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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7604
CROWN CRAFTS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-0678148
(State of Incorporation) (I.R.S. Employer Identification No.)
916 S. BURNSIDE AVE
GONZALES, LOUISIANA 70737
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(225) 647-9100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $1.00 par value OTC Bulletin Board
Common Share Purchase Rights OTC Bulletin Board
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark if the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of September 29, 2002, 9,421,437 shares of Common Stock were
outstanding, and the aggregate market value of the Common Stock (based upon the
closing price of these shares on that date) held by persons other than Officers,
Directors, and 5% shareholders was approximately $3,078,755.
DOCUMENTS INCORPORATED BY REFERENCE:
Crown Crafts, Inc. Proxy Statement in connection with its 2003 Annual
Meeting of Shareholders (Parts II and III).
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PART I
ITEM 1. BUSINESS
Crown Crafts, Inc., a Georgia corporation founded in 1957, operates
indirectly through its subsidiaries in the Infant Products segment within the
Consumer Products industry. The Infant Products segment consists of infant
bedding, bibs, infant soft goods and accessories. Sales are generally made
directly to retailers, primarily mass merchants, large chain stores and gift
stores. These products are marketed under a variety of Company-owned trademarks,
under trademarks licensed from others, without trademarks as unbranded
merchandise and with customers' private labels.
In response to changing business conditions in the consumer products
industry, the Company made significant changes in its business operations over
the last three years. In addition to a program of cost reductions and
rationalization, the Company outsourced virtually all of its manufacturing to
domestic and foreign contract manufacturers with the exception of the specialty
hand wovens produced by Churchill Weavers and, until recently, screen-printed
infant bibs produced by Burgundy in Mexico. The Woven Products division, with
manufacturing primarily in north Georgia, was sold on November 14, 2000 and net
proceeds of $32.3 million were used to reduce debt. Following the outsourcing of
adult bedding and bath, the Roxboro, North Carolina plant was sold on June 14,
2001 and the proceeds of $8.0 million were used to reduce debt. Also, the
Company made a decision to exit the Adult Bedding and Bath business, and its net
assets related to that business of $12.4 million were sold effective July 23,
2001. Proceeds of the sale were $8.5 million cash plus the assumption of
liabilities of $3.4 million as well as the assumption of certain contingent
liabilities. Cash from the sale was used to reduce debt. Following the sale of
the Adult Bedding and Bath business, the Company is now primarily in the infant
and juvenile products business, but in describing the results of operations for
fiscal 2002 and 2001, reference is made to all of the product groups. Because of
the sale of assets and the refinancing that occurred July 23, 2001, the
Company's historical results are not indicative of the Company's future
operations.
In December 2002, the Company adopted a formal plan to change its sourcing
strategy for certain products and close the Mexican manufacturing facility
operated by its majority-owned subsidiary, Burgundy Interamericana. This
decision was based on extensive research by management which indicated that, due
to lower wages and the elimination of the quota on bibs, outsourcing the supply
of products currently manufactured by Burgundy to Asian manufacturers was more
cost-effective and competitive than maintaining existing operations in Mexico.
Under the plan, Burgundy will continue to operate through the first quarter of
fiscal 2004, at which time the Company will begin to liquidate Burgundy's
assets. As a result of the decision of the Company to discontinue its Mexican
operations, the Company recorded a $1.8 million restructuring charge to
operations in the quarter ended December 29, 2002, which consists primarily of a
write-down of the property and equipment at the Mexican facility of
approximately $800,000, inventory items deemed to be in excess of production
requirements of approximately $600,000, an accrual for contractual termination
benefits of approximately $300,000 due Burgundy's entire workforce
(approximately 130 employees) under the provisions of Mexico's labor regulations
and the write-off of goodwill of approximately $60,000. The Company expects to
pay approximately 65% of the severance benefits in the first quarter of fiscal
2004 and the remaining 35% in the second quarter of fiscal 2004. The Company
will continue to charge the ongoing operating costs associated with Burgundy's
production in the period in which the costs are incurred. As of March 30, 2003,
the Company estimates the total cost of liquidation, including costs to be
incurred to operate until closure, to be approximately $2.2 million.
PRODUCTS
The Company's primary focus is on infant and juvenile products.
Historically, the company's products also included two additional groups: 1)
bedroom and bath products and 2) throws.
Infant products include crib bedding, diaper stackers, mobiles, bibs,
receiving blankets, burp cloths, bathing accessories and other infant soft goods
and accessories.
1
Throws are manufactured and imported in a variety of colors, designs and
fabrics, including cotton, acrylic, cotton/acrylic blends, rayon, wool, fleece
and chenille.
The Company's bedroom products included comforters, comforter sets, sheets,
pillowcases, sheet sets, pillow shams, bed skirts, duvets, decorative pillows,
coverlets and jacquard-woven bedspreads.
During the fiscal years ended March 30, 2003, March 31, 2002 and April 1,
2001, bedroom and bath products represented 0%, 17% and 37%, respectively, of
consolidated net sales; throws represented 3%, 3% and 22%, respectively, of
consolidated net sales; and infant and juvenile products represented 97%, 80%
and 41%, respectively, of consolidated net sales.
PRODUCT DESIGN AND STYLING
The Company's research and development expenditures focus primarily on
product design and styling. The Company believes styling and design are key
components to its success. The Company's designs include traditional,
contemporary, textured and whimsical patterns. The Company designs and
manufactures products across a broad spectrum of retail price points and is
continually developing new designs for all of its product groups.
The Company's designers and stylists work closely with the Company's
marketing staff and licensors to develop new designs. The Company develops
designs internally and also obtains designs from numerous additional sources,
including graphic artists, decorative fabric manufacturers, apparel designers,
and its employees. The Company utilizes computer-aided-design systems to
increase its design flexibility and reduce costs. In addition, these systems
significantly shorten the time for responding to customer demands and changing
market trends. The Company also creates designs for exclusive sale by certain of
its customers.
SALES AND MARKETING, CUSTOMERS
The Company markets its products through a national sales force consisting
of salaried sales executives and employees and independent commissioned sales
representatives. Independent representatives are used most significantly in
sales to the gift trade and infant markets. Sales outside the United States are
made primarily through distributors.
The Company's customers consist principally of mass merchants, chain
stores, department stores, specialty home furnishings stores, wholesale clubs,
gift stores and catalogue and direct mail houses. The table below indicates
customers representing more than 10% of gross sales.
FISCAL YEAR
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2003 2002 2001
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Toys R Us................................................... 31% 26% 13%
Wal-Mart Stores, Inc........................................ 30% 22% 16%
Target Corporation.......................................... 10% * *
Federated Department Stores................................. * * 14%
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* Less than 10%.
The Company's sales offices are located in Huntington Beach, California,
Gonzales, Louisiana, Berea, Kentucky, Rogers, Arkansas and Lynne Haven, Florida.
The Company sells substantially all of its products to retailers for resale to
consumers. The Company's infant product subsidiaries generally introduce new
products once each year during the annual Juvenile Products Manufacturers'
Association ("JPMA") trade show. Private label products manufactured by the
Company are introduced throughout the year. New product introductions for the
gift trade are concentrated in January through March and June through August
when Churchill Weavers participates in numerous local and regional gift shows.
In fiscal 2003, less than 1% of the Company's gross sales were made through
its retail store in Berea, Kentucky. During fiscal 2001, stores in Calhoun,
Georgia and Rancho Santa Margarita, California were closed. The Company's
Roxboro, North Carolina store was sold on July 17, 2001.
2
MANUFACTURING
The Company's infant products are produced primarily by domestic and
foreign contract manufacturers. These products are then warehoused and shipped
from facilities in Compton, California and Gonzales, Louisiana.
RAW MATERIALS
The principal raw materials used in the manufacture of infant comforters,
sheets and accessories are printed and solid color cotton and polycotton
fabrics, and polyester fibers used as filling material. The principal raw
materials used in the manufacture of throws and other products are natural-color
and pre-dyed 100% cotton yarns, rayon yarns, and acrylic yarns. The principal
raw materials used in the production of infant bibs are knit-terry polycotton,
woven polycotton and vinyl fabrics. Although the Company usually maintains
supply relationships with only a limited number of suppliers, the Company
believes these raw materials presently are available from several sources in
quantities sufficient to meet the Company's requirements.
The Company uses significant quantities of cotton, either in the form of
cotton fabric or polycotton fabric. Cotton is subject to ongoing price
fluctuations. The price fluctuations are a result of cotton being an
agricultural product subject to weather patterns, disease and other factors as
well as supply and demand considerations, both domestically and internationally.
Significant increases in the price of cotton could adversely affect the
Company's operations.
SEASONALITY, INVENTORY MANAGEMENT
Historically, the Company has experienced a seasonal sales pattern in which
sales are lowest in the first fiscal quarter and peak in the second fiscal
quarter.
The Company carries normal inventory levels to meet delivery requirements
of customers. Customer returns of merchandise shipped are historically
approximately 0.8% of gross sales.
ORDER BACKLOG
The Company's backlog of unfilled customer orders believed by management to
be firm were $3.4 million and $3.9 million at March 30, 2003 and March 31, 2002,
respectively. The majority of these unfilled orders are shipped within
approximately eight weeks, and none are expected to be shipped beyond the
completion of the fiscal year ending March 29, 2004. Due to the prevalence of
quick-ship programs adopted by its customers, the Company does not believe that
its backlogs are a meaningful indicator of future business.
TRADEMARKS, COPYRIGHTS AND PATENTS
The Company's products are marketed in part under well-known trademarks.
The Company considers its trademarks to be of material importance to its
business. Infant products carry the trademarks Red Calliope(R), Cuddle Me(R),
NoJo(R), Hamco(R), Pinky Baby(R), and Churchill Weavers(R). Protection for these
trademarks is obtained through domestic registrations.
Certain products are manufactured and sold pursuant to licensing agreements
for trademarks that include, among others, Disney(R). The licensing agreements
for the Company's designer brands generally are for an initial term of one to
five years, and may or may not be subject to renewal or extension. Sales of
product under the Company's licenses with Disney Enterprises, Inc. accounted for
30% of the Company's total gross sales volume during fiscal 2003.
Many of the designs used by the Company are copyrighted by other parties,
including trademark licensors, and are available to the Company through
copyright licenses. Other designs are the subject of copyrights and design
patents owned by the Company.
During the fiscal year ended March 28, 1999, the Company entered into
licensing agreements with Calvin Klein, Inc. and Disney Enterprises, Inc. The
Calvin Klein license granted the Company the right to produce and sell bedroom
and bath products under the Calvin Klein brand. The Disney license expands the
Company's
3
right to produce and sell products featuring Disney characters. The current
Disney license expires December 31, 2004. In connection with the sale of the
Adult Bedding and Bath business effective July 23, 2001, the rights of the
Company under the Calvin Klein license were terminated.
The Company's aggregate commitment for minimum guaranteed royalty payments
under all of its license agreements is $2.4 million, $0.3 million, $0.2 million,
and $0 for fiscal 2004, 2005, 2006 and thereafter, respectively. The Company
believes that future sales of royalty products will exceed amounts required to
cover the minimum royalty guarantees. The Company's total royalty expense, net
of royalty income, was $6.5 million, $7.5 million and $14.4 million for fiscal
2003, 2002 and 2001, respectively.
COMPETITION
The infant consumer products industry is highly competitive. The Company
competes with a variety of distributors and manufacturers and believes that it
is the largest producer of infant bed coverings and bibs, enjoying approximately
one-third of infant bedding market share and one-half of bib and infant bath
item market share within these segments. The Company competes on the basis of
quality, design, price, service and packaging. The Company is a leader in its
respective industry segment. Its leadership results from the integration of
extensive proprietary product design with low-cost, high-quality global sourcing
to produce and market high-value merchandise to major customers. With a strong
commitment to customer service, the Company develops distinctive programs for
individual customers and maximizes retail productivity with aggressive pricing,
quick replenishment merchandise management and efficient customer order
execution.
GOVERNMENT REGULATION; ENVIRONMENTAL CONTROL
The Company is subject to various federal, state and local environmental
laws and regulations which regulate, among other things, the discharge, storage,
handling and disposal of a variety of substances and wastes. The Company's
operations are also governed by laws and regulations relating to employee safety
and health, principally the Occupational Safety and Health Administration Act
and regulations thereunder.
The Company believes that it currently complies in all material respects
with applicable environmental, health and safety laws and regulations. Although
the Company believes that future compliance with such existing laws or
regulations will not have a material adverse effect on its capital expenditures,
earnings or competitive position, there can be no assurances that such
requirements will not become more stringent in the future or that the Company
will not incur significant costs in the future to comply with such requirements.
EMPLOYEES
At March 30, 2003, the Company had approximately 386 employees. None of the
Company's U.S. employees are represented by a labor union, and the Company
considers its relationship with its employees to be good. The Company's 127
employees in Mexico are represented by a labor union. The Company attracts and
maintains qualified personnel by paying competitive salaries and benefits and
offering opportunities for advancement.
INTERNATIONAL SALES
Sales to customers in foreign countries outside the United States are not
currently material to the Company's business.
ITEM 2. PROPERTIES
The Company's headquarters are located in Gonzales, Louisiana. The Company
rents approximately 17,211 square feet at this location under a lease that
expires April 25, 2007.
4
The following table summarizes certain information regarding the Company's
principal properties.
APPROXIMATE OWNED/
LOCATION USE SQUARE FEET LEASED
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Gonzales, Louisiana....... Administrative and sales office 17,211 Leased(1)
Berea, Kentucky........... Offices, manufacturing, warehouse and 53,000 Owned
distribution facilities and retail store
Compton, California....... Offices, warehouse and distribution center 157,400 Leased(2)
Compton, California....... Warehouse 100,000 Leased(3)
Gonzales, Louisiana....... Office, warehouse and distribution center 60,000 Leased(4)
Huntington Beach, Offices 7,600 Leased(5)
California..............
Rogers, Arkansas.......... Sales office 1,625 Leased(6)
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(1) Lease expires April 25, 2007.
(2) Lease expires May 31, 2006.
(3) Lease expires May 31, 2004.
(4) Lease expires March 31, 2005.
(5) Lease expires April 30, 2004.
(6) Lease expires November 30, 2004.
Management believes that its properties are suitable for the purposes for
which they are used, are in generally good condition and provide adequate
capacity for current and anticipated future operations. The Company's business
is somewhat seasonal so that during the late summer and fall months these
facilities are fully utilized, while at other times of the year the Company has
excess capacity.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. Neither the
Company nor any of its subsidiaries is a party to any such legal proceeding the
outcome of which, individually or in the aggregate, is expected to have a
material adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended March 30, 2003.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company is authorized by its Articles of Incorporation to issue up to
50,000,000 shares of capital stock, all of which are designated common stock,
par value $1.00 per share.
COMMON STOCK
Effective April 10, 2001, the Company's common stock (the "Common Stock")
was removed from the listing of the New York Stock Exchange ("NYSE") as it fell
below the minimum standards of market capitalization for continued listing by
the NYSE. The Common Stock currently trades on the OTC Bulletin Board with the
ticker symbol "CRWS". The following table presents quarterly information on the
price range
5
of the Company's Common Stock for the fiscal years ended March 30, 2003 and
March 31, 2002. This information indicates the high and low sale prices as
reported on the OTC Bulletin Board.
QUARTER HIGH LOW
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FISCAL 2003
First Quarter............................................... $0.80 $0.43
Second Quarter.............................................. 1.05 0.55
Third Quarter............................................... 0.60 0.41
Fourth Quarter.............................................. 0.55 0.45
FISCAL 2002
First Quarter............................................... $0.60 $0.09
Second Quarter.............................................. 0.90 0.12
Third Quarter............................................... 0.90 0.25
Fourth Quarter.............................................. 0.60 0.40
As of June 4, 2003 there were issued and outstanding 9,421,437 shares of
the Company's Common Stock held by approximately 744 registered holders. At June
4, 2003, the Company's Common Stock closed at $0.68.
In fiscal 2000, the Company paid a dividend of $0.03 per share on its
Common Stock on each of June 27, 1999, September 26, 1999 and December 26, 1999.
As part of the conditions under its loan agreements and to conserve liquidity,
the Company has not paid a dividend since December 26, 1999 and has no plans to
resume payment of dividends.
The information set forth under the caption "Equity Compensation Plans" in
the Proxy Statement is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for the five years ended March
30, 2003 is from the Company's financial statements. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this Annual Report.
FISCAL YEAR
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2003 2002 2001 2000 1999
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IN THOUSANDS, EXCEPT PER SHARE DATA
FOR THE YEAR
Net sales........................ $94,735 $117,591 $247,515 $319,893 $362,071
Gross profit..................... 21,420 25,928 18,542 35,156 51,259
Income (loss) from operations.... 6,948 5,022 (59,555) (19,558) (7,026)
Net income (loss)................ 2,487 27,002 (73,587) (29,148) (11,772)
Basic net income (loss) per
share.......................... 0.26 2.95 (8.55) (3.39) (1.37)
Diluted net income (loss) per
share.......................... 0.12 1.37 (8.55) (3.39) (1.37)
Cash dividends per share......... 0.00 0.00 0.00 0.09 0.12
AT YEAR END
Total assets..................... $57,926 $ 60,200 $ 90,678 $215,004 $264,851
Long-term debt................... 30,895 36,773 47,650 106,593 72,857
Shareholders' equity (deficit)... 15,265 12,813 (16,773) 56,815 86,779
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS AND DISPOSITIONS
In response to changing business conditions in the consumer products
industry, the Company made significant changes in its business operations over
the last three years. In addition to a program of cost reductions and
rationalization, the Company outsourced virtually all of its manufacturing to
domestic and
6
foreign contract manufacturers with the exception of the specialty hand wovens
produced by Churchill Weavers and, until recently, screen-printed infant bibs
produced by Burgundy in Mexico. The Woven Products division, with manufacturing
primarily in north Georgia, was sold on November 14, 2000 and net proceeds of
$32.3 million were used to reduce debt. Following the outsourcing of adult
bedding and bath, the Roxboro, North Carolina plant was sold on June 14, 2001
and the proceeds of $8.0 million were used to reduce debt. Also, the Company
made a decision to exit the Adult Bedding and Bath business, and its net assets
related to that business of $12.4 million were sold effective July 23, 2001.
Proceeds of the sale were $8.5 million cash plus the assumption of liabilities
of $3.4 million as well as the assumption of certain contingent liabilities.
Cash from the sale was used to reduce debt. Following the sale of the Adult
Bedding and Bath business, the Company is now primarily in the infant and
juvenile products business, but in describing the results of operations for
fiscal 2002 and 2001, reference is made to all of the product groups. Because of
the sale of assets and the refinancing that occurred July 23, 2001, the
historical results are not indicative of the Company's future operations. The
provision for impairment recorded in 2001 includes $12.4 million for a computer
system that was abandoned in fiscal 2001.
RESTRUCTURING CHARGE
In December 2002, the Company adopted a formal plan to change its sourcing
strategy for certain products and close the Mexican manufacturing facility
operated by its majority-owned subsidiary, Burgundy Interamericana. This
decision was based on extensive research by management which indicated that, due
to lower wages and the elimination of the quota on bibs, outsourcing the supply
of products currently manufactured by Burgundy to Asian manufacturers was more
cost-effective and competitive than maintaining existing operations in Mexico.
Under the plan, Burgundy will continue to operate through the first quarter of
fiscal 2004, at which time the Company will begin to liquidate Burgundy's
assets. As a result of the decision, the Company recorded a $1.8 million
restructuring charge to operations in the quarter ended December 29, 2002, which
consists primarily of a write-down of the property and equipment at the Mexican
facility of approximately $800,000, inventory items deemed to be in excess of
production requirements of approximately $600,000, an accrual for contractual
termination benefits of approximately $300,000 due Burgundy's entire workforce
(approximately 130 employees) under the provisions of Mexico's labor regulations
and the write-off of goodwill of approximately $60,000. The Company expects to
pay approximately 65% of the severance benefits in the first quarter of fiscal
2004 and the remaining 35% in the second quarter of fiscal 2004. The Company
will continue to charge the ongoing operating costs associated with Burgundy's
production in the period in which the costs are incurred. As of March 30, 2003,
the Company estimates the total cost of liquidation, including costs to be
incurred to operate until closure, to be approximately $2.2 million.
RESULTS OF OPERATIONS: FISCAL 2003 COMPARED TO FISCAL 2002
Total net sales for fiscal 2003 decreased $22.9 million, or 19.4%, to $94.7
million from $117.6 million for fiscal 2002. Net sales of bedroom and bath
products decreased $19.9 million, or 100%, net sales of throws decreased
$635,000, or 19.9%, to $2.6 million, and net sales of infant and juvenile
products decreased $2.2 million, or 2.3%, to $92.2 million.
The decrease in sales of bedroom and bath products was the result of the
sale of the Adult Bedding and Bath division on July 23, 2001. The decrease in
sales of infant and juvenile products is primarily due to lost sales resulting
from the West Coast port slowdown in September 2002 and the subsequent closure
in October 2002 and lower reorders in ongoing business due to SKU reduction by
certain major customers.
In fiscal 2003, cost of sales decreased to 77.4% of net sales from 78.0%
for fiscal 2002. The decrease relates primarily to changes in product mix as a
result of the divestment referenced above.
Marketing and administrative expenses decreased by $8.2 million, or 39.3%,
in the current fiscal year compared to the prior fiscal year and were 13.4% of
net sales for the current fiscal year compared to 17.7% in the prior fiscal
year. The decrease is a result of the divestment referenced above as well as the
elimination of duplicate positions and locations.
7
As discussed in Note 4 to the Company's Consolidated Financial Statements,
the Company recorded a $1.8 million restructuring charge in the quarter ended
December 29, 2002 related to the closure of the Company's Mexican manufacturing
facility.
Interest expense for fiscal 2003 decreased by $2.4 million because of a
lower average debt balance and reduced interest rates. As discussed in
"Financial Position, Liquidity and Capital Resources" below, the Company had
$30.9 million in long-term debt at March 30, 2003 compared to $36.8 million at
March 31, 2002. This $5.9 million decrease in debt includes payments totaling $3
million on senior notes and a decrease in the revolving credit facility of $3.7
million offset by an increase in debt related to the amortization of the
discount discussed below and the issuance of a promissory note in the amount of
$274,000 related to the payment of interest on the senior subordinated notes.
Due to accumulated losses, the income tax provision for fiscal 2003
includes a provision for federal alternative minimum tax of $103,000, along with
a provision for state income taxes of $161,000, for a total tax provision of
$264,000. For fiscal 2002, the Company recorded an income tax benefit of $1.9
million.
RESULTS OF OPERATIONS: FISCAL 2002 COMPARED TO FISCAL 2001
Total net sales for fiscal 2002 decreased $129.9 million, or 52.5%, to
$117.6 million. Net sales of bedroom and bath products decreased $70.6 million
to $19.9 million, net sales of throws decreased $52.1 million to $3.2 million,
and net sales of infant and juvenile products decreased $7.1 million to $94.5
million.
The decrease in sales of throws was due to the sale of the Woven Products
division on November 14, 2000. The decrease in sales of bedroom and bath
products was the result of the sale of the Adult Bedding and Bath division on
July 23, 2001. Lower sales of infant and juvenile products were due to changes
in buying patterns by major retailers.
In fiscal 2002, cost of sales decreased to 78.0% of net sales from 92.5% in
fiscal 2001. The decrease relates primarily to changes in product mix as a
result of the divestments mentioned above. In addition, the Company incurred
lower manufacturing costs as a result of outsourcing.
Marketing and administrative expenses decreased $22.4 million, or 51.8%,
for fiscal 2002 as the Company continued its restructuring. Marketing and
selling expenses decreased by $12.2 million from $19.3 million in fiscal 2001 to
$7.1 million in fiscal 2002 as a result of the restructuring and reduced sales.
Administrative expenses decreased from $22.9 million to $12.7 million as cost
reductions were partially offset by restructuring expenses such as consulting,
legal and investment banking fees. Amortization of goodwill was $1.1 million for
both fiscal year 2002 and 2001.
For fiscal 2002, loss on disposition of assets was $34,000 compared to a
loss on disposition of assets of $6.5 million for fiscal 2001. The loss in
fiscal 2002 represented a loss on the sale of leasehold improvements in
connection with the move of the Company's subsidiary, Hamco. The loss in fiscal
2001 represented the loss on sale of the Woven Products division. Also in 2001,
gains, primarily on the sale of real property in Louisiana and North Carolina,
were offset by other losses. The provision for impairment of $28.2 million at
April 1, 2001 includes a $4.9 million loss on sale of the Timberlake, North
Carolina plant, a $10.9 million impairment for the expected loss on sale of the
Adult Bedding and Bath business and a $12.4 million impairment for abandoned
computer systems. Losses on sale of inventory of $2.9 million and $13.3 million
were also incurred in connection with the sales of the Woven Products division
and the Adult Bedding and Bath business, respectively. This expense was included
in cost of sales. Because of the sale of assets and the refinancing that
occurred July 23, 2001, the historical results are not indicative of the
Company's future operations.
Interest expense decreased by $7.8 million as a result of the restructuring
of the Company discussed in the "Financial Position, Liquidity and Capital
Resources" section below. Other income, net of expenses, increased by $1.3
million due to a reduction in other expenses.
In fiscal 2002, the tax benefit was $1.9 million due to a net operating
loss carryback resulting from the change in federal income tax regulations. In
fiscal 2001, the benefit of the operating losses was equivalent to an effective
tax rate of 0%. Due to the losses incurred, the Company has a net operating loss
carryforward of
8
$16.9 million that is available to offset future taxable income, although a
valuation reserve has been established for the benefit of the carryforward due
to uncertainty regarding realization.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $6.0 million for the year
ended March 30, 2003 compared to net cash provided by operating activities of
$5.4 million for the year ended March 31, 2002. Net cash used by investing
activities was $0.4 million in 2003 compared to net cash provided by investing
activities of $18.0 million in the prior year period. Net cash used for
financing activities was $5.9 million compared to net cash used for financing
activities of $23.6 million in the prior year period. Total debt outstanding
decreased to $33.9 million at March 30, 2003 from $39.8 million at March 31,
2002. As of March 30, 2003, letters of credit of $1.35 million were outstanding
against the $3 million sub-limit for letters of credit associated with the
Company's $19 million revolving credit facility. As of March 30, 2003, the
Company had revolving credit availability of $15.3 million.
The Company's ability to make scheduled payments of principal, to pay the
interest on or to refinance its maturing indebtedness, to fund capital
expenditures or to comply with its debt covenants will depend upon future
performance. The Company's future performance is, to a certain extent, subject
to general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the current level of operations, the
Company believes that cash flow from operations together with revolving credit
availability will be adequate to meet liquidity needs.
At March 30, 2003 and March 31, 2002, long-term debt consisted of:
MARCH 30, MARCH 31,
2003 2002
--------- ---------
Promissory notes............................................ $35,068 $38,000
Floating rate revolving credit facilities................... 1,799 5,542
Non-interest bearing notes.................................. 274 --
Original issue discount..................................... (3,232) (3,769)
------- -------
33,909 39,773
Less current maturities..................................... 3,014 3,000
------- -------
$30,895 $36,773
======= =======
On July 23, 2001 the Company completed a refinancing of its debt. These
credit facilities include the following:
Revolving Credit of up to $19 million including a $3 million sub-limit
for letters of credit, of which $14.0 million was drawn at closing. The
interest rate is prime plus 1.00% (5.25% at March 30, 2003) for base rate
borrowings and LIBOR plus 2.75% (4.06% at March 30, 2003) for Euro-dollar
borrowings. The maturity date is June 30, 2004. The facility is secured by
a first lien on all assets. The balance at March 30, 2003 was $1.8 million.
The Company had $15.3 million available at March 30, 2003. As of March 30,
2003, letters of credit of $1.35 million were outstanding against the $3
million sub-limit for letters of credit associated with the $19 million
revolving credit facility.
Senior Notes of $14 million with a fixed interest rate of 10% plus
additional interest contingent upon cash flow availability of 3%. The
maturity date is June 30, 2006 and the notes are secured by a first lien on
all assets. Minimum principal payments of $500,000 are due at the end of
each calendar quarter. In the event that required debt service exceeds 85%
of free cash flow (EBITDA (as hereinafter defined) less capital
expenditures and cash taxes paid), the excess of contingent interest and
principal amortization over 85% will be deferred until maturity of the
Senior Notes in June 2006. Contingent interest plus additional principal
payments will be due annually up to 85% of free cash flow. On September 30,
2002, the Company made a payment to the lenders of $1.6 million related to
excess cash flow. The Company anticipates that it will make another excess
cash flow payment of $1.3 million on September 30, 2003.
9
Senior Subordinated Notes of $16 million with a fixed interest rate of
10% plus an additional 1.65% payable by delivery of a promissory note due
July 23, 2007. The maturity date is July 23, 2007 and the notes are secured
by a second lien on all assets. In addition to principal and interest, a
payment of $8 million is due on the earliest of (i) maturity of the notes,
(ii) prepayment of the notes, or (iii) sale of the Company. The original
issue discount of $4.1 million on this non-interest bearing note at a
market interest rate of 12% is being amortized over the life of the notes.
The remaining balance of $3.2 million is included in the Consolidated
Balance Sheet as of March 30, 2003.
These credit facilities contain covenants regarding minimum levels of
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
maximum total debt to EBITDA, maximum senior debt to EBITDA, minimum EBITDA to
cash interest and minimum shareholders' equity. Certain covenants included in
the credit facilities were amended in conjunction with the liquidation of
Burgundy, as discussed in Note 4 to the Company's Consolidated Financial
Statements, in order to account for the recording of the related restructuring
charge. The bank facilities also place restrictions on the amounts the Company
may expend on acquisitions and purchases of treasury stock and currently
prohibit the payment of dividends.
Minimum annual maturities are as follows (in thousands):
FISCAL REVOLVER SENIOR NOTES SUB NOTES PIK NOTES TOTAL
- ------ -------- ------------ --------- --------- -------
2004.............................. $ -- $ 3,000 $ -- $ -- $ 3,000
2005.............................. -- 2,000 -- -- 2,000
2006.............................. -- 2,500 -- -- 2,500
2007.............................. 1,799 3,500 -- -- 5,299
2008.............................. -- -- 24,000* 274 24,274
------ ------- ------- ---- -------
Total............................. $1,799 $11,000 $24,000 $274 $37,073
====== ======= ======= ==== =======
- ---------------
* Includes $8 million non-interest bearing note issued at an original issue
discount of $4.1 million.
As part of the refinancing, the Company issued to the lenders warrants for
non-voting common stock that are convertible into common stock equivalent to 65%
of the shares of the Company on a fully diluted basis at a price of 11.3 cents
per share. The warrants are non-callable and expire in six years from their date
of issuance. The value of the warrants of $2.4 million using the Black-Scholes
option pricing model was credited to additional paid-in capital in the second
quarter of fiscal 2002. The dilutive effect of these warrants on earnings per
share for the fiscal periods ended March 30, 2003 and March 31, 2002 was $0.15
per share and $1.58 per share, respectively. Also, in the second quarter of
fiscal 2002, the Company recognized a gain of $25.0 million representing
forgiveness of indebtedness income (net of $2.9 million of expenses incurred) in
connection with the refinancing.
To reduce its exposure to credit losses and to enhance its cash flow, the
Company assigns the majority of its trade accounts receivable to a commercial
factor. The Company's factor establishes customer credit lines and accounts for
and collects receivable balances. Under the terms of the factoring agreement,
which expires in July, 2005, the factor remits payments to the Company on the
average due date of each group of invoices assigned. If a customer fails to pay
the factor on the due date, the Company is charged interest at the greater of 6%
or prime, which was 4.25% at March 30, 2003, until payment is received. 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. The Company's factor at any time may terminate
or limit its approval of shipments to a particular customer. If such a
termination occurs, the Company may either assume the credit risks for shipments
after the date of such termination or cease shipments to such customer.
Management does not believe that inflation has had a material effect on the
Company's operations. If inflation increases, the Company will attempt to
increase its prices to offset its increased expenses. No assurance can be given,
however, that the Company will be able to adequately increase its prices in
response to inflation.
10
During fiscal 2002, the Company incurred approximately $1.5 million in
non-recurring charges related to the sale of the Adult Bedding and Bath division
in July, 2001, the sale of the Woven Products division in November, 2000, and
the relocation of the Company's corporate headquarters. These costs included
$850,000 in wages and benefits (including severance) paid to temporary and
terminated employees, $795,000 in operating expenses and $206,000 in data
collection and transfer costs offset by $356,000 in vendor discounts and
allowances.
CRITICAL ACCOUNTING POLICIES
While the listing below is not inclusive of all of the Company's accounting
policies, the Company's management believes that the following policies are
those which are most critical and embody the most significant management
judgments due to the uncertainties affecting their application and the
likelihood that materially different amounts would be reported under different
conditions or using different assumptions. These critical policies are:
Revenue Recognition: Sales are recorded when goods are shipped to
customers, and are reported net of returns and allowances in the consolidated
statements of operations and comprehensive income (loss).
Sales Returns and Other Allowances and Allowance for Doubtful
Accounts: The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Specifically, management must make estimates of potential
future product returns related to current period product revenues. The Company's
sales arrangements do not generally include acceptance provisions or clauses.
Additionally, the Company does not typically grant its distributors or other
customers price protection rights or rights to return products bought, other
than normal and customary rights of return for defects in materials or
workmanship, and is not obligated to accept product returns for any other
reason. Actual returns have not historically been significant. Management
analyzes historical returns, current economic trends and changes in customer
demand when evaluating the adequacy of its sales returns and other allowances.
The Company factors the majority of its receivables. In the event a
factored receivable becomes uncollectible due to credit worthiness, the factor
bears the risk of loss. The Company's management must make estimates of the
uncollectibility of its non-factored accounts receivable. Management
specifically analyzes accounts receivable, historical bad debts, customer
concentrations, customer credit worthiness, current economic trends and changes
in its customers' payment terms when evaluating the adequacy of its allowance
for doubtful accounts. The Company's accounts receivable at March 30, 2003
totaled $15.8 million, net of the allowances of $1.9 million.
Inventory Valuation: The preparation of the Company's financial statements
requires careful determination of the appropriate dollar amount of the Company's
inventory balances. Such amount is presented as a current asset in the Company's
balance sheet and is a direct determinant of cost of goods sold in the statement
of operations and, therefore, has a significant impact on the amount of net
income reported in an accounting period. The basis of accounting for inventories
is cost, which is the sum of expenditures and charges, both direct and indirect,
incurred to bring the inventory quantities to their existing condition and
location. The Company's inventories are 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
manufactured or purchased. The Company utilizes standard costs as a management
tool. The Company's standard cost valuation of its inventories is adjusted at
regular intervals to reflect the approximate cost of the inventory under FIFO.
The determination of the indirect charges and their allocation to the Company's
work-in-process and finished goods inventories is complex and requires
significant management judgment and estimates. Material differences may result
in the valuation of the Company's inventories and in the amount and timing of
the Company's cost of goods sold and resulting net income for any period if
management made different judgments or utilized different estimates.
On a periodic basis, management reviews its inventory quantities on hand
for obsolescence, physical deterioration, changes in price levels and the
existence of quantities on hand which may not reasonably be
11
expected to be used or sold within the normal operating cycles of the Company's
operations. To the extent that any of these conditions are believed to exist or
the utility of the inventory quantities in the ordinary course of business is no
longer as great as their carrying value, an allowance against the inventory
valuation is established. To the extent that this allowance is established or
increased during an accounting period, an expense is recorded in the Company's
statement of operations, generally in cost of goods sold. 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 need to
establish additional allowances which could materially impact the Company's
financial position and results of operation.
As of March 30, 2003, the Company's inventories totaled $15.5 million, net
of allowances for discontinued and irregular inventories of $1.6 million.
Management believes that the Company's inventory valuation together with
recorded allowances for slow moving and obsolete inventories, results in
carrying the inventory at lower of cost or market.
Derivative Instruments and Hedging Activities: The Company accounts for
derivative instruments and hedging activities in accordance with Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities, which was adopted by the Company on April 2,
2001. Under SFAS 133, derivative instruments are recognized in the balance sheet
at fair value and changes in the fair value of such instruments are recognized
currently in earnings unless specific hedge accounting criteria are met. At
March 30, 2003 and March 31, 2002 the Company had no derivative instruments.
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 year in net deferred
income tax assets and liabilities. The Company provides for deferred income
taxes based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates that will be in effect when the
differences are expected to reverse. Deferred tax assets have been reduced by a
valuation allowance, if necessary, in the amount of any tax benefits that, based
on available evidence, are not expected to be realized.
Valuation of Long-Lived and Intangible Assets and Goodwill: The Company
assesses the impairment of identifiable intangibles, long-lived assets and
related goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable based on estimates of future undiscounted
cash flows. Factors that are considered by management in performing this
assessment include, but are not limited to, the Company's performance relative
to historical or projected future operating results, the Company's intended use
of acquired assets or the Company's strategy for its overall business, and
industry or economic trends.
In the event that the carrying value of intangibles, long-lived assets and
related goodwill is determined to be impaired, such impairment is measured using
a discount rate determined by management to be commensurate with the risk
inherent in the Company's current business model. Net intangible assets, long-
lived assets and goodwill, including property and equipment, amounted to $25.2
million as of March 30, 2003.
As discussed below, on April 1, 2002, the Company implemented SFAS No. 142,
Goodwill and Other Intangible Assets, and as a result, the Company discontinued
amortizing approximately $23.0 million of goodwill but continued to amortize
other long-lived intangible assets. Goodwill amortization expense recorded
during 2002 amounted to approximately $1.1 million. In lieu of amortization, the
Company is required to perform an annual impairment review of its goodwill. The
Company performed a transitional fair value based impairment test on its
goodwill in accordance with SFAS 142 and has determined that the fair value
exceeded the recorded value at April 1, 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets.
SFAS 141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and eliminates
12
the use of the pooling-of-interests method. The application of SFAS 141 did not
affect any of the Company's previously reported amounts included in goodwill or
other intangible assets. SFAS 142 requires that the amortization of goodwill
cease prospectively upon adoption and instead, the carrying value of goodwill be
evaluated using an impairment approach. Identifiable intangible assets will
continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. SFAS 142 is effective for fiscal years
beginning after December 15, 2001, and was implemented by the Company on April
1, 2002. Beginning in fiscal 2003, the Company discontinued amortizing goodwill
but continued to amortize other long-lived intangible assets. The Company has
performed a transitional fair value based impairment test on its goodwill in
accordance with SFAS 142 and has determined that the fair value exceeded the
recorded value at April 1, 2002. Following is a reconciliation of previously
reported net income and basic and diluted net income per share to the amounts
that would have been reported if SFAS 142 had been effective as of April 2, 2001
and the amortization of goodwill had been discontinued as of that date.
2003 2002 2001
------ ------- --------
Reported net income (loss).............................. $2,487 $27,002 $(73,587)
Goodwill amortization................................. -- 1,054 1,099
------ ------- --------
Adjusted net income (loss)............................ $2,487 $28,056 $(72,488)
====== ======= ========
Basic income (loss) per share:
Reported net income (loss)............................ $ 0.26 $ 2.95 $ (8.55)
Goodwill amortization................................. -- 0.11 0.13
------ ------- --------
Adjusted net income (loss)............................ $ 0.26 $ 3.06 $ (8.42)
====== ======= ========
Diluted income (loss) per share:
Reported net income (loss)............................ $ 0.12 $ 1.37 $ (8.55)
Goodwill amortization................................. -- 0.05 0.13
------ ------- --------
Adjusted net income (loss)............................ $ 0.12 $ 1.42 $ (8.42)
====== ======= ========
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Although SFAS 144 supersedes SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, it retains most of the concepts of that standard, except that it eliminates
the requirement that goodwill be allocated to long-lived assets for impairment
testing purposes and it requires that a long-lived asset to be abandoned or
exchanged for a similar asset be considered held and used until it is disposed
of (i.e., the depreciable life should be revised until the asset is actually
abandoned or exchanged). Also, SFAS 144 includes the basic provisions of
Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
presentation of discontinued operations in the income statement but broadens
that presentation to include a component of an entity rather than a segment of a
business, where that component can be clearly distinguished from the rest of the
entity. SFAS 144 is effective for fiscal years beginning after December 15, 2001
and was implemented by the Company on April 1, 2002. The adoption of SFAS 144
did not have a significant effect on the Company's financial statements on the
date of adoption.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS 145 provides, among other things, that gains on the extinguishments of debt
will generally no longer be classified as extraordinary items in the statements
of operations. It also provides that gains on extinguishments be reclassified in
prior years financial statements presented for comparative purposes. SFAS 145 is
effective for fiscal years beginning after May 15, 2002 with earlier adoption
encouraged. The Company adopted SFAS 145 effective July 1, 2002. The adoption of
SFAS 145 required that a gain on debt refinancing of $25 million realized in the
second quarter of fiscal 2002 be reclassified into income before extraordinary
items.
13
In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities, which was effective for transactions initiated
after December 31, 2002. SFAS 146 requires companies to recognize costs
associated with restructurings, discontinued operations, plant closings, or
other exit or disposal activities, when incurred rather than at the date a plan
is committed to. The adoption of FAS 146 did not have a material impact on the
Company's consolidated financial statements on the date of adoption.
In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends FASB 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, FASB 148 amends the disclosure requirements
of FASB 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS 148 is
effective for the Company's fiscal period ending March 30, 2003. Management
adopted this standard on that date and determined that they would continue to
utilize the intrinsic method of accounting and included the additional
disclosures in the current year financial statements.
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements within the meaning
of the federal securities law. 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 are intended to 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 anticipated. These
risks include, among others, general economic conditions, changing competition,
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, the Company's ability to
integrate its acquisitions and new licenses and the Company's ability to
implement operational improvements in its acquired businesses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
debt, commodity prices and foreign exchange rates. The exposure to interest rate
risk relates to its floating rate debt, $1.8 million of which was outstanding at
March 30, 2003 compared to $5.5 million at March 31, 2002. Each 1.0 percentage
point increase in interest rates would impact pretax earnings by $18,000 at the
debt level of March 30, 2003 and $55,000 at the debt level of March 31, 2002.
The exposure to commodity price risk primarily relates to changes in the price
of cotton, which is a principal raw material in a substantial number of the
Company's products. The exposure to foreign exchange rates relates to its
Mexican manufacturing subsidiary. During the fiscal year ended March 30, 2003,
this subsidiary manufactured products for the Company with a value of
approximately $4.5 million compared to $3.9 million during the fiscal year ended
March 30, 2002. The Company's investment in the subsidiary was approximately
$2.7 million at March 30, 2003 and March 31, 2002. In December 2002, the Company
adopted a formal plan to terminate operations at this facility.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-19 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has neither changed its independent accountants nor had any
disagreements on accounting or financial disclosure with such accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the Company's directors and executive
officers is set forth in the Company's Proxy Statement for the Annual Meeting of
Shareholders (the "Proxy Statement") under the captions "Election of Directors"
and "Executive Officers" and is incorporated herein by reference. The
information with respect to Item 405 of Registration S-K is set forth in the
Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information set forth under the caption "Voting Rights and Principal
Shareholders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic
filings under the Exchange Act.
Since the Evaluation Date, there have not been any significant changes in
the Company's internal controls or in other factors that could significantly
affect such controls.
15
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements. The following consolidated financial
statements of the Company are filed with this report and included in Part II,
Item 8:
PAGE
----
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of March 30, 2003 and March
31, 2002.................................................. F-2
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Three Fiscal Years in the Period
Ended March 30, 2003...................................... F-3
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Three Fiscal Years in the Period Ended
March 30, 2003............................................ F-4
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 30, 2003.................. F-5
Notes to Consolidated Financial Statements.................. F-6
(a)2. Financial Statement Schedule. The following financial statement
schedule of the Company is filed with this report:
SCHEDULE PAGE
- -------- ----
II -- Valuation and Qualifying Accounts...................................................... 17
All other schedules not listed above have been omitted because they are not
applicable or the required information is included in the financial statements
or notes thereto.
16
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ------------- ----------
CHARGED TO
COSTS AND
BALANCE AT (REVERSED BALANCE AT
BEGINNING FROM) END OF
OF PERIOD EXPENSES DEDUCTIONS(1) PERIOD
---------- ---------- ------------- ----------
(IN THOUSANDS)
Accounts Receivable Valuation Accounts:
Year Ended April 1, 2001
Allowance for doubtful accounts............... 609 32 465 176
Allowance for customer deductions............. 5,162 (3,401)(2) -- 1,761
Year Ended March 31, 2002
Allowance for doubtful accounts............... 176 46 28 194
Allowance for customer deductions............. 1,761 (114) -- 1,647
Year Ended March 30, 2003
Allowance for doubtful accounts............... 194 172 183 183
Allowance for customer deductions............. 1,647 97 -- 1,744
Inventory Valuation Accounts:
Year Ended April 1, 2001
Allowance for discontinued and irregulars..... 6,176 (4,026)(2) -- 2,150
Year Ended March 31, 2002
Allowance for discontinued and irregulars..... 2,150 19 -- 2,169
Year Ended March 30, 2003
Allowance for discontinued and irregulars..... 2,169 (536) -- 1,633
Restructuring Reserve:
Year ended March 31, 2002
Allowance for restructuring costs............. -- 554(3) -- 554
Year ended March 30, 2003
Allowance for restructuring costs............. 554 1,775(4) (608) 1,721
- ---------------
(1) Deductions from the allowance for doubtful accounts represent the amount of
accounts written off reduced by any subsequent recoveries.
(2) Credits relate to assets held for sale at April 1, 2001.
(3) Reserve relates to the closure of the Adult Bedding and Bath Division in
July 2001.
(4) Reserve relates to the decision to close the Company's Mexican manufacturing
facility.
17
(a)3. Exhibits. Exhibits required to be filed by Item 601 of Regulation
S-K are included as Exhibits to this report as follows:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
2.1 -- Merger Agreement dated as of October 8, 1995 between and
among the Company and CC Acquisition Corp, and Neal Fohrman
and Stanley Glickman and The Red Calliope and Associates,
Inc.(5)
2.2 -- Merger Agreement dated as of July 23, 2001 by and among the
Company, Crown Crafts Designer, Inc., Design Works Holding
Company and Design Works, Inc. (the "Merger Agreement").(9)
3.1 -- Second Amended and Restated Articles of Incorporation of the
Company.(9)
3.2 -- Bylaws of the Company.(1)
3.3 -- Amendments to Bylaws dated March 23, 2001.(8)
4.1 -- Instruments defining the rights of security holders are
contained in the Second Amended and Restated Articles of
Incorporation of the Company.(1)
4.2 -- Instruments defining the rights of security holders are
contained in Article II of the Restated Bylaws of the
Company.(1)
4.3 -- Amendment No. 1 to Rights Agreement dated as of April 29,
2003 between the Company and Sun Trust Bank (successor by
merger to Trust Company Bank), including the amended and
restated Summary of Rights to Purchase Common Shares
(Exhibit B).(12)
4.4 -- Form of Rights Agreement dated as of August 11, 1995 between
the the Company and Trust Company Bank, including Form of
Right Certificate and Summary of Rights to Purchase Common
Shares.(2)
4.5 -- Form of Registration Rights Agreement entered into in
connection with the Subordinated Note and Warrant Purchase
Agreement dated as of July 23, 2001 by and among the
Company, Wachovia Bank, N.A., as Agent, and Wachovia Bank,
N.A., Bank of America, N.A., and The Prudential Insurance
Company of America (the "Sub Debt Agreement") (included as
Exhibit C to the Sub Debt Agreement).(9)
10.1 -- Crown Crafts, Inc. Non-Qualified Stock Option Plan.(4)
10.2 -- Philip Bernstein Death Benefits Agreement dated March 30,
1992.(3)
10.3 -- Description of Crown Crafts, Inc. Executive Incentive Bonus
Plan.(3)
10.4 -- Crown Crafts, Inc. 1995 Stock Option Plan.(1)
10.5 -- Form of Nonstatutory Stock Option Agreement (pursuant to
1995 Stock Option Plan).(1)
10.6 -- Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan).(1)
10.7 -- Employment Agreement dated as of July 23, 2001 by and
between the Company and E. Randall Chestnut.(9)
10.8 -- Employment Agreement dated as of July 23, 2001 by and
between the Company and Amy Vidrine Samson.(9)
10.9 -- Form of Restricted Stock Agreement entered into in
connection with the Merger Agreement.(9)
10.10 -- Credit Agreement dated as of July 23, 2001 by and among the
Company, Wachovia Bank, N.A., as Agent, and Wachovia Bank,
N.A., Bank of America, N.A., and The Prudential Insurance
Company of America (the "Credit Agreement").(9)
10.11 -- Form of Revolving Note issued in connection with the Credit
Agreement (included as Exhibit A-1 to the Credit
Agreement).(9)
10.12 -- Form of Term Note issued in connection with the Credit
Agreement (included as Exhibit A-2 to the Credit
Agreement).(9)
10.13 -- Form of Domestic Stock Pledge Agreement entered into in
connection with the Credit Agreement (included as Exhibit N
to the Credit Agreement).(9)
10.14 -- Form of Foreign Stock Pledge Agreement entered into in
connection with the Credit Agreement (included as Exhibit T
to the Credit Agreement).(9)
18
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.15 -- Mortgage, Security Agreement and Fixture Financing Statement
dated September 22, 1999 from Churchill Weavers, Inc.
("Churchill") to Wachovia, as Collateral Agent for the
Lenders, as amended by that First Amendment to Mortgage,
Security Agreement and Fixture Financing Statement dated
July 23, 2001, entered into in connection with the Credit
Agreement.(9)
10.16 -- Sub Debt Agreement.(9)
10.17 -- Form of Note issued in connection with the Sub Debt
Agreement (included as Exhibit A-1 to the Sub Debt
Agreement).(9)
10.18 -- Form of Warrant issued in connection with the Sub Debt
Agreement (included as Exhibit B to the Sub Debt
Agreement).(9)
10.19 -- Form of Domestic Stock Pledge Agreement entered into in
connection with the Sub Debt Agreement (included as Exhibit
D to the Sub Debt Agreement).(9)
10.20 -- Form of Foreign Stock Pledge Agreement entered into in
connection with the Sub Debt Agreement (included as Exhibit
E to the Sub Debt Agreement).(9)
10.21 -- Form of Security Agreement entered into in connection with
the Sub Debt Agreement (included as Exhibit F to the Sub
Debt Agreement).(9)
10.22 -- Mortgage, Security Agreement and Fixture Financing Statement
dated July 23, 2001 from Churchill to Wachovia, as
Collateral Agent for the Lenders, entered into in connection
with the Sub Debt Agreement.(9)
10.23 -- Amended and Restated Security Agreement dated as of July 23,
2001 by and among the Borrowers and Wachovia, as Collateral
Agent for the Lenders, entered into in connection with the
Credit Agreement.(9)
10.24 -- Form of Non-Competition and Non-Disclosure Agreement entered
into in connection with the Merger Agreement (included as
Exhibit E to the Merger Agreement).(9)
10.25 -- License Agreement dated January 1, 1998 between Disney
Enterprises, Inc. as Licensor and the Company as Licensee(6)
10.26 -- License Agreement dated May 11, 1998 between Calvin Klein,
Inc. as Licensor, Crown Crafts Designer, Inc. (a
wholly-owned subsidiary of the Company through July 23,
2001), and the Company as Guarantor.(6)
10.27 -- Crown Crafts, Inc. Key Employee Retention Payment Trust
Agreement dated as of November 14, 2000 between the Company
and Branch Banking & Trust Co.(10)
10.28 -- Second Amendment to Subordinated Note and Warrant Purchase
Agreement dated as of February 10, 2003 by and among the
Company, Banc of America Strategic Solutions, Inc. (assignee
of Bank of America, N.A.), The Prudential Insurance Company
of America and Wachovia Bank, National Association
(successor by merger to Wachovia Bank, N.A.)(11)
10.29 -- Third Amendment to Credit Agreement dated as of February 10,
2003 by and among the Company, Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc., Wachovia
Bank, National Association (successor by merger to Wachovia
Bank, N.A.), as Agent, and Wachovia Bank, National
Association (successor by merger to Wachovia Bank, N.A.),
Banc of America Strategic Solutions, Inc. (assignee of Bank
of America, N.A.) and The Prudential Insurance Company of
America, as Lenders(11)
10.30 -- Global Amendment Agreement dated as of April 29, 2003 by and
among the Company, Churchill Weavers, Inc., Hamco, Inc.,
Crown Crafts Infant Products, Inc., Wachovia Bank National
Association, Banc of America Strategic Solutions, Inc., The
Prudential Insurance Company of America and Bank of America,
N.A.(13)
10.31 -- Reserved Shares Agreement dated as of April 20, 2003 by and
among the Company, Bank of America, N.A., The Prudential
Insurance Company of America and Wachovia Bank, National
Association(13)
10.32 -- Support Agreement dated as of May 7, 2003 by and between the
Company and Wynnefield Capital Management, LLC(14)
19
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.33 -- Amendment to the Company's 1995 Stock Option Plan Adopted by
the Board of Directors on April 29, 2003(15)
10.34 -- Employment Agreement dated as of July 23, 2001 by and
between the Company and Nanci Freeman(15)
10.35 -- Amendment to Bylaws dated June 17, 2003(15)
21 -- Subsidiaries of the Company(15)
23 -- Consent of Deloitte & Touche LLP(15)
99.1 -- Certification of the Company's Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(15)
99.2 -- Certification of the Company's Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(15)
- ---------------
(1) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended October 1, 1995.
(2) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated August 22, 1995.
(3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 28, 1993.
(4) Incorporated herein by reference to Registrant's Registration Statement on
Form S-8, filed April 8, 1994. (Reg. No. 33-77558).
(5) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated November 13, 1995.
(6) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 29, 1998.
(7) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated August 4, 1999.
(8) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended April 1, 2001.
(9) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated July 23, 2001.
(10) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001.
(11) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended December 29, 2002.
(12) Incorporated herein by reference to Registrant's Registration Statement on
Form 8-A dated April 29, 2003.
(13) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated May 9, 2003.
(14) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated May 9, 2003.
(15) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ending March 30, 2003.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CROWN CRAFTS, INC.
BY: /s/ E. RANDALL CHESTNUT
------------------------------------
E. Randall Chestnut
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ E. RANDALL CHESTNUT Chief Executive Officer, Director June 17, 2003
------------------------------------------------
E. Randall Chestnut
/s/ WILLIAM T. DEYO, JR. Director June 17, 2003
------------------------------------------------
William T. Deyo, Jr.
/s/ STEVEN E. FOX Director June 17, 2003
------------------------------------------------
Steven E. Fox
/s/ SIDNEY KIRSCHNER Director June 17, 2003
------------------------------------------------
Sidney Kirschner
/s/ ZENON S. NIE Director June 17, 2003
------------------------------------------------
Zenon S. Nie
/s/ WILLIAM PORTER PAYNE Director June 17, 2003
------------------------------------------------
William Porter Payne
/s/ DONALD RATAJCZAK Director June 17, 2003
------------------------------------------------
Donald Ratajczak
/s/ JAMES A. VERBRUGGE Director June 17, 2003
------------------------------------------------
James A. Verbrugge
/s/ AMY VIDRINE SAMSON Chief Financial Officer June 17, 2003
------------------------------------------------ Chief Accounting Officer
Amy Vidrine Samson
21
I, E. Randall Chestnut, certify that:
1. I have reviewed this annual report on Form 10-K of Crown Crafts,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: June 17, 2003
/s/ E. RANDALL CHESTNUT
--------------------------------------
E. Randall Chestnut
Chairman of the Board, President &
Chief Executive Officer
22
I, Amy Vidrine Samson, certify that:
1. I have reviewed this annual report on Form 10-K of Crown Crafts,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: June 17, 2003
/s/ AMY VIDRINE SAMSON
--------------------------------------
Amy Vidrine Samson
Vice President & Chief Financial
Officer
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Audited Financial Statements:
Independent Auditors' Report.............................. F-1
Consolidated Balance Sheets as of March 30, 2003 and March
31, 2002............................................... F-2
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Fiscal Years Ended March 30,
2003, March 31, 2002, and April 1, 2001................ F-3
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Fiscal Years Ended March 30, 2003,
March 31, 2002, and April 1, 2001...................... F-4
Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 30, 2003, March 31, 2002, and April 1,
2001................................................... F-5
Notes to Consolidated Financial Statements................ F-6
Supplemental Financial Information:
Selected Quarterly Financial Information (unaudited)...... F-19
24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Crown Crafts, Inc.
We have audited the accompanying consolidated balance sheets of Crown
Crafts, Inc. and subsidiaries ("the Company") as of March 30, 2003 and March 31,
2002, and the related consolidated statements of operations and comprehensive
income (loss), changes in shareholders' equity (deficit), and cash flows for
each of the three years in the period ended March 30, 2003. Our audit also
included the financial statement schedule listed at Item 15. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Crown Crafts, Inc. and
subsidiaries as of March 30, 2003 and March 31, 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
March 30, 2003, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" in
the year ended March 30, 2003.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
May 30, 2003
F-1
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 30, 2003 AND MARCH 31, 2002
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2003 2002
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 194 $ 388
Accounts receivable (net of allowances of $1,927 in 2003 and
$1,841 in 2002)
Due from factor........................................... 14,472 11,549
Other..................................................... 1,304 983
Inventories, net............................................ 15,548 16,451
Income tax receivable....................................... -- 1,820
Other current assets........................................ 1,114 2,466
------- -------
Total current assets.............................. 32,632 33,657
PROPERTY, PLANT AND EQUIPMENT -- AT COST:
Land, buildings and improvements............................ 1,920 2,863
Machinery and equipment..................................... 3,285 3,915
Furniture and fixtures...................................... 677 617
------- -------
5,882 7,395
Less accumulated depreciation............................... 3,644 4,065
------- -------
Property, plant and equipment -- net.............. 2,238 3,330
OTHER ASSETS:
Goodwill (net of accumulated amortization of $6,261 in 2003
and 2002)................................................. 22,974 23,034
Other....................................................... 82 179
------- -------
TOTAL OTHER ASSETS................................ 23,056 23,213
------- -------
TOTAL ASSETS........................................... $57,926 $60,200
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 4,524 $ 3,695
Accrued wages and benefits.................................. 1,413 1,459
Accrued royalties........................................... 1,454 1,015
Other accrued liabilities................................... 1,361 1,421
Current maturities of long-term debt........................ 3,014 3,000
------- -------
TOTAL CURRENT LIABILITIES......................... 11,766 10,590
NON-CURRENT LIABILITIES:
Long-term debt.............................................. 30,895 36,773
Deferred income taxes....................................... -- 24
------- -------
TOTAL NON-CURRENT LIABILITIES..................... 30,895 36,797
COMMITMENTS AND CONTINGENCIES............................... -- --
SHAREHOLDERS' EQUITY:
Common stock -- par value $1.00 per share, 50,000,000 shares
authorized 9,421,437 issued and outstanding in 2003 and
2002...................................................... 9,421 9,421
Additional paid-in capital.................................. 28,857 28,857
Accumulated deficit......................................... (22,988) (25,475)
Cumulative currency translation adjustment.................. (25) 10
------- -------
TOTAL SHAREHOLDERS' EQUITY........................ 15,265 12,813
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $57,926 $60,200
======= =======
See notes to consolidated financial statements.
F-2
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FISCAL YEARS ENDED MARCH 30, 2003, MARCH 31, 2002, AND APRIL 1, 2001
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002 2001
------- -------- --------
Net sales................................................... $94,735 $117,591 $247,515
Cost of products sold....................................... 73,315 91,663 228,973
------- -------- --------
Gross profit................................................ 21,420 25,928 18,542
Marketing and administrative expenses....................... 12,686 20,872 43,311
Provision for impairment.................................... -- -- 28,240
Loss on disposition of assets............................... 11 34 6,546
Restructuring charge........................................ 1,775 -- --
------- -------- --------
Income (loss) from operations............................... 6,948 5,022 (59,555)
Other income (expense):
Interest expense.......................................... (4,548) (6,943) (14,781)
Gain on extinguishment of debt............................ -- 25,008 --
Other -- net.............................................. 351 2,035 726
------- -------- --------
Income (loss) before income taxes........................... 2,751 25,122 (73,610)
Income tax (benefit) expense................................ 264 (1,880) (23)
------- -------- --------
Net income (loss)........................................... 2,487 27,002 (73,587)
------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment................... (35) 76 (1)
------- -------- --------
Comprehensive income (loss)................................. $ 2,452 $ 27,078 $(73,588)
======= ======== ========
Basic income (loss) per share............................... $ 0.26 $ 2.95 $ (8.55)
======= ======== ========
Diluted income (loss) per share............................. $ 0.12 $ 1.37 $ (8.55)
======= ======== ========
Weighted average shares outstanding -- basic................ 9,421 9,167 8,609
======= ======== ========
Weighted average shares outstanding -- diluted.............. 21,471 19,759 8,609
======= ======== ========
See notes to consolidated financial statements.
F-3
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FISCAL YEARS ENDED MARCH 30, 2003, MARCH 31, 2002 AND APRIL 1, 2001
(DOLLAR AMOUNTS IN THOUSANDS)
COMMON SHARES TREASURY STOCK RETAINED CUMULATIVE TOTAL
------------------- -------------------- ADDITIONAL EARNINGS/ CURRENCY SHAREHOLDERS'
NUMBER OF NUMBER OF PAID-IN (ACCUMULATED TRANSLATION EQUITY/
SHARES AMOUNT SHARES COST CAPITAL DEFICIT) ADJUSTMENT (DEFICIT)
---------- ------ ---------- ------- ---------- ------------ ----------- -------------
BALANCES -- APRIL 2,
2000.................... 9,983,305 $9,983 1,374,462 $20,309 $46,096 $ 21,110 $(65) $97,433
Net loss.................. (73,587) (73,587)
Currency translation
adjustment.............. (1) (1)
Retirement of treasury
stock................... (1,374,462) (1,374) (1,374,462) (20,309) (18,935) (40,618)
---------- ------ ---------- ------- ------- -------- ---- -------
BALANCES -- APRIL 1,
2001.................... 8,608,843 8,609 -- -- 27,161 (52,477) (66) (16,773)
Purchase 401(k) shares.... (14,406) (15) 10 (5)
Issuance of warrants...... 2,381 2,381
Issuance of shares........ 827,000 827 (695) 132
Net income................ 27,002 27,002
Currency translation
adjustment.............. 76 76
---------- ------ ---------- ------- ------- -------- ---- -------
BALANCES -- MARCH 31,
2002.................... 9,421,437 9,421 -- -- 28,857 (25,475) 10 12,813
Net income................ 2,487 2,487
Currency translation
adjustment.............. (35) (35)
---------- ------ ---------- ------- ------- -------- ---- -------
BALANCES -- MARCH 30,
2003.................... 9,421,437 $9,421 -- -- $28,857 $(22,988) $(25) $15,265
========== ====== ========== ======= ======= ======== ==== =======
See notes to consolidated financial statements.
F-4
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 30, 2003, MARCH 31, 2002, AND APRIL 1, 2001
(AMOUNTS IN THOUSANDS)
MARCH 30, MARCH 31, APRIL 1,
2003 2002 2001
--------- --------- --------
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 2,487 $ 27,002 $(73,587)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on debt refinancing.................................. -- (25,008) --
Depreciation of property, plant and equipment............. 724 971 9,374
Amortization of goodwill.................................. -- 1,054 1,099
Deferred income tax benefit............................... -- -- (56)
Provision for impairment.................................. -- -- 28,240
Loss on sale of property, plant, and equipment............ -- 34 2,752
Restructuring Charge...................................... 1,775 -- --
Changes in assets and liabilities, net of effects of
acquisitions of businesses:
Accounts receivable.................................... (3,244) 4,970 26,920
Inventories, net....................................... 300 3,113 53,705
Income tax receivable.................................. 1,820 (1,820) --
Other current assets................................... 1,352 (233) 4,752
Other assets........................................... 96 142 3,944
Accounts payable....................................... 829 (4,775) (9,527)
Accrued liabilities.................................... (86) (2,651) (5,458)
Other long term liabilities............................ (24) (745) --
Liabilities assumed by purchaser of adult bedding...... -- 3,372 --
Reclassification of current assets to held for sale.... -- (39) (17,112)
-------- -------- --------
Net cash provided by operating activities................... 6,029 5,387 25,046
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures........................................ (397) (309) (1,356)
Proceeds from disposition of assets......................... 73 18,216 25,591
Other....................................................... (35) 76 (2)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES......... (359) 17,983 24,233
-------- -------- --------
FINANCING ACTIVITIES:
Payment of long-term borrowing.............................. (41,835) (63,769) (33,348)
Long-term borrowing......................................... 35,971 39,773 --
Decrease in notes payable................................... -- -- (579)
Increase (decrease) in advances from factor................. -- 299 (15,709)
Issuance of common stock.................................... -- 127 --
Other....................................................... -- -- (508)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES....................... (5,864) (23,570) (50,144)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (194) (200) (865)
Cash and cash equivalents at beginning of period............ 388 588 1,453
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 194 $ 388 $ 588
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes (refunded)..................................... $ (1,635) $ (191) $ (224)
Interest paid............................................... 3,597 7,801 15,097
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Forgiveness of indebtedness............................... -- $ 25,008 $ --
Issuance of warrants...................................... -- 2,381 --
See notes to consolidated financial statements.
F-5
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 30, 2003, MARCH 31, 2002, AND APRIL 1, 2001
NOTE 1 -- DESCRIPTION OF BUSINESS
Crown Crafts, Inc. and its subsidiaries (collectively, the "Company")
operate in the Infant Products segment within the Consumer Products industry.
The Infant Products segment consists of infant bedding, bibs, infant soft goods
and accessories. Sales are generally made directly to retailers, primarily mass
merchants, large chain stores, gift stores and department and specialty stores.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Crown Crafts, Inc. and its subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
The Company's fiscal year ends on the Sunday nearest March 31. Fiscal years
are designated in the consolidated financial statements and notes thereto by
reference to the calendar year within which the fiscal year ends. The
consolidated financial statements encompass 52 weeks for fiscal years 2003, 2002
and 2001.
Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates are
made with respect to the allowances related to accounts receivable for customer
deductions for returns, allowances, and disputes. The Company has a certain
amount of discontinued and irregular raw materials and finished goods which
necessitate the establishment of inventory reserves which are highly subjective.
Actual results could differ from those estimates.
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 operations and comprehensive income
(loss). Allowances for returns and allowances are estimated based on historical
rates.
Inventory Valuation: Inventories are valued at the lower of first-in,
first-out, cost or market.
Depreciation and Amortization: Depreciation of property, plant and
equipment is computed using the straight-line method over the estimated useful
lives of the respective assets. Estimated useful lives are 15 to 40 years for
buildings, three to seven and one-half years for machinery and equipment, five
years for data processing equipment, and eight years for furniture and fixtures.
The cost of improvements to leased premises is amortized over the shorter of the
estimated life of the improvement or the term of the lease.
The Company reviews for impairment, on a quarterly basis, long-lived assets
and certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of any asset may not be reasonable based on
estimates of future undiscounted cash flows. In the event of impairment, the
asset is written down to its fair market value. Impairment of goodwill and
write-downs, if any, are measured based on estimates of future undiscounted cash
flows including interest charges. Assets to be disposed of 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 sheet.
Goodwill, which represents the unamortized excess of purchase price over
fair value of net identifiable assets acquired in business combinations, was
amortized through March 31, 2002 using the straight-line method over periods of
up to 30 years. As discussed below, the Company discontinued amortization of
goodwill effective April 1, 2002. The Company reviews the carrying values and
useful lives of goodwill and other long-lived assets if the facts and
circumstances suggest that their recoverability may have been impaired.
F-6
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill is stated net of accumulated amortization of $6.3 million at March 30,
2003 and March 31, 2002. The Company believes that no material impairment of
goodwill or other long-lived assets exists at March 30, 2003.
Foreign Currency Translation: The assets and liabilities of the Company's
Mexican subsidiary are translated into U.S. dollars at current exchange rates,
and revenues and expenses are translated at average exchange rates. The effect
of foreign currency transactions was not material to the Company's results of
operations for fiscal years 2003, 2002 and 2001.
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 year in net deferred
income tax assets and liabilities. The Company provides for deferred income
taxes based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates that will be in effect when the
differences are expected to reverse. Deferred tax assets have been reduced by a
valuation allowance, if necessary, in the amount of any tax benefits that based
on available evidence, are not expected to be realized.
Treasury Stock: In accordance with Georgia statutes and the Company's
articles of incorporation, in fiscal 2001 treasury stock was retired and
included in authorized but unissued shares.
Stock-Based Compensation: The Company accounts for stock option grants
using the intrinsic value method and only issues stock options that have an
exercise price that is equal to or more than the fair value of the underlying
shares at the date of grant. Accordingly, no compensation expense is recorded in
the accompanying statements of operations and comprehensive income (loss) with
respect to stock option grants.
Segments and Related Information: In 1999, the Company adopted Statement
of Financial Accounting Standards ("SFAS") 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement requires certain
information to be reported about operating segments on a basis consistent with
the Company's internal organizational structure. Management's analysis concluded
that the Company operated in two operating segments, 1) adult home furnishings
and juvenile products, and 2) infant products. Following the sale of the Adult
Bedding and Bath division in July, 2001, the Company operates primarily in the
infant products segment. Required disclosures have been made in Note 12.
Net Income (Loss) Per Share: Net income (loss) per share is calculated in
accordance with SFAS 128, Earnings per Share, which requires dual presentation
of basic and diluted earnings (loss) per share on the face of the income
statement for all entities with complex capital structures. Earnings (loss) 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 are 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. There was no
difference between basic and diluted weighted average common shares outstanding
for fiscal year 2001. Common stock equivalents of 429,385 related to warrants
held by the Company's lenders are excluded from the fiscal 2001 diluted loss per
common share calculation because such are anti-dilutive. The
F-7
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
following table sets forth the computation of basic and diluted net income
(loss) per common share for fiscal years 2003, 2002 and 2001.
2003 2002 2001
--------- --------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Basic Net Income (Loss) per Share:
Net Income (Loss).................................... $ 2,487 $27,002 $(73,587)
======= ======= ========
Weighted Average Number of Shares Outstanding........ 9,421 9,167 8,609
======= ======= ========
Basic Net Income (Loss) per Share.................... $ 0.26 $ 2.95 $ (8.55)
======= ======= ========
Diluted Net Income (Loss) per Share:
Net Income (Loss).................................... $ 2,487 $27,002 $(73,587)
======= ======= ========
Weighted Average Number of Shares Outstanding........ 9,421 9,167 8,609
Effect of Dilutive Securities........................ 12,050 10,592 --
------- ------- --------
Average Shares - Diluted............................. 21,471 19,759 8,609
======= ======= ========
Diluted Net Income (Loss) per Share.................. $ 0.12 $ 1.37 $ (8.55)
======= ======= ========
Derivative Instruments and Hedging Activities: The Company accounts for
derivative instruments and hedging activities in accordance with SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which was adopted
by the Company on April 2, 2001. Under SFAS 133, derivative instruments are
recognized in the balance sheet at fair value and changes in the fair value of
such instruments are recognized currently in earnings unless specific hedge
accounting criteria are met. At March 30, 2003 and March 31, 2002 the Company
had no derivative instruments.
Recently Issued Accounting Standards: In July 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS 141, Business Combinations, and
SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and eliminates the use of the pooling-of-interests
method. The application of SFAS 141 did not affect any of the Company's
previously reported amounts included in goodwill or other intangible assets.
SFAS 142 requires that the amortization of goodwill cease prospectively upon
adoption and instead, the carrying value of goodwill be evaluated using an
impairment approach. Identifiable intangible assets will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS 142 is effective for fiscal years beginning after
December 15, 2001, and was implemented by the Company on April 1, 2002.
Beginning in fiscal 2003, the Company discontinued amortizing goodwill but
continued to amortize other long-lived intangible assets. The Company has
performed a transitional fair value based impairment test on its goodwill in
accordance with SFAS 142 and has determined that the fair value exceeded the
recorded value at April 1, 2002. Following is a reconciliation of previously
reported net income and basic and diluted net income per share to the amounts
that would have been reported if SFAS 142 had been effective as of April 3, 2000
and the amortization of goodwill had been discontinued as of that date.
F-8
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2003 2002 2001
------ ------- --------
Reported net income (loss).............................. $2,487 $27,002 $(73,587)
Goodwill amortization................................... -- 1,054 1,099
------ ------- --------
Adjusted net income (loss).............................. $2,487 $28,056 $(72,488)
====== ======= ========
Basic income (loss) per share:
Reported net income (loss)............................ $ 0.26 $ 2.95 $ (8.55)
Goodwill amortization................................. -- 0.11 0.13
------ ------- --------
Adjusted net income (loss)............................ $ 0.26 $ 3.06 $ (8.42)
====== ======= ========
Diluted income (loss) per share:
Reported net income (loss)............................ $ 0.12 $ 1.37 $ (8.55)
Goodwill amortization................................. -- 0.05 0.13
------ ------- --------
Adjusted net income (loss)............................ $ 0.12 $ 1.42 $ (8.42)
====== ======= ========
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Although SFAS 144 supersedes SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, it retains most of the concepts of that standard, except that it eliminates
the requirement that goodwill be allocated to long-lived assets for impairment
testing purposes and it requires that a long-lived asset to be abandoned or
exchanged for a similar asset be considered held and used until it is disposed
of (i.e., the depreciable life should be revised until the asset is actually
abandoned or exchanged). Also, SFAS 144 includes the basic provisions of
Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
presentation of discontinued operations in the income statement but broadens
that presentation to include a component of an entity rather than a segment of a
business, where that component can be clearly distinguished from the rest of the
entity. SFAS 144 is effective for fiscal years beginning after December 15, 2001
and was implemented by the Company on April 1, 2002. The adoption of SFAS 144
did not have a significant effect on the Company's financial statements on the
date of adoption.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS 145 provides, among other things, that gains on the extinguishments of debt
will generally no longer be classified as extraordinary items in the statements
of operations. It also provides that gains on extinguishments be reclassified in
prior years financial statements presented for comparative purposes. SFAS 145 is
effective for fiscal years beginning after May 15, 2002 with earlier adoption
encouraged. The Company adopted SFAS 145 effective July 1, 2002. The adoption of
SFAS 145 required that a gain on debt refinancing of $25 million realized in the
second quarter of fiscal 2002 be reclassified into income before extraordinary
items.
In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities, which was effective for transactions initiated
after December 31, 2002. SFAS 146 requires companies to recognize costs
associated with restructurings, discontinued operations, plant closings, or
other exit or disposal activities, when incurred rather than at the date a plan
is committed to. The adoption of FAS 146 did not have a material impact on the
Company's consolidated financial statements on the date of adoption.
In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends FASB 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, FASB 148 amends the disclosure requirements
of FASB 123 to require prominent disclosures in both annual and interim
financial statements about the method of
F-9
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS 148 is effective for the Company's fiscal period
ending March 30, 2003. Management adopted this standard on that date and
determined that they would continue to utilize the intrinsic method of
accounting and included the additional disclosures in the current year financial
statements.
Reclassifications: Certain prior year financial statement balances have
been reclassified to conform with the current year's presentation.
NOTE 3 -- DISCONTINUANCE OF CERTAIN BUSINESSES
During the first quarter of fiscal 2001, the Company sold surplus real
property in North Carolina and Louisiana with net proceeds of $888,000 and a
gain on sale of $466,000.
The Company completed the sale of the Wovens division on November 14, 2000
with proceeds of approximately $36.6 million (before selling expenses) compared
to a book value of $42.2 million. The Wovens division had annual sales of
approximately $61.4 million and $82.0 million in fiscal 2001 and 2000,
respectively, and was included in the adult home furnishing and juvenile
products segment. The Wovens division included the throws and decorative home
accessories product group and part of the bedroom products group. The disposal
was made as part of a plan to reduce debt and restructure the Company's
operations. Included in the sale were inventory, buildings, machinery and
equipment at sites in Calhoun, Dalton and Chatsworth, Georgia; Blowing Rock,
North Carolina; and Manchester, New Hampshire. Details of the loss on sale are
as follows:
$ MILLION
---------
Write-down of inventory to net realizable value............. $2.9
Loss on sale of property, plant and equipment............... 2.7
Selling and other expenses.................................. 3.8
----
Total loss........................................ $9.4
====
The write-down of inventory of approximately $2.9 million was included in
cost of products sold. The loss on sale of property, plant and equipment and
selling and other expenses were included in loss on disposition of assets.
Selling and other expenses included costs for investment bankers, lawyers, and a
special key employee retention program.
On June 14, 2001, the Company completed the sale of the Timberlake, North
Carolina plant. Proceeds of $8.0 million were used to reduce debt. On July 17,
2001, the Roxboro, North Carolina outlet store was sold and the proceeds of
$500,000 were used to reduce debt.
As part of the plan to reduce debt and restore profitability, the Company
made a decision to exit the Adult Bedding and Bath business and its net assets
related to that business of $12.4 million were sold effective July 23, 2001.
Proceeds of the sale were $8.5 million cash plus the assumption of liabilities
of $3.4 million as well as the assumption of certain contingent liabilities.
Cash from the sale was used to reduce debt.
NOTE 4 -- RESTRUCTURING CHARGE
In December 2002, the Company adopted a formal plan to change its sourcing
strategy for certain products and close the Mexican manufacturing facility
operated by its majority-owned subsidiary, Burgundy Interamericana. This
decision was based on extensive research by management which indicated that, due
to lower wages and the elimination of the quota on bibs, outsourcing the supply
of products currently manufactured by Burgundy to Asian manufacturers was more
cost-effective and competitive than maintaining existing operations in Mexico.
Under the plan, Burgundy will continue to operate through the first quarter of
fiscal 2004, at which time the Company will begin to liquidate Burgundy's
assets. As a result of the decision of
F-10
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company to discontinue its Mexican operations, the Company recorded a $1.8
million restructuring charge to operations in the quarter ended December 29,
2002, which consists primarily of a write-down of the property and equipment at
the Mexican facility of approximately $800,000, inventory items deemed to be in
excess of production requirements of approximately $600,000, an accrual for
contractual termination benefits of approximately $300,000 due Burgundy's entire
workforce (approximately 130 employees) under the provisions of Mexico's labor
regulations and the write-off of goodwill of approximately $60,000. The Company
expects to pay approximately 65% of the severance benefits in the first quarter
of fiscal 2004 and the remaining 35% in the second quarter of fiscal 2004. The
Company will continue to charge the ongoing operating costs associated with
Burgundy's production in the period in which the costs are incurred. As of March
30, 2003, the Company estimates the total cost of liquidation, including costs
to be incurred to operate until closure, to be approximately $2.2 million.
NOTE 5 -- INVENTORIES
Major classes of inventory were as follows:
MARCH 30, MARCH 31,
2003 2002
--------- ---------
Raw materials............................................... $ 2,991 $ 4,567
Work in process............................................. 1,411 1,280
Finished goods.............................................. 11,146 10,604
------- -------
$15,548 $16,451
======= =======
Inventory is net of reserves for inventories classified as irregular or
discontinued of $1.6 million at March 30, 2003 and $2.2 million at March 31,
2002.
NOTE 6 -- FINANCING ARRANGEMENTS
Factoring 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. Factoring
fees, which are included in marketing and administrative expenses in the
consolidated statements of operations, were $492,000, $761,000 and $2.2 million,
respectively, in 2003, 2002, and 2001. Factor advances were at $0 at both March
30, 2003 and March 31, 2002.
Notes Payable and Other Credit Facilities: At March 30, 2003 and March 31,
2002 , long term debt consisted of:
MARCH 30, MARCH 31,
2003 2002
--------- ---------
Promissory notes............................................ $35,068 $38,000
Floating rate revolving credit facilities................... 1,799 5,542
Non-interest bearing notes.................................. 274 --
Original issue discount..................................... (3,232) (3,769)
------- -------
33,909 39,773
Less current maturities..................................... 3,014 3,000
------- -------
$30,895 $36,773
======= =======
At April 1, 2001, the Company had committed lines of credit totaling $30.2
million with two banks at a floating rate of interest which at April 1, 2000 was
12.0%. No fees or compensating balances were required
F-11
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under those arrangements, and the lines were fully drawn at April 1, 2001.
Annual average borrowings and weighted average interest rates under those
arrangements were $43.5 million at 11.89% in 2001 and $52.9 million at 8.95% in
2000. The facilities were secured by substantially all of the Company's assets.
On July 23, 2001 the Company completed a refinancing of its debt. These
credit facilities include the following:
Revolving Credit of up to $19 million including a $3 million sub-limit
for letters of credit, of which $14.0 million was drawn at closing. The
interest rate is prime plus 1.00% (5.25% at March 30, 2003) for base rate
borrowings and LIBOR plus 2.75% (4.06% at March 30, 2003) for Euro-dollar
borrowings. The maturity date is June 30, 2004. The facility is secured by
a first lien on all assets. The balance was $1.8 million at March 30, 2003
and $5.5 million at March 31, 2002. The Company had $15.3 million available
at March 30, 2003. As of March 30, 2003, letters of credit of $1.35 million
were outstanding against the $3 million sub-limit for letters of credit
associated with the $19 million revolving credit facility.
Senior Notes of $14 million with a fixed interest rate of 10% plus
additional interest contingent upon cash flow availability of 3%. The
maturity date is June 30, 2006 and the notes are secured by a first lien on
all assets. Minimum principal payments of $500,000 are due at the end of
each calendar quarter thereafter. In the event that required debt service
exceeds 85% of free cash flow (EBITDA (as hereinafter defined) less capital
expenditures and cash taxes paid), the excess of contingent interest and
principal amortization over 85% will be deferred until maturity of the
Senior Notes in June 2006. Contingent interest plus additional principal
payments will be due annually up to 85% of free cash flow. On September 30,
2002, the Company made a payment to the lenders of $1.6 million related to
excess cash flow. The Company anticipates that it will make another excess
cash flow payment of $1.3 million on September 30, 2003.
Senior Subordinated Notes of $16 million with a fixed interest rate of
10% plus an additional 1.65% payable by delivery of a promissory note due
July 23, 2007. The maturity date is July 23, 2007 and the notes are secured
by a second lien on all assets. In addition to principal and interest, a
payment of $8 million is due on the earliest of (i) maturity of the notes,
(ii) prepayment of the notes, or (iii) sale of the Company. The original
issue discount of $4.1 million on this non-interest bearing note at a
market interest rate of 12% is being amortized over the life of the notes.
The remaining balance of $3.2 million is included in the Consolidated
Balance Sheet as of March 30, 2003.
These credit facilities contain covenants regarding minimum levels of
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
maximum total debt to EBITDA, maximum senior debt to EBITDA, minimum EBITDA to
cash interest, and minimum shareholders' equity. Certain covenants included in
the credit facilities were amended in conjunction with the liquidation of
Burgundy, as discussed in Note 4 to the Company's Consolidated Financial
Statements, in order to account for the recording of the related restructuring
charge. The bank facilities also place restrictions on the amounts the Company
may expend on acquisitions and purchases of treasury stock and currently
prohibit the payment of dividends.
F-12
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum annual maturities are as follows:
FISCAL REVOLVER SENIOR NOTES SUB NOTES PIK NOTES TOTAL
- ------ -------- ------------ --------- --------- -------
(IN THOUSANDS)
2004...................................... $ -- $ 3,000 $ -- $ -- $ 3,000
2005...................................... -- 2,000 -- -- 2,000
2006...................................... -- 2,500 -- -- 2,500
2007...................................... 1,799 3,500 -- -- 5,299
2008...................................... -- -- 24,000* 274 24,274
------ ------- ------- ---- -------
Total..................................... $1,799 $11,000 $24,000 $274 $37,073
====== ======= ======= ==== =======
- ---------------
* Includes $8 million non-interest bearing note issued at an original issue
discount of $4.1 million.
As part of the refinancing, the Company issued to the lenders warrants for
non-voting common stock that are convertible into common stock equivalent to 65%
of the shares of the Company on a fully diluted basis at a price of 11.3 cents
per share. The warrants are non-callable and expire in six years from their date
of issuance. The value of the warrants of $2.4 million using the Black-Scholes
option pricing model was credited to additional paid-in capital in the second
quarter of fiscal 2002. The dilutive effect of these warrants on earnings per
share for the fiscal periods ended March 30, 2003 and March 31, 2002 was $0.15
per share and $1.58 per share, respectively. Also in the second quarter of
fiscal 2002, the Company recognized a gain of $25.0 million representing
forgiveness of indebtedness income (net of $2.9 million of expenses incurred) in
connection with the refinancing.
NOTE 7 -- INCOME TAXES
Income tax expense (benefit) is summarized as follows:
2003 2002 2001
---- ------- ----
(IN THOUSANDS)
Current:
Federal................................................... $127 $(1,820) $ 64
State and local........................................... 161 (60) (31)
---- ------- ----
Total current............................................... 288 (1,880) 33
---- ------- ----
Deferred:
Federal................................................... (24) -- --
State and local........................................... -- -- (56)
---- ------- ----
Total deferred.............................................. 24 -- (56)
---- ------- ----
Total expense (benefit)..................................... $264 $(1,880) $(23)
==== ======= ====
F-13
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that comprise the deferred tax
liabilities and assets are as follows:
2003 2002
------- -------
(IN THOUSANDS)
Gross deferred income tax liabilities:
Property, plant and equipment............................... $ 14 $ 35
------- -------
Total gross deferred income tax liabilities................. 14 35
------- -------
Gross deferred income tax assets:
Employee benefit accruals................................... 413 315
Accounts receivable reserves................................ 731 697
Net operating loss carryforward............................. 5,777 7,454
Accrued losses.............................................. 519 747
------- -------
Total gross deferred income tax assets...................... 7,440 9,213
------- -------
Deferred tax asset valuation allowance...................... (7,426) (9,202)
------- -------
Net deferred income tax liability........................... $ -- $ 24
======= =======
As of March 30, 2003, the Company has federal income tax net operating loss
carryforwards totaling $15.2 million which begin expiring in the year ending
March 2021.
The following reconciles the income tax expense (benefit) at the U.S.
federal income tax statutory rate to that in the financial statements:
2003 2002 2001
------- -------- --------
(IN THOUSANDS)
Tax expense (benefit) at statutory rate............... $ 936 $ 8,541 $(25,027)
Nondeductible amortization of goodwill................ -- 284 286
State income taxes, net of Federal income tax
benefit............................................. 106 1,030 (2,637)
Valuation allowance................................... (1,776) (27,533) 26,334
Disposition of subsidiary............................. -- 15,203 --
Foreign subsidiary losses............................. 797 288 414
Other................................................. 201 307 607
------- -------- --------
Income tax expense (benefit).......................... $ 264 $ (1,880) $ (23)
======= ======== ========
NOTE 8 -- RETIREMENT PLANS
The Company maintained an Employee Stock Ownership Plan, which provided for
annual contributions by the Company at the discretion of the Board of Directors
for the benefit of eligible employees. Contributions could be made either in
cash or in shares of the Company's common stock. Participation in the plan was
open to all Company employees who were at least twenty-one years of age and who
had been employed by the Company for at least one year. The Company recognized
expense of $76,000 for its cash contributions to the plan in fiscal 2001.
Effective April 1, 2001, the Employee Stock Ownership Plan was terminated.
Effective January 1, 1996, the Company established an Employee Savings Plan
under Section 401(k) of the Internal Revenue Code. The plan covers substantially
all employees. In fiscal 2002, employees could elect to exclude up to 15% of
their compensation from amounts subject to income tax as a salary deferral
contribution. In fiscal 2003, the potential deferral was changed from 15% to a
maximum of $11,000 in accordance with changes in federal regulations. The Board
of Directors determines each calendar year the portion, if any, of employee
contributions that will be matched by the Company. The Company's matching
contribution to the plan including the utilization of forfeitures was
approximately $156,000, $186,000, and
F-14
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$553,000, respectively, for fiscal 2003, 2002, and 2001. This matching
represents an amount equal to 100% of the first 2% and 50% of the next 1%
contributed by the employee.
NOTE 9 -- STOCK OPTIONS
The Company accounts for its stock option plans using the intrinsic value
method established by APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related interpretations. Accordingly, no compensation cost
has been recognized in the Company's financial statements for its stock based
compensation plans. The Company complies with the disclosure requirements of
SFAS No. 123, "Accounting for Stock Based Compensation", which requires pro
forma disclosure regarding net earnings and earnings per share determined as if
the Company had accounted for employee stock options using the fair value method
of that statement.
The Company's 1995 Stock Option Plan provides for the grant of
non-qualified and incentive stock options to officers and key employees at
prices no less than the market price of the stock on the date of each grant. It
also provides for a fixed annual grant of 2,000 non-qualified stock options to
each non-employee directors the day after each year's annual meeting of
shareholders. Through April 1, 2001, non-employee directors had been issued a
total of 54,000 options which were canceled effective with the sale of the Adult
Bedding and Bath division in July, 2001. During each of fiscal years 2003 and
2002, 14,000 non-qualified options were issued to non-employee directors.
One-third of the non-qualified options become exercisable on each of the first
three anniversaries of their issuances and the options expire on the fifth
anniversary of their issuance.
A total of 1,930,000 shares of common stock have been authorized for
issuance under the plan. At March 30, 2003, 1,112,937 options were reserved for
future issuance. The options outstanding at March 30, 2003 expire through August
28, 2012, have a weighted average remaining contractual life of 7.94 years, and
include 188,219 options exercisable at March 30, 2003 with a weighted average
exercise price of $2.39.
Options outstanding prior to and through the fiscal year ended March 31,
2002 also included options issued under the Company's 1976 Stock Option Plan,
which was replaced by the 1995 Stock Option Plan. As of March 30, 2003, there
were no options issued or outstanding under the 1976 Stock Option Plan.
The following table summarizes stock option activity during each of the
most recent three fiscal years:
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
---------- -------------- --------------
Options outstanding, April 2, 2000............. 2,171,073 2.31-18.75 7.96
Options granted................................ 487,162 0.47-2.00 1.17
Options canceled............................... (1,321,274) 1.06-15.75 7.05
---------- ---------- ----
Options outstanding, April 1, 2001............. 1,336,961 0.47-18.75 6.37
Options granted................................ 63,750 0.18-0.41 0.23
Options canceled............................... (1,142,611) 0.47-18.75 6.69
---------- ---------- ----
Options outstanding, March 31, 2002............ 258,100 0.18-17.50 3.42
Options granted................................ 328,000 0.71 0.71
Options canceled............................... (61,550) 0.18-17.50 7.18
---------- ---------- ----
Options outstanding, March 30, 2003............ 524,550 0.18-8.06 1.28
========== ========== ====
F-15
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at March 30, 2003 by range of exercise price:
WEIGHTED WEIGHTED
WEIGHTED AVG. AVG. EXERCISE AVG. EXERCISE
NUMBER OF REMAINING PRICE OF NUMBER OF PRICE OF
RANGE OF OPTIONS CONTRACTUAL OPTIONS SHARES SHARES
EXERCISE PRICES OUTSTANDING LIFE OUTSTANDING EXERCISABLE EXERCISABLE
- --------------- ----------- ------------- -------------- ----------- --------------
$0.18 - $0.41 58,000 7.19 years $0.24 26,669 $0.22
0.71 305,000 9.18 years 0.71 -- --
1.06 - 2.31 130,650 7.14 years 1.49 130,650 1.49
8.06 30,900 0.42 years 8.06 30,900 8.06
------- -------
524,550 188,219
======= =======
Option holders may pay the option price of options exercised by
surrendering to the Company shares of the Company's stock that the option holder
has owned for at least six months prior to the date of such exercise. Option
holders may also satisfy their required income tax withholding obligations upon
the exercise of options by requesting the Company to withhold the number of
otherwise issuable shares with a market value equal to such tax withholding
obligation.
The weighted-average grant-date fair value of options granted in 2003,
2002, and 2001, respectively, was $0.25, $0.11, and $0.56 per share. For
purposes of the pro forma disclosure, the fair value of each option was
estimated as of the date of grant using the Black-Scholes option-pricing model
and is amortized to expense ratably as the option vests. The following table
summarizes the assumptions used to value options. Had compensation costs for the
Company's stock option plans been determined based on the fair value at the
grant date, consistent with the method under SFAS No. 123, the Company's net
earnings and earnings per share would have been as indicated below:
2003 2002 2001
-------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss), as reported......................... 2,487 27,002 (73,587)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards............................................... 25 74 565
----- ------ -------
Pro forma net income................................... 2,462 26,928 (74,152)
===== ====== =======
Earnings per share:
Basic -- as reported................................. 0.26 2.95 (8.55)
----- ------ -------
Basic -- pro forma................................... 0.26 2.94 (8.61)
----- ------ -------
Diluted -- as reported............................... 0.12 1.37 (8.55)
----- ------ -------
Diluted -- pro forma................................. 0.11 1.36 (8.61)
----- ------ -------
2003 2002 2001
--------- ---------- -----------
(IN PERCENTAGES, EXCEPT EXPECTED LIFE)
Dividend yield......................................... -- -- --
Expected volatility.................................... 20 50 50
Risk free interest rate................................ 4.2 2.5 6.1
Expected life, years................................... 8.0 6.5 4.4
F-16
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- MAJOR CUSTOMERS
The table below indicates customers representing more than 10% of sales.
FISCAL YEAR:
------------
2003 2002 2001
---- ---- ----
Toys R Us................................................... 31% 26% 13%
Wal-Mart Stores, Inc........................................ 30% 22% 16%
Target Corporation.......................................... 10% * *
Federated Department Stores................................. * * 14%
- ---------------
* Less than 10%.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Lease Commitments: At March 30, 2003, the Company's minimum annual rentals
under noncancelable operating leases, principally for warehousing and office
facilities, were as follows:
FISCAL YEAR: (IN THOUSANDS)
------------ --------------
2004........................................................ $1,871
2005........................................................ 1,252
2006........................................................ 953
2007........................................................ 372
2008........................................................ 18
Thereafter.................................................. --
------
$4,466
======
Total rent expense was $1.6 million, $2.3 million, and $4.5 million,
respectively, for the years ended March 30, 2003, March 31, 2002, and April 1,
2001.
Certain of the Company's products are manufactured and sold pursuant to
license arrangements that include, among others, Disney(R). The licensing
agreements for the Company's designer brands generally are for a term at
inception of one to six years, and may or may not be subject to renewal or
extension. At March 30, 2003, the Company's minimum royalty guarantees were as
follows:
FISCAL YEAR:
- ------------
2004........................................................ $2,438,000
2005........................................................ 300,000
2006........................................................ 180,000
----------
$2,918,000
==========
The Company's total royalty expense, net of royalty income, was $6.5
million, $7.5 million, and $14.4 million, for fiscal 2003, 2002, and 2001,
respectively.
NOTE 12 -- SEGMENT AND RELATED INFORMATION
The Company's principal segments include 1) adult home furnishing and
juvenile products and 2) infant products. The adult home furnishing and juvenile
products segment consists of bedroom and bath products (adult comforters, sheets
and towels), throws and juvenile products (primarily Pillow Buddies(R)). The
infant products segment consists of infant bedding, bibs, and infant soft goods.
The Company tracks revenues and operating profit information for these two
business segments. After the sale of the Adult Bedding and Bath division in
July, 2001, the Company is primarily in the infant products segment.
F-17
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's manufacturing and distribution operations were also divided
into adult home furnishing and juvenile and infant products. The Company's
facilities in North Carolina (sold July, 2001) and Kentucky support adult home
furnishing and juvenile products. The Company's facilities in Louisiana,
California and Mexico support infant products. Assets, capital expenditures,
depreciation and amortization are tracked for adult home furnishing and juvenile
products as a whole and for infant products.
Financial information attributable to the Company's business segments for
the years ended March 30, 2003, March 31, 2002, and April 1, 2001, is as
follows:
2003 2002 2001
------- -------- --------
(IN THOUSANDS)
NET SALES:
Adult home furnishing products........................ $ 2,557 $ 23,227 $150,652
Infant & juvenile products............................ 92,178 94,364 96,863
------- -------- --------
$94,735 $117,591 $247,515
======= ======== ========
INCOME (LOSS) FROM OPERATIONS:
Adult home furnishing products........................ $ (109) $ (3,075) $(62,671)
Infant & juvenile products............................ 7,057 8,097 3,116
------- -------- --------
$ 6,948 $ 5,022 $(59,555)
======= ======== ========
ASSETS:
Adult home furnishing products........................ $ 2,013 $ 3,183 $ 30,436
Infant & juvenile products............................ 55,913 57,017 60,242
------- -------- --------
$57,926 $ 60,200 $ 90,678
======= ======== ========
CAPITAL EXPENDITURES:
Adult home furnishing products........................ $ 1 $ -- $ 949
Infant & juvenile products............................ 396 309 407
------- -------- --------
$ 397 $ 309 $ 1,356
======= ======== ========
DEPRECIATION AND AMORTIZATION:
Adult home furnishing products........................ $ 65 $ 195 $ 8,583
Infant & juvenile products............................ 659 1,830 1,890
------- -------- --------
$ 724 $ 2,025 $ 10,473
======= ======== ========
The key features used by decision makers are the level of operating income
relative to revenues and assets. In addition, EBITDA is used as a key management
tool.
Revenues for individual product groups within these business segments are
summarized below.
2003 2002 2001
------- -------- --------
Bedding & bath products............................... $ -- $ 19,937 $ 90,500
Throws................................................ 2,557 3,192 55,300
Infant and juvenile products.......................... 92,178 94,463 101,600
Other................................................. -- -- 115
------- -------- --------
$94,735 $117,592 $247,515
======= ======== ========
F-18
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SELECTED QUARTERLY FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL INFORMATION
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(3)
------- ------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED MARCH 30, 2003:
Net sales............................................. $17,928 $28,399 $21,636 $26,772
Gross profit.......................................... 3,619 6,768 4,613 6,420
Net income (loss)(1).................................. (693) 2,079 (991) 2,092
Basic net income (loss) per share..................... (0.07) 0.22 (0.11) 0.22
Diluted net income (loss) per share................... (0.07) 0.09 (0.11) 0.10
FISCAL YEAR ENDED MARCH 31, 2002:
Net sales............................................. $38,699 $31,338 $23,869 $23,685
Gross profit.......................................... 7,524 7,734 5,241 5,429
Net income (loss)(2).................................. (2,859) 27,119 736 2,006
Basic net income (loss) per share..................... (0.32) 2.94 0.08 0.21
Diluted net income (loss) per share................... (0.32) 1.21 0.03 0.10
- ---------------
(1) In the third quarter of fiscal year 2003, the Company recorded a
restructuring charge of $1.8 million related to the closure of one of the
Company's subsidiaries as discussed in Note 4, Restructuring Charge.
(2) In the second quarter of fiscal year 2002, the Company recorded a gain of
$25 million related to the restructuring of debt on July 23, 2001 as
discussed in Note 6, Financing Arrangements.
(3) The Company recorded an income tax benefit related to changes in the income
tax law of $1.8 million in the fourth quarter of fiscal year 2002.
F-19
INDEX TO EXHIBITS
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
2.1 -- Merger Agreement dated as of October 8, 1995 between and
among the Company and CC Acquisition Corp, and Neal Fohrman
and Stanley Glickman and The Red Calliope and Associates,
Inc.(5)
2.2 -- Merger Agreement dated as of July 23, 2001 by and among the
Company, Crown Crafts Designer, Inc., Design Works Holding
Company and Design Works, Inc. (the "Merger Agreement").(9)
3.1 -- Second Amended and Restated Articles of Incorporation of the
Company.(9)
3.2 -- Bylaws of the Company.(1)
3.3 -- Amendments to Bylaws dated March 23, 2001.(8)
4.1 -- Instruments defining the rights of security holders are
contained in the Second Amended and Restated Articles of
Incorporation of the Company.(1)
4.2 -- Instruments defining the rights of security holders are
contained in Article II of the Restated Bylaws of the
Company.(1)
4.3 -- Amendment No. 1 to Rights Agreement dated as of April 29,
2003 between the Company and Sun Trust Bank (successor by
merger to Trust Company Bank), including the amended and
restated Summary of Rights to Purchase Common Shares
(Exhibit B).(12)
4.4 -- Form of Rights Agreement dated as of August 11, 1995 between
the the Company and Trust Company Bank, including Form of
Right Certificate and Summary of Rights to Purchase Common
Shares.(2)
4.5 -- Form of Registration Rights Agreement entered into in
connection with the Subordinated Note and Warrant Purchase
Agreement dated as of July 23, 2001 by and among the
Company, Wachovia Bank, N.A., as Agent, and Wachovia Bank,
N.A., Bank of America, N.A., and The Prudential Insurance
Company of America (the "Sub Debt Agreement")(included as
Exhibit C to the Sub Debt Agreement).(9)
10.1 -- Crown Crafts, Inc. Non-Qualified Stock Option Plan.(4)
10.2 -- Philip Bernstein Death Benefits Agreement dated March 30,
1992.(3)
10.3 -- Description of Crown Crafts, Inc. Executive Incentive Bonus
Plan.(3)
10.4 -- Crown Crafts, Inc. 1995 Stock Option Plan.(1)
10.5 -- Form of Nonstatutory Stock Option Agreement (pursuant to
1995 Stock Option Plan).(1)
10.6 -- Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan).(1)
10.7 -- Employment Agreement dated as of July 23, 2001 by and
between the Company and E. Randall Chestnut.(9)
10.8 -- Employment Agreement dated as of July 23, 2001 by and
between the Company and Amy Vidrine Samson.(9)
10.9 -- Form of Restricted Stock Agreement entered into in
connection with the Merger Agreement.(9)
10.10 -- Credit Agreement dated as of July 23, 2001 by and among the
Company, Wachovia Bank, N.A., as Agent, and Wachovia Bank,
N.A., Bank of America, N.A., and The Prudential Insurance
Company of America (the "Credit Agreement").(9)
10.11 -- Form of Revolving Note issued in connection with the Credit
Agreement (included as Exhibit A-1 to the Credit
Agreement).(9)
10.12 -- Form of Term Note issued in connection with the Credit
Agreement (included as Exhibit A-2 to the Credit
Agreement).(9)
10.13 -- Form of Domestic Stock Pledge Agreement entered into in
connection with the Credit Agreement (included as Exhibit N
to the Credit Agreement).(9)
10.14 -- Form of Foreign Stock Pledge Agreement entered into in
connection with the Credit Agreement (included as Exhibit T
to the Credit Agreement).(9)
10.15 -- Mortgage, Security Agreement and Fixture Financing Statement
dated September 22, 1999 from Churchill Weavers, Inc.
("Churchill") to Wachovia, as Collateral Agent for the
Lenders, as amended by that First Amendment to Mortgage,
Security Agreement and Fixture Financing Statement dated
July 23, 2001, entered into in connection with the Credit
Agreement.(9)
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
10.16 -- Sub Debt Agreement.(9)
10.17 -- Form of Note issued in connection with the Sub Debt
Agreement (included as Exhibit A-1 to the Sub Debt
Agreement).(9)
10.18 -- Form of Warrant issued in connection with the Sub Debt
Agreement (included as Exhibit B to the Sub Debt
Agreement).(9)
10.19 -- Form of Domestic Stock Pledge Agreement entered into in
connection with the Sub Debt Agreement (included as Exhibit
D to the Sub Debt Agreement).(9)
10.20 -- Form of Foreign Stock Pledge Agreement entered into in
connection with the Sub Debt Agreement (included as Exhibit
E to the Sub Debt Agreement).(9)
10.21 -- Form of Security Agreement entered into in connection with
the Sub Debt Agreement (included as Exhibit F to the Sub
Debt Agreement).(9)
10.22 -- Mortgage, Security Agreement and Fixture Financing Statement
dated July 23, 2001 from Churchill to Wachovia, as
Collateral Agent for the Lenders, entered into in connection
with the Sub Debt Agreement.(9)
10.23 -- Amended and Restated Security Agreement dated as of July 23,
2001 by and among the Borrowers and Wachovia, as Collateral
Agent for the Lenders, entered into in connection with the
Credit Agreement.(9)
10.24 -- Form of Non-Competition and Non-Disclosure Agreement entered
into in connection with the Merger Agreement (included as
Exhibit E to the Merger Agreement).(9)
10.25 -- License Agreement dated January 1, 1998 between Disney
Enterprises, Inc. as Licensor and the Company as Licensee(6)
10.26 -- License Agreement dated May 11, 1998 between Calvin Klein,
Inc. as Licensor, Crown Crafts Designer, Inc. (a
wholly-owned subsidiary of the Company through July 23,
2001), and the Company as Guarantor.(6)
10.27 -- Crown Crafts, Inc. Key Employee Retention Payment Trust
Agreement dated as of November 14, 2000 between the Company
and Branch Banking & Trust Co.(10)
10.28 -- Second Amendment to Subordinated Note and Warrant Purchase
Agreement dated as of February 10, 2003 by and among the
Company, Banc of America Strategic Solutions, Inc. (assignee
of Bank of America, N.A.), The Prudential Insurance Company
of America and Wachovia Bank, National Association
(successor by merger to Wachovia Bank, N.A.)(11)
10.29 -- Third Amendment to Credit Agreement dated as of February 10,
2003 by and among the Company, Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc., Wachovia
Bank, National Association (successor by merger to Wachovia
Bank, N.A.), as Agent, and Wachovia Bank, National
Association (successor by merger to Wachovia Bank, N.A.),
Banc of America Strategic Solutions, Inc. (assignee of Bank
of America, N.A.) and The Prudential Insurance Company of
America, as Lenders(11)
10.30 -- Global Amendment Agreement dated as of April 29, 2003 by and
among the Company, Churchill Weavers, Inc., Hamco, Inc.,
Crown Crafts Infant Products, Inc., Wachovia Bank National
Association, Banc of America Strategic Solutions, Inc., The
Prudential Insurance Company of America and Bank of America,
N.A.(13)
10.31 -- Reserved Shares Agreement dated as of April 20, 2003 by and
among the Company, Bank of America, N.A., The Prudential
Insurance Company of America and Wachovia Bank, National
Association(13)
10.32 -- Support Agreement dated as of May 7, 2003 by and between the
Company and Wynnefield Capital Management, LLC(14)
10.33 -- Amendment to the Company's 1995 Stock Option Plan Adopted by
the Board of Directors on April 29, 2003(15)
10.34 -- Employment Agreement dated as of July 23, 2001 by and
between the Company and Nanci Freeman(15)
10.35 -- Amendment to Bylaws dated June 17, 2003(15)
21 -- Subsidiaries of the Company(15)
23 -- Consent of Deloitte & Touche LLP(15)
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
99.1 -- Certification of the Company's Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(15)
99.2 -- Certification of the Company's Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(15)
- ---------------
(1) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended October 1, 1995.
(2) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated August 22, 1995.
(3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 28, 1993.
(4) Incorporated herein by reference to Registrant's Registration Statement on
Form S-8, filed April 8, 1994. (Reg. No. 33-77558).
(5) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated November 13, 1995.
(6) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 29, 1998.
(7) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated August 4, 1999.
(8) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended April 1, 2001.
(9) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated July 23, 2001.
(10) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001.
(11) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended December 29, 2002.
(12) Incorporated herein by reference to Registrant's Registration Statement on
Form 8-A dated April 29, 2003.
(13) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated May 9, 2003.
(14) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated May 9, 2003.
(15) Filed herewith.