depreciation		3,122			2,988
Property, plant and equipment - net		797			514
Finite-lived intangible assets - at cost:
Customer relationships		5,411			5,411
Other finite-lived intangible assets		7,307			6,858
Finite-lived intangible assets - gross		12,718			12,269
Less accumulated amortization		6,871			6,297
Finite-lived intangible assets - net		5,847			5,972
Goodwill		1,126			1,126
Deferred income taxes		1,305			1,864
Other		77			107
Total Assets	$	43,577		$	44,661

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,310		$	6,092
Accrued wages and benefits		778			896
Accrued royalties		1,867			1,337
Dividends payable		-			1,160
Income taxes currently payable		796			105
Other accrued liabilities		105			228
Deferred income taxes		99			127
Total current liabilities		11,955			9,945

Commitments and contingencies		-			-

Shareholders' equity:
Common stock - $0.01 par value per share; Authorized 40,000,000 shares at December 30, 2012 and April 1, 2012; Issued 11,696,022 shares at December 30, 2012 and 11,132,272 shares at April 1, 2012		117			111
Additional paid-in capital		46,097			43,664
Treasury stock - at cost - 1,868,003 shares at December 30, 2012 and 1,465,780 shares at April 1, 2012		(7,690	)		(5,391	)
Accumulated deficit		(6,902	)		(3,668	)
Total shareholders' equity		31,622			34,716
Total Liabilities and Shareholders' Equity	$	43,577		$	44,661

	Three-Month Periods Ended						Nine-Month Periods Ended
	December 30, 2012			January 1, 2012			December 30, 2012			January 1, 2012

Net sales	$	20,070		$	21,649		$	54,805		$	60,467
Cost of products sold		14,788			16,405			41,184			46,699
Gross profit		5,282			5,244			13,621			13,768
Marketing and administrative expenses		2,779			2,700			8,538			8,507
Income from operations		2,503			2,544			5,083			5,261
Other income (expense):
Interest and amortization of debt discount and expense		(17	)		(43	)		(54	)		(191	)
Interest income		30			-			60			-
Other - net		15			3			17			13
Income before income tax expense		2,531			2,504			5,106			5,083
Income tax expense		927			956			1,850			1,938
Net income	$	1,604		$	1,548		$	3,256		$	3,145

Weighted average shares outstanding:
Basic		9,816			9,657			9,772			9,640
Effect of dilutive securities		-			61			-			117
Diluted		9,816			9,718			9,772			9,757

Earnings per share:
Basic	$	0.16		$	0.16		$	0.33		$	0.33

Diluted	$	0.16		$	0.16		$	0.33		$	0.32

Cash dividends declared per share	$	0.58		$	0.04		$	0.66		$	0.10

	Common Shares				Treasury Shares
	Number of Shares		Amount		Number of Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Total Shareholders' Equity
	(Dollar amounts in thousands)
Balances - April 3, 2011		10,830,772	$	108		(1,248,162	)	$	(4,358	)	$	42,227		$	(6,582	)	$	31,395

Issuance of shares		301,500		3								901						904
Stock-based compensation												545						545
Net tax effect of stock-based compensation												(9	)					(9	)
Acquisition of treasury stock						(217,618	)		(1,033	)								(1,033	)
Net income															5,039			5,039
Dividends declared															(2,125	)		(2,125	)

Balances - April 1, 2012		11,132,272		111		(1,465,780	)		(5,391	)		43,664			(3,668	)		34,716

Issuance of shares		563,750		6								1,801						1,807
Stock-based compensation												530						530
Net tax effect of stock-based compensation												102						102
Acquisition of treasury stock						(402,223	)		(2,299	)								(2,299	)
Net income															3,256			3,256
Dividends declared															(6,490	)		(6,490	)

Balances - December 30, 2012		11,696,022	$	117		(1,868,003	)	$	(7,690	)	$	46,097		$	(6,902	)	$	31,622

	Nine-Month Periods Ended
	December 30, 2012			January 1, 2012
	(amounts in thousands)
Operating activities:
Net income	$	3,256		$	3,145
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		168			197
Amortization of intangibles		574			839
Deferred income taxes		531			263
Gain on sale of property, plant and equipment		(13	)		(5	)
Accretion of interest expense to original issue discount		-			48
Stock-based compensation		530			415
Tax shortfall from stock-based compensation		(93	)		(27	)
Changes in assets and liabilities:
Accounts receivable		1,562			2,225
Inventories		(1,443	)		(1,980	)
Prepaid expenses		289			(395	)
Other assets		30			43
Accounts payable		2,218			3,320
Accrued liabilities		980			(438	)
Net cash provided by operating activities		8,589			7,650
Investing activities:
Capital expenditures for property, plant and equipment		(186	)		(290	)
Proceeds from disposition of assets		24			5
Capitalized costs of internally developed intangible assets		(449	)		-
Net cash used in investing activities		(611	)		(285	)
Financing activities:
Payments on long-term debt		-			(2,000	)
Repayments under revolving line of credit		(9,755	)		(51,871	)
Borrowings under revolving line of credit		9,755			47,535
Purchase of treasury stock		(2,299	)		(738	)
Issuance of common stock		1,807			631
Excess tax benefit from stock-based compensation		195			18
Dividends paid		(7,650	)		(866	)
Net cash used in financing activities		(7,947	)		(7,291	)
Net increase in cash and cash equivalents		31			74
Cash and cash equivalents at beginning of period		214			205
Cash and cash equivalents at end of period	$	245		$	279

Supplemental cash flow information:
Income taxes paid, net of refunds received	$	461		$	1,901
Interest paid, net of interest received		1			144

Noncash financing activity:
Dividends declared but unpaid		-			(386	)

Basis of Presentation: The accompanying unaudited consolidated financial statements include the accounts of Crown Crafts, Inc. and its subsidiaries (collectively, the “Company”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”) 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. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities. In the opinion of management, these interim consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of December 30, 2012 and the results of its operations and cash flows for the periods presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for the three and nine-month periods ended December 30, 2012 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending March 31, 2013. For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 1, 2012.

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 also has a certain amount of discontinued finished goods which necessitates the establishment of inventory reserves and allocates indirect costs to inventory based on an estimated percentage of the supplier purchase price, each of which is highly subjective. Actual results could differ from those estimates.

Segment and Related Information: The Company operates primarily in one principal segment, which is infant, toddler and juvenile products. These products consist of crib and toddler bedding, nursery accessories, room décor, infant bibs and related soft goods. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for the three and nine-month periods ended December 30, 2012 and January 1, 2012 are as follows (in thousands):

Royalty Payments: The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. These royalties are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of sales in the accompanying consolidated statements of income and amounted to $4.7 million and $4.5 million for the nine months ended December 30, 2012 and January 1, 2012, respectively.

Advertising Costs: The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for those customers, with periodic adjustments to the actual amounts of authorized agreements. Advertising expense is included in marketing and administrative expenses in the accompanying consolidated statements of income and amounted to $605,000 and $767,000 for the nine-month periods ended December 30, 2012 and January 1, 2012, respectively.

Revenue Recognition: Sales are recorded when goods are shipped to customers and are reported net of allowances for estimated returns and allowances in the accompanying consolidated statements of income. Allowances for returns are estimated based on historical rates. Allowances for returns, cooperative advertising allowances, warehouse allowances, placement fees and volume rebates are recorded commensurate with sales activity or using the straight-line method, as appropriate, and the cost of such allowances is netted against sales in reporting the results of operations. Shipping and handling costs, net of amounts reimbursed by customers, are not material and are included in net sales.

Allowances Against Accounts Receivable: The Company’s allowances against accounts receivable are primarily contractually agreed-upon deductions for items such as cooperative advertising and warehouse allowances, placement fees and volume rebates. These deductions are recorded throughout the year commensurate with sales activity or using the straight-line method, as appropriate. 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, placement fees, markdowns and warehouse and other allowances. All such allowances are recorded as direct offsets to sales, and such costs are accrued commensurate with sales activities or as a straight-line amortization charge of an agreed-upon fixed amount, as appropriate to the circumstances for each such arrangement. When a customer requests deductions, the allowances are reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels. The timing of 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 funding requests should have no impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method, as appropriate.

To reduce the exposure to credit losses and to enhance the predictability of its cash flows, the Company assigns the majority of its trade accounts receivable under factoring agreements with The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group, Inc. In the event a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. The Company must make estimates of the uncollectibility of its non-factored accounts receivable, which it accomplishes by specifically analyzing accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’ payment terms to evaluate the adequacy of its allowance for doubtful accounts. The Company’s accounts receivable at December 30, 2012 amounted to $18.8 million, net of allowances of $450,000. Of this amount, $18.2 million was due from CIT under the factoring agreements and the Company held $234,000 in cash at CIT; such amounts together represented the maximum loss that the Company could incur if CIT failed completely to perform its obligations under its agreements with the Company. Of the remaining accounts receivable at December 30, 2012 that were not due from CIT under the factoring agreements, $343,000 was secured by letters of credit in respect of the underlying invoices.

Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are three to twenty-one years for property, plant and equipment, and one to twenty years for intangible assets other than goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset, whichever is shorter.

Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the depreciation and amortization procedures set forth above, the Company reviews for impairment long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value.

Patent Costs: The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company also capitalizes legal costs incurred in the defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of future economic benefit or a successful defense of its patents involves considerable management judgment, and a different conclusion or outcome of litigation could result in a material impairment charge up to the carrying value of these assets.

Inventory Valuation: The preparation of the Company's financial statements requires careful determination of the appropriate dollar amount of the Company's inventory balances. Such amount is presented as a current asset in the accompanying consolidated balance sheets and is a direct determinant of cost of goods sold in the accompanying consolidated statements of income and, therefore, has a significant impact on the amount of net income in the accounting periods reported. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost, duties, taxes and freight, and the indirect costs incurred to design, develop, source and store the product until it is sold. Once cost has been determined, the Company’s inventory is then stated at the lower of cost or market, with cost determined using the first-in, first-out ("FIFO") method, which assumes that inventory quantities are sold in the order in which they are acquired.

The indirect costs allocated to inventory are done so as a percentage of projected annual supplier purchases and can impact the Company’s results of operations as purchase volume fluctuates from quarter to quarter and year to year. The difference between indirect costs incurred and the indirect costs allocated to inventory creates a burden variance, which is generally favorable when actual inventory purchases exceed planned inventory purchases, and is generally unfavorable when actual inventory purchases are lower than planned inventory purchases. While the burden variance can be significant during interim periods, it is generally not material by the end of each fiscal year. The determination of the indirect charges and their allocation to the Company's finished goods inventories is complex and requires significant management judgment and estimates. If management made different judgments or utilized different estimates, then differences would result in the valuation of the Company's inventories, the amount and timing of the Company's cost of goods sold and the resulting net income for any accounting period.

On a periodic basis, management reviews the Company’s inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the normal operating cycle of the Company's operations. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of goods sold in the Company's consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed of is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management's estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company's financial position and results of operations.

Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes and is based upon the Company’s estimated annual effective tax rate, which is based on the Company’s forecasted annual pre-tax income, as adjusted for certain expenses within the financial statements that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the financial statements, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits. The Company provides for deferred income taxes based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse. The Company’s policy is to recognize the effect that a change in enacted tax rates would have on net deferred income tax assets and liabilities in the period that the tax rates are changed.

The Company files income tax returns in the many jurisdictions within which it operates, including the U.S., several U.S. states and the People’s Republic of China. The prescription period for the Company’s income tax returns varies by jurisdiction; tax returns open to examination or other adjustment by federal or state authorities as of December 30, 2012 were for the fiscal years ended March 28, 2010, April 3, 2011 and April 1, 2012, as well as the fiscal year ended March 29, 2009 for several states.

Earnings Per Share: The Company calculates basic earnings per share by using a weighted average of the number of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all exercisable options would be used to repurchase shares at market value. The net number of shares issued after the exercise proceeds are exhausted represents the potentially dilutive effect of the options, which are added to basic shares to arrive at diluted shares.

Factoring Agreements: The Company assigns the majority of its trade accounts receivable to CIT under factoring agreements which expire in July 2013. Under the terms of the factoring agreements in effect prior to April 2, 2012, CIT would remit payments to the Company on the average due date of each group of invoices assigned. If a customer failed to pay CIT by the due date, the Company would be charged interest at prime plus 1.0% until payment was received. The Company incurred interest expense in the amount of $17,000 and $50,000 for the three and nine-month periods ended January 1, 2012, respectively, as a result of the failure of the Company’s customers to pay CIT by the due date. The factoring agreements were amended effective as of April 2, 2012 to provide for the remittance of customer payments by CIT to the Company as such payments are received by CIT.

CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits. The Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination were to occur, the Company must either assume the credit risk for shipments after the date of such termination or cease shipments to such customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying condensed consolidated statements of income, were $121,000 and $137,000 for the three-month periods ended December 30, 2012 and January 1, 2012, respectively, and were $313,000 and $340,000 for the nine-month periods ended December 30, 2012 and January 1, 2012, respectively. There were no advances from the factor at either December 30, 2012 or April 1, 2012.

Credit Facility: The Company’s credit facility as of December 30, 2012 consisted of a revolving line of credit under a financing agreement with CIT of up to $26.0 million, which includes a $1.5 million sub-limit for letters of credit, with an interest rate of prime plus 1.00% or LIBOR plus 3.00%, maturing on July 11, 2013 and secured by a first lien on all assets of the Company. As of December 30, 2012, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option. The financing agreement also provides for the payment by CIT to the Company of interest at the rate of prime minus 1%, which was 2.25% at December 30, 2012, on daily cash balances held at CIT.

Under the financing agreement, a fee is assessed based on 0.25% of the average unused portion of the $26.0 million revolving line of credit, less any outstanding letters of credit. This unused line fee amounted to $16,000 and $15,000 for the three months ended December 30, 2012 and January 1, 2012, respectively, and $48,000 and $45,000 for the nine months ended December 30, 2012 and January 1, 2012, respectively. As of December 30, 2012, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and the Company had $23.0 million available under the revolving line of credit based on its eligible accounts receivable and inventory balances.

Goodwill: The Company reported goodwill of $1.1 million at December 30, 2012 and April 1, 2012. The Company tests the fair value of the goodwill, if any, within its reporting units annually as of the first day of the Company’s fiscal year. An additional interim impairment test is performed during the year whenever an event or change in circumstances occurs that suggests that the fair value of the goodwill of either of the reporting units of the Company has more likely than not (defined as having a likelihood of greater than 50%) fallen below its carrying value. The annual or interim impairment test is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the impairment test is continued in a two-step approach. The first step is the estimation of the fair value of each reporting unit to ensure that its fair value exceeds its carrying value. If step one indicates that a potential impairment exists, then the second step is performed to measure the amount of an impairment charge, if any. In the second step, these estimated fair values are used as the hypothetical purchase price for the reporting units, and an allocation of such hypothetical purchase price is made to the identifiable tangible and intangible assets and assigned liabilities of the reporting units. The impairment charge is calculated as the amount, if any, by which the carrying value of the goodwill exceeds the implied amount of goodwill that results from this hypothetical purchase price allocation.

Other Intangible Assets: Other intangible assets at December 30, 2012 consisted primarily of the capitalized costs of recent acquisitions, other than tangible assets, goodwill and assumed liabilities. The carrying amount and accumulated amortization of the Company’s other intangible assets as of December 30, 2012, their estimated useful life, the amortization expense for the three and nine-month periods ended December 30, 2012 and January 1, 2012 and the classification of such amortization expense within the accompanying consolidated financial statements of income are as follows (in thousands):

			Estimated Useful					Amortization Expense
	Carrying		Life			Accumulated		Three-Month Periods Ended					Nine-Month Periods Ended
	Amount		(years)			Amortization		December 30, 2012		January 1, 2012			December 30, 2012		January 1, 2012

Kimberly Grant Acquisition on December 29, 2006:
Tradename	$	466		15		$	187	$	8	$	7		$	24	$	23
Existing designs		36		1			36		-		-			-		-
Non-compete covenant		98		15			39		1		2			5		5
Total Kimberly Grant Acquisition		600		14	*		262		9		9			29		28

Springs Baby Products Acquisition on November 5, 2007:
Licenses & existing designs		1,655		2			1,655		-		-			-		-
Licenses & future designs		1,847		4			1,847		-		39			-		269
Non-compete covenant		115		4			115		-		3			-		17
Customer relationships		3,781		10			1,953		94		94			283		284
Total Springs Baby Acquisition		7,398		7	*		5,570		94		136			283		570

Neat Solutions Acquisition on July 2, 2009:
Trademarks		892		15			208		14		15			44		45
Designs		33		4			29		2		2			6		6
Non-compete covenant		241		5			168		12		12			36		36
Customer relationships		1,302		16			285		21		20			62		61
Total Neat Solutions Acquisition		2,468		14	*		690		49		49			148		148

Bibsters® Acquistion on May 27, 2010:
Trademarks		629		15			108		11		10			31		31
Patents		553		10			143		14		14			42		42
Customer relationships		328		14			61		6		6			18		18
Total Bibsters® Acquistion		1,510		13	*		312		31		30			91		91
Internally developed intangible assets		742		20			37		10		(2	)		23		2
Total other intangible assets	$	12,718				$	6,871	$	193	$	222		$	574	$	839

Weighted-Average

Classification within the accompanying consolidated statements of income:
Cost of products sold	$	15	$	58	$	47	$	333
Marketing and administrative expenses		178		164		527		506
Total amortization expense	$	193	$	222	$	574	$	839

During the three-months ended July 1, 2007, the operations of Churchill Weavers, Inc. (“Churchill”), a wholly-owned subsidiary of the Company, ceased and all employees were terminated. Since that time, the Company has been actively marketing Churchill’s land and building for sale and had, through April 1, 2012, recorded the Churchill property at fair value, less cost to sell, had classified the property as assets held for sale in the Company’s consolidated balance sheets and had classified the costs to maintain the property as discontinued operations in the consolidated statements of income.

The Company also recorded impairment charges associated with the Churchill property during fiscal years 2009, 2010 and 2011, as the Company made successive determinations that the fair value of the property had fallen below its carrying value. Although the Company continues to actively market the property for sale and the property remains dormant, accounting guidelines have required the Company, effective as of April 2, 2012, to reclassify the property as held and used in its consolidated balance sheet, to resume periodic depreciation of the carrying value of the property of $275,000 (less an allocation of $23,000 to land) on a straight-line basis over 21 years and to classify the costs to maintain the property within continuing operations in the accompanying condensed consolidated statements of income for the three and nine-month periods ended December 30, 2012 and January 1, 2012.

The Company has adopted an incentive stock plan (the “Plan”) that is intended to attract and retain directors, officers and employees of the Company and to motivate these individuals to achieve the overall goal of increasing stockholder value. The Plan was adopted to ensure that the Company has a mechanism for long-term, equity-based incentive compensation for directors, officers and employees. Awards granted under the 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 Plan. The Plan is administered by the compensation committee of the Company’s Board of Directors (the “Board”), which selects eligible employees and non-employee directors to participate in the Plan and determines the type, amount, duration and other terms of individual awards. At December 30, 2012, 508,750 shares of the Company’s common stock were available for future issuance under the Plan.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. The Company recorded $242,000 and $530,000 of stock-based compensation expense during the three and nine months ended December 30, 2012, respectively, and recorded $128,000 and $415,000 of stock-based compensation expense during the three and nine months ended January 1, 2012, respectively. The Company records the compensation expense related to stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals. No stock-based compensation costs have been capitalized as part of the cost of an asset as of December 30, 2012.

	Nine-Month Period Ended December 30, 2012					Nine-Month Period Ended January 1, 2012
	Weighted-Average Exercise Price		Number of Options Outstanding			Weighted-Average Exercise Price		Number of Options Outstanding
Outstanding at Beginning of Period	$	3.57		573,000		$	3.31		747,000
Granted		5.42		110,000			4.81		100,000
Exercised		3.46		(521,750	)		3.20		(196,500	)
Forfeited		0.71		(1,250	)		-		-
Outstanding at End of Period		5.23		160,000			3.57		650,500
Exercisable at End of Period		-		-			3.26		500,500

The Company received cash in the amount of $98,000 and $29,000 from the exercise of stock options during the nine months ended December 30, 2012 and January 1, 2012, respectively. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash of $437,000 and $137,000 to remit the required income tax withholding amounts from “cashless” option exercises during the nine months ended December 30, 2012 and January 1, 2012, respectively. The Company’s net outflow of cash upon the exercise of stock options was $339,000 and $108,000 during the nine months ended December 30, 2012 and January 1, 2012, respectively.

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine the fair value, and the resulting grant-date fair value per option, of the non-qualified stock options which were awarded to certain employees during the nine months ended December 30, 2012 and January 1, 2012, which options vest over a two-year period, assuming continued service.

	Nine-Month Periods Ended
	December 30, 2012			January 1, 2012
Options issued		110,000			100,000
Grant Date	June 13, 2012			June 10, 2011
Dividend yield		5.90	%		2.49	%
Expected volatility		65.00	%		60.00	%
Risk free interest rate		0.55	%		1.84	%
Contractual term (years)		10.00			10.00
Expected term (years)		4.00			5.75
Forfeiture rate		5.00	%		5.00	%
Exercise price (grant-date closing price)	$	5.42		$	4.81
Fair value	$	1.84		$	2.16

Although the Company’s historical stock option exercise experience provided a reasonable basis upon which to estimate the expected term for the stock options granted during the nine-month period ended December 30, 2012, that was not the case for the stock options granted during the nine-month period ended January 1, 2012. In that period, the Company elected to use the simplified method to estimate the expected term of the stock options granted, as allowed by SEC Staff Accounting Bulletin No. 107 and the continued acceptance of the simplified method indicated in SEC Staff Accounting Bulletin No. 110.

As of December 30, 2012, total unrecognized stock option compensation expense amounted to $203,000, which will be recognized as the underlying stock options vest over a weighted-average period of 9.5 months. The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock: The Board granted 42,000 shares of non-vested stock with a fair value of $5.62 per share to the Company’s non-employee directors during the three-month period ended September 30, 2012 and granted 30,000 shares of non-vested stock to the Company’s non-employee directors during each of the three-month periods ended October 2, 2011, September 26, 2010 and September 27, 2009, with a weighted-average fair value per share of $4.44, $4.36 and $3.02, respectively. These shares vest over a two-year period, assuming continued service. The fair value of the shares was determined based on the number of shares granted multiplied by the closing price of the Company’s common stock on the date of the grant.

During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock in a series of three grants to each of certain employees. Pursuant to its terms, each such grant will vest if both (i) the closing price per share of the Company’s common stock is at or above target levels of $5.00, $6.00 and $7.00, respectively, for any ten trading days out of any period of thirty consecutive trading days and (ii) the respective employee remains employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the employee awards amounted to $1.2 million.

On November 30, 2012, the Board approved an amendment to the grant subject to the $5.00 per share closing price condition that had been awarded to E. Randall Chestnut, Chairman, Chief Executive Officer and President of the Company. With the closing price condition having been met for this award, the grant was amended to provide for the immediate vesting of 62,000 of the 75,000 shares awarded in order to preserve the deductibility of the associated compensation expense by the Company for income tax purposes. As a result of the acceleration of the vesting, the Company recognized the remaining compensation expense associated with the 62,000 shares vested of $99,000 during the three and nine-month periods ended December 30, 2012, which amount would otherwise have been recognized by the Company ratably through July 29, 2015. To satisfy the income tax withholding obligations that arose from the vesting of the shares, Mr. Chestnut surrendered 26,319 shares to the Company, and the Company paid $153,000 to the appropriate taxing authorities on his behalf.

As of December 30, 2012, total unrecognized compensation expense related to the Company’s non-vested stock grants was $668,000, which will be recognized over the respective vesting terms associated with each block of grants as indicated above, such grants having an aggregate weighted-average vesting term of 2.2 years. The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has received non-vested stock grants that remain non-vested as of such individual’s separation date.

BreathableBaby, LLC (“BreathableBaby”) filed a complaint against the Company and Crown Crafts Infant Products, Inc. (“CCIP”), a wholly-owned subsidiary of the Company, on January 11, 2012 in the United States District Court for the District of Minnesota, alleging that CCIP’s mesh crib liner infringes BreathableBaby’s patent rights relating to its air permeable infant bedding technology. The Company believes that it has meritorious defenses to the claims asserted in the complaint, and the Company intends to defend itself vigorously against all such claims. The Company and CCIP filed a motion for summary judgment of non-infringement on May 14, 2012. On July 25, 2012, the Court entered an order denying that motion without prejudice to refiling it at the close of discovery. In doing so, the Court did not rule on the merits of the Company’s motion, but instead determined that further discovery was required before a motion for summary judgment could be decided. Discovery accordingly was resumed and remained ongoing as of December 30, 2012.

CCIP has filed an application for a patent related to its mesh crib liner with the United States Patent and Trademark Office, and, along with other costs related to CCIP’s patent application, the Company has capitalized the defense costs associated with the BreathableBaby litigation in the accompanying consolidated balance sheets. In the event of an unfavorable outcome with respect to the BreathableBaby litigation or a denial of CCIP’s patent application, the Company would be required to recognize an impairment charge amounting to these accumulated costs.

In addition to the foregoing civil complaint, the Company is, from time to time, involved in various other legal and regulatory proceedings relating to claims arising in the ordinary course of its business. Neither the Company nor any of its subsidiaries is a party to any such proceeding the outcome of which, individually or in the aggregate, is expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company operates indirectly through its wholly-owned subsidiaries, CCIP and Hamco, Inc., in the infant and toddler products segment within the consumer products industry. The infant and toddler products segment consists of infant and toddler bedding, bibs, disposable products, soft goods and accessories. Sales of the Company’s products are generally made directly to retailers, which are primarily mass merchants, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, internet accounts, wholesale clubs and catalog retailers. The Company’s products are produced by contract manufacturers located primarily in Asia and marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.

The Company’s products are produced by foreign and domestic manufacturers, with the largest concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery and price, including the impact of ocean freight and duties. The Company maintains a foreign representative office in Shanghai, China for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality.

The infant and toddler consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers (both branded and private label), including large infant and juvenile product companies and specialty infant and juvenile product manufacturers, on the basis of quality, design, price, brand name recognition, service and packaging. The Company’s ability to compete depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and trade names.

	Three-Month Periods Ended												Nine-Month Periods Ended
	December 30, 2012			January 1, 2012			Change			Change			December 30, 2012			January 1, 2012			Change			Change
Net sales by category
Bedding, blankets and accessories	$	14,374		$	16,367		$	(1,993	)		-12.2	%	$	38,967		$	44,709		$	(5,742	)		-12.8	%
Bibs, bath and disposable products		5,696			5,282			414			7.8	%		15,838			15,758			80			0.5	%
Total net sales		20,070			21,649			(1,579	)		-7.3	%		54,805			60,467			(5,662	)		-9.4	%
Cost of products sold		14,788			16,405			(1,617	)		-9.9	%		41,184			46,699			(5,515	)		-11.8	%
Gross profit		5,282			5,244			38			0.7	%		13,621			13,768			(147	)		-1.1	%
% of net sales		26.3	%		24.2	%								24.9	%		22.8	%
Marketing and administrative expenses		2,779			2,700			79			2.9	%		8,538			8,507			31			0.4	%
% of net sales		13.8	%		12.5	%								15.6	%		14.1	%
Interest expense		17			43			(26	)		-60.5	%		54			191			(137	)		-71.7	%
Other income		45			3			42			1400.0	%		77			13			64			492.3	%
Income tax expense		927			956			(29	)		-3.0	%		1,850			1,938			(88	)		-4.5	%
Net income		1,604			1,548			56			3.6	%		3,256			3,145			111			3.5	%
% of net sales		8.0	%		7.2	%								5.9	%		5.2	%

Net Sales: Sales of $20.1 million were lower for the three-month period ended December 30, 2012 compared with the same period in the prior year, having decreased 7.3%, or $1.6 million. For the nine-month period ended December 30, 2012, sales decreased 9.4%, or $5.7 million, to $54.8 million as compared with the prior year. Nearly half of the sales decrease was due to the transitioning away in the prior year from an unprofitable private label bedding program. Sales were also affected by the continued sluggishness in the economy, which has prompted many of the Company’s retail customers to maintain a tight control over their inventories.

Gross Profit: When compared with the prior year, gross profit increased in amount by $38,000, or 0.7%, for the three months ended December 30, 2012, and decreased by $147,000, or 1.1%, for the nine months ended December 30, 2012. Gross profit increased as a percentage of net sales, from 24.2% to 26.3% for the three-month period of the current year compared with the prior year period, and increased from 22.8% to 24.9% for the nine-month periods. The increase in the gross profit percentage can be attributed to lower production costs resulting from the redesign, commenced in the prior year, of several product lines to reduce the Company’s dependence on cotton, the cost of which reached record-setting levels in the prior year. The discontinuance of the unprofitable private label bedding program mentioned above also contributed to the higher gross margin percentage in the current year.

Interest Expense and Income: Interest expense decreased by $26,000 and $137,000 for the three and nine-month periods, respectively, of fiscal year 2013 compared with the same periods in fiscal year 2012 due to lower balances on the Company’s credit facility. Also, the Company and CIT amended the Company’s financing agreement effective as of April 2, 2012 to provide for the payment by CIT to the Company of interest on daily cash balances held at CIT at the rate of prime minus 1%, which was 2.25% during the nine-month period of the current year. The Company earned $30,000 and $61,000 for the three and nine-month periods of the current year in interest income on its daily cash balances held at CIT, compared with earning no interest income in the prior year.

Income Tax Expense: The Company’s provision for income taxes is based upon an estimated annual effective tax rate of 36.2% for fiscal year 2013, compared with 38.1% for fiscal year 2012. The decrease in the estimated annual effective tax rate in the current year is related to an increase in the current year in the amount of certain expenses that are deductible for tax purposes but not for book purposes, as well as an increase in projected state Enterprise Zone wage credits. Although the Company does not anticipate a material change to the effective tax rate for the balance of fiscal year 2013, several factors could impact the rate, including variations from the Company’s estimates of the amount and source of its pre-tax income, the amount of certain expenses that are not deductible for tax purposes and the amount of certain tax credits.

Net cash provided by operating activities increased from $7.7 million to $8.6 million, for the nine-month period ended December 30, 2012 compared with the nine-month period ended January 1, 2012. In the current year, the Company experienced a greater increase in accrued liabilities and a lesser increase in inventories and prepaid expenses, which was offset by a lesser increase in accounts payable and a lesser decrease in accounts receivable.

Net cash used in financing activities increased from $7.3 million to $7.9 million for the nine-month period of the current year as compared with the same period of the prior year. Cash used for the payment of dividends was $6.8 million higher in the current year, primarily associated with the payment of a special cash dividend during the current year of $0.50 per share, which was offset by $6.3 million used in the prior year for net repayments on the Company’s revolving line of credit and the Company’s final payments on subordinated notes payable.

The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. Although the Company's revolving line of credit under the financing agreement with CIT will expire on July 11, 2013, the Company believes that it will be able to secure financing adequate to meet its liquidity needs prior to that date. Based upon the current level of operations, the Company believes that its cash flow from operations and its availability from the eexisting and a future revolving line of credit will be adequate to meet its liquidity needs.

To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company assigns the majority of its trade accounts receivable to CIT pursuant to factoring agreements which expire in July 2013. CIT approves customer accounts and credit lines and collects the Company’s accounts receivable balances. CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits. The Company bears the responsibility for adjustments related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination were to occur, the Company must either assume the credit risk for shipments after the date of such termination or cease shipments to such customer. Under the terms of the factoring agreements in effect prior to April 2, 2012, CIT would remit payments to the Company on the average due date of each group of invoices assigned. If a customer failed to pay CIT by the due date, the Company would be charged interest at prime plus 1.0% until payment was received. The Company incurred interest expense in the amount of $17,000 and $50,000 for the three and nine-month periods ended January 1, 2012, respectively, as a result of the failure of the Company’s customers to pay CIT by the due date. The factoring agreements were amended effective as of April 2, 2012 to provide for the remittance of customer payments by CIT to the Company as such payments are received by CIT.

This report contains forward-looking statements within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Such statements are based upon management’s current expectations, projections, estimates and assumptions. Words such as “expects,” “believes,” “anticipates” and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. These risks include, among others, general economic conditions, including changes in interest rates, in the overall level of consumer spending and in the price of oil, cotton and other raw materials used in the Company’s products, changing competition, changes in the retail environment, the level and pricing of future orders from the Company’s customers, the Company’s dependence upon third-party suppliers, including some located in foreign countries with unstable political situations, the Company’s ability to successfully implement new information technologies, customer acceptance of both new designs and newly-introduced product lines, actions of competitors that may impact the Company’s business, disruptions to transportation systems or shipping lanes used by the Company or its suppliers, and the Company’s dependence upon licenses from third parties. Reference is also made to the Company’s periodic filings with the SEC for additional factors that may impact the Company’s results of operations and financial condition. The Company does not undertake to update the forward-looking statements contained herein to conform to actual results or changes in the Company’s expectations, whether as a result of new information, future events or otherwise.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

As reported in the Company’s annual report on Form 10-K for the fiscal year ended April 1, 2012, BreathableBaby filed a complaint against the Company and CCIP on January 11, 2012 in the United States District Court for the District of Minnesota, alleging that CCIP’s mesh crib liner infringes BreathableBaby’s patent rights relating to its air permeable infant bedding technology. The Company believes that it has meritorious defenses to the claims asserted in the complaint, and the Company intends to defend itself vigorously against all such claims. The Company and CCIP filed a motion for summary judgment of non-infringement on May 14, 2012. On July 25, 2012, the Court entered an order denying that motion without prejudice to refiling it at the close of discovery. In doing so, the Court did not rule on the merits of the Company’s motion, but instead determined that further discovery was required before a motion for summary judgment could be decided. Discovery has accordingly been resumed and was ongoing as of January 31, 2013.

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
October 1, 2012 through November 4, 2012		0	$	0		0	$	0
November 5, 2012 through December 2, 2012		184,229	$	5.86		0	$	0
December 3, 2012 through December 30, 2012		17,500	$	5.90		0	$	0
Total		201,729	$	5.87		0	$	0

(1)

The shares purchased from October 2, 2012 through December 30, 2012 consist of shares of common stock surrendered to the Company to satisfy the exercise price and income tax withholding obligations relating to the exercise of stock options and the income tax withholding obligations relating to the vesting of non-vested stock.

Exhibit Number		Description of Exhibit

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer (1)

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer (1)

32.1		Section 1350 Certification by the Company’s Chief Executive Officer (1)

32.2		Section 1350 Certification by the Company’s Chief Financial Officer (1)

101		The following information from the Registrant’s Form 10-Q for the quarterly period ended December 30, 2012, formatted as interactive data files in XBRL (eXtensible Business Reporting Language) (2): (i) Unaudited Condensed Consolidated Statements of Income; (ii) Unaudited Condensed Consolidated Balance Sheets; (iii) Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows; and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

(1)		Filed herewith.

(2)		Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not to be filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under those sections.

Exhibit Number		Description of Exhibit

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer (1)

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer (1)

32.1		Section 1350 Certification by the Company’s Chief Executive Officer (1)

32.2		Section 1350 Certification by the Company’s Chief Financial Officer (1)

101		The following information from the Registrant’s Form 10-Q for the quarterly period ended December 30, 2012, formatted as interactive data files in XBRL (eXtensible Business Reporting Language) (2): (i) Unaudited Condensed Consolidated Statements of Income; (ii) Unaudited Condensed Consolidated Balance Sheets; (iii) Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows; and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

(1)		Filed herewith.

(2)		Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not to be filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under those sections.

Delaware		58-0678148
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)


916 South Burnside Avenue, Gonzales, LA		70737
(Address of principal executive offices)		(Zip Code)

Large accelerated filer o	Accelerated filer o	Non-Accelerated filer o	Smaller Reporting Company þ
		(Do not check if a smaller reporting company)

	CROWN CRAFTS, INC.


Date: February 13, 2013	/s/ Olivia W. Elliott
	OLIVIA W. ELLIOTT
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

	December 30, 2012		April 1, 2012
Raw Materials	$	33	$	31
Finished Goods		13,249		11,808
Total inventory	$	13,282	$	11,839

	Three-Month Period						Nine-Month Period
Options Granted in Fiscal Year	Cost of Products Sold		Marketing & Administrative Expenses		Total Expense		Cost of Products Sold		Marketing & Administrative Expenses		Total Expense
2011	$	-	$	-	$	-	$	14	$	13	$	27
2012		12		12		24		41		41		82
2013		11		13		24		24		28		52

Total stock option compensation	$	23	$	25	$	48	$	79	$	82	$	161

	Three-Month Period						Nine-Month Period
Stock Granted in Fiscal Year	Employees		Non-employee Directors		Total Expense		Employees		Non-employee Directors		Total Expense
2011	$	148	$	-	$	148	$	252	$	18	$	270
2012		-		17		17		-		50		50
2013		-		29		29		-		49		49

Total stock grant compensation	$	148	$	46	$	194	$	252	$	117	$	369