|
Note 1 - Summary of Significant Accounting Policies
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jul. 03, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] |
Note
1 – Summary of Significant Accounting Policies
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 accounting principles generally accepted in the United
States of America (“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 July 3, 2011 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 quarter
ended July 3, 2011 are not necessarily indicative of the
results that may be expected for the fiscal year ending April
1, 2012. 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 year ended April 3, 2011.
Fiscal
Year: The Company’s fiscal year ends
on the Sunday nearest March 31. References herein
to “fiscal year 2012” represent the 52-week
period ending April 1, 2012 and references herein to
“fiscal year 2011” represent the 53-week period
ended April 3, 2011.
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 that are highly
subjective. Actual results could differ from those
estimates.
Cash and Cash
Equivalents: The Company considers all
highly-liquid investments purchased with original maturities
of three months or less to be cash equivalents.
Financial
Instruments: The following methods and
assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to
estimate such value:
Depreciation and
Amortization: The accompanying consolidated
balance sheets reflect property, plant and equipment, and
certain intangible assets at cost less accumulated
depreciation or amortization. The Company
capitalizes additions and improvements and expenses
maintenance and repairs as incurred. Depreciation
and amortization are computed using the straight-line method
over the estimated useful lives of the assets, which are
three to eight years for property, plant and equipment, and
one to sixteen years for intangible assets other than
goodwill. The Company amortizes improvements to
its leased facilities over the term of the lease or the
estimated useful life of the asset, whichever is
shorter.
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. Net sales of bedding, blankets and
accessories amounted to $13.0 million and $12.5 million for
the quarters ended July 3, 2011 and June 27, 2010,
respectively, and net sales of bibs, bath and disposable
products amounted to $4.5 million and $4.6 million for the
quarters ended July 3, 2011 and June 27, 2010,
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, 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
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., a
subsidiary of CIT Group, Inc.
(“CIT”). 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 July 3, 2011 amounted to $13.3 million, net
of allowances of $1.3 million. Of this amount,
$12.7 million is due from CIT under the factoring
agreements, which amount represents the maximum amount of
loss that the Company could incur under the factoring
agreements if CIT failed completely to perform its
obligations thereunder.
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 is the
sum of expenditures and charges, both direct and indirect,
incurred to acquire inventory, bring it to a condition
suitable for sale, and store it until it is
sold. Once cost has been determined, the
Company’s inventory is then stated at the lower of
cost or market, with cost determined using the first-in,
first-out ("FIFO") method, which assumes that inventory
quantities are sold in the order in which they are
acquired. The determination of the indirect
charges and their allocation to the Company's finished
goods inventories is complex and requires significant
management judgment and estimates. If management
made different judgments or utilized different estimates,
then differences would result in the valuation of the
Company's inventories, 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.
Valuation of
Long-Lived Assets, Identifiable Intangible Assets and
Goodwill: In addition to the depreciation
and amortization procedures set forth above, the Company
reviews for impairment long-lived assets and certain
identifiable intangible assets whenever events or changes in
circumstances indicate that the carrying amount of any asset
may not be recoverable. In the event of
impairment, the asset is written down to its fair market
value. Assets to be disposed of, if any, are
recorded at the lower of net book value or fair market value,
less estimated costs to sell at the date management commits
to a plan of disposal, and are classified as assets held for
sale on the accompanying consolidated balance sheets.
The
Company tests the fair value of the goodwill of 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 suggest that the fair value of the
goodwill of either of the reporting units of the Company has
more likely than not fallen below its carrying
value. The annual or interim impairment test is
performed 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.
Royalty
Payments: The Company has entered into agreements that
provide for royalty payments based on a percentage of sales
with certain minimum guaranteed amounts. These
royalties are accrued based upon historical sales rates
adjusted for current sales trends by
customers. Royalty expense is included in cost of
sales and amounted to $1.3 million for each of the
three-month periods ended July 3, 2011 and June 27,
2010.
Provisions for
Income Taxes: The Company’s provisions for
income taxes include all currently payable federal, state,
local and foreign taxes and are based upon the
Company’s estimated annual effective tax rate, which is
based on the Company’s forecasted annual pre-tax
income, as adjusted by certain expenses within the financial
statements which will never be deductible on the
Company’s tax returns, 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 in
which it operates, including the U.S., several U.S. states
and the People’s Republic of China. The
statute of limitations varies by jurisdiction; tax years open
to federal or state general examination or other adjustment
as of July 3, 2011 were the tax years ended March 30, 2008,
March 29, 2009, March 28, 2010 and April 3, 2011, as well as
the tax year ended April 1, 2007 for several states.
The
Internal Revenue Service has notified the Company that its
consolidated federal income tax return for the tax year ended
March 29, 2009 has been selected for
examination. Although management believes that the
calculations and positions taken on this and all other filed
income tax returns are reasonable and justifiable, the final
outcome of this or any other examination could result in an
adjustment to the position that the Company took on such
income tax return. Such adjustment could be
favorable or unfavorable and could result in adjustments to
one or more state income tax returns, or to prior or
subsequent income tax returns, or both. The
cumulative effect of such adjustments could have a material
impact on the Company’s future results of
operations.
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.
The
following table sets forth the computation of basic and
diluted net income per common share for the three-month
periods ended July 3, 2011 and June 27, 2010.
Recently Issued
Accounting Standards: On May 12, 2011, the
FASB issued FASB ASU No. 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurements and Disclosure Requirements in
U.S. GAAP and IFRSs. This ASU is intended
to improve consistency across jurisdictions to ensure that
U.S. GAAP and International Financial Reporting Standards
(“IFRSs”) fair value measurement and disclosure
requirements are described in the same way. For
public entities, the amendments in this ASU are to be applied
prospectively effective for annual periods beginning after
December 15, 2011, and early application is not
permitted. The Company does not anticipate that
its adoption of ASU No. 2011-04 on April 2, 2012 will impact
its consolidated financial statements.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||