CROWN CRAFTS INC - Quarter Report: 2015 December (Form 10-Q)

crws20151119_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934

For the quarterly period ended December 27, 2015

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission File No. 1-7604

Crown Crafts, Inc.

(Exact name of registrant as specified in its charter)

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


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

Registrant’s telephone number, including area code: (225) 647-9100

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 ☑ No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares of common stock, $0.01 par value, of the registrant outstanding as of January 27, 2016 was 9,996,527.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

DECEMBER 27, 2015 AND MARCH 29, 2015

	December 27, 2015
	(Unaudited)			March 29, 2015
	(amounts in thousands, except
	share and per share amounts)

ASSETS
Current assets:
Cash and cash equivalents	$	7,549		$	1,807
Accounts receivable (net of allowances of $1,137 at December 27, 2015 and $1,000 at March 29, 2015):
Due from factor		17,505			21,563
Other		681			807
Inventories		17,513			15,468
Prepaid expenses		2,427			1,906
Deferred income taxes		735			968
Income taxes receivable		553			-
Total current assets		46,963			42,519
Property, plant and equipment - at cost:
Vehicles		247			235
Leasehold improvements		233			230
Machinery and equipment		2,897			2,836
Furniture and fixtures		811			755
Property, plant and equipment - gross		4,188			4,056
Less accumulated depreciation		3,695			3,528
Property, plant and equipment - net		493			528
Finite-lived intangible assets - at cost:
Customer relationships		5,534			5,411
Other finite-lived intangible assets		3,686			7,613
Finite-lived intangible assets - gross		9,220			13,024
Less accumulated amortization		5,149			8,517
Finite-lived intangible assets - net		4,071			4,507
Goodwill		1,126			1,126
Deferred income taxes		962			1,133
Other		185			133
Total Assets	$	53,800		$	49,946

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,959		$	4,472
Accrued wages and benefits		1,337			2,265
Accrued royalties		2,184			1,581
Dividends payable		800			805
Income taxes payable		605			1,021
Other accrued liabilities		214			230
Total current liabilities		12,099			10,374
Non-current liabilities:
Reserve for unrecognized tax benefits		140			-

Commitments and contingencies		-			-

Shareholders' equity:
Common stock - $0.01 par value per share; Authorized 40,000,000 shares at December 27, 2015 and March 29, 2015; Issued 12,171,834 shares at December 27, 2015 and 12,030,302 shares at March 29, 2015		122			120
Additional paid-in capital		50,010			48,561
Treasury stock - at cost - 2,175,307 shares at December 27, 2015 and 1,964,886 shares at March 29, 2015		(10,082	)		(8,390	)
Retained Earnings (Accumulated deficit)		1,511			(719	)
Total shareholders' equity		41,561			39,572
Total Liabilities and Shareholders' Equity	$	53,800		$	49,946

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE-MONTH PERIODS ENDED DECEMBER 27, 2015 AND DECEMBER 28, 2014

(amounts in thousands, except per share amounts)

	Three-Month Periods Ended						Nine-Month Periods Ended
	December 27, 2015			December 28, 2014			December 27, 2015			December 28, 2014

Net sales	$	20,691		$	23,743		$	59,265		$	59,888
Cost of products sold		14,439			17,115			42,526			43,132
Gross profit		6,252			6,628			16,739			16,756
Legal expense		21			59			93			1,360
Other marketing and administrative expenses		3,161			3,297			9,458			9,665
Income from operations		3,070			3,272			7,188			5,731
Other income (expense):
Interest expense		(8	)		(10	)		(47	)		(27	)
Interest income		14			1			44			17
Gain on sale of property, plant and equipment		-			-			15			-
Foreign exchange loss		(53	)		(18	)		(62	)		(30	)
Other - net		(1	)		(3	)		2			(1	)
Income before income tax expense		3,022			3,242			7,140			5,690
Income tax expense		879			1,196			2,505			2,111
Net income	$	2,143		$	2,046		$	4,635		$	3,579

Weighted average shares outstanding:
Basic		9,996			10,072			10,024			10,041
Effect of dilutive securities		42			30			39			35
Diluted		10,038			10,102			10,063			10,076

Earnings per share:
Basic	$	0.21		$	0.20		$	0.46		$	0.36

Diluted	$	0.21		$	0.20		$	0.46		$	0.36

Cash dividends declared per share	$	0.08		$	0.08		$	0.24		$	0.24

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE-MONTH PERIODS ENDED DECEMBER 27, 2015 AND DECEMBER 28, 2014

	Nine-Month Periods Ended
	December 27, 2015			December 28, 2014
	(amounts in thousands)
Operating activities:
Net income	$	4,635		$	3,579
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		235			231
Amortization of intangibles		559			559
Deferred income taxes		404			108
Gain on sale of property, plant and equipment		(15	)		-
Reserve for unrecognized tax benefits		140			-
Stock-based compensation		691			652
Tax shortfall from stock-based compensation		(5	)		-
Changes in assets and liabilities:
Accounts receivable		4,184			(120	)
Inventories		(2,045	)		(5,694	)
Prepaid expenses		(521	)		(1,765	)
Income taxes receivable		(553	)		-
Other assets		(52	)		(56	)
Accounts payable		2,488			4,580
Accrued liabilities		(618	)		520
Net cash provided by operating activities		9,527			2,594
Investing activities:
Capital expenditures for property, plant and equipment		(216	)		(223	)
Proceeds from sale of property, plant and equipment		31			-
Capital expenditures for purchased intangible assets		(123	)		-
Net cash used in investing activities		(308	)		(223	)
Financing activities:
Repayments under revolving line of credit		-			(6,106	)
Borrowings under revolving line of credit		-			6,106
Purchase of treasury stock		(1,692	)		(173	)
Issuance of common stock		347			58
Excess tax benefit from stock-based compensation		278			68
Dividends paid		(2,410	)		(2,399	)
Net cash used in financing activities		(3,477	)		(2,446	)
Net increase (decrease) in cash and cash equivalents		5,742			(75	)
Cash and cash equivalents at beginning of period		1,807			560
Cash and cash equivalents at end of period	$	7,549		$	485

Supplemental cash flow information:
Income taxes paid, net of refunds received	$	2,603		$	2,323
Interest paid, net of interest received		5			10

Noncash financing activites:
Dividends declared but unpaid		(800	)		(805	)
Compensation paid as common stock		140			354

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE-MONTH PERIODS ENDED DECEMBER 27, 2015 AND DECEMBER 28, 2014

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements include the accounts of Crown Crafts, Inc. (the “Company”) and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”). Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which has been established by the FASB as the authoritative source for GAAP to be applied by nongovernmental entities.

In the opinion of management, the interim unaudited consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of December 27, 2015 and the results of its operations and cash flows for the periods presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for the three and nine-month periods ended December 27, 2015 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 3, 2016. For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended March 29, 2015.

Reclassifications: The Company has reclassified certain prior year information to conform to the amounts presented in the current year. None of the changes impact the Company’s previously reported financial position or results of operations.

Fiscal Year: The Company’s fiscal year ends on the Sunday that is nearest to or on March 31. References herein to “fiscal year 2016” or “2016” represent the 53-week period ending April 3, 2016 and references herein to “fiscal year 2015” or “2015” represent the 52-week period ended March 29, 2015.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the accompanying consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the accompanying consolidated statements of income and cash flows. Significant estimates are made with respect to the allowances related to accounts receivable for customer deductions for returns, allowances and disputes. The Company also has a certain amount of discontinued finished products which necessitates the establishment of inventory reserves and allocates indirect costs to inventory based on an estimated percentage of the supplier purchase price, each of which is highly subjective. The Company has also established estimated reserves in connection with the uncertainty concerning the amount of income taxes recognized. Actual results could differ from those estimates.

Cash and Cash Equivalents: The Company considers highly-liquid investments, if any, purchased with original maturities of three months or less to be cash equivalents.

The Company’s credit facility consists of a revolving line of credit under a financing agreement with The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group, Inc. The Company classifies a negative balance outstanding under this revolving line of credit as cash, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There are no compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.

Financial Instruments: For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of the fair value.

Advertising Costs: The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for those customers, with periodic adjustments to the actual amounts of authorized agreements. Advertising expense is included in other marketing and administrative expenses in the accompanying consolidated statements of income and amounted to $271,000 and $376,000 for the three-month periods ended December 27, 2015 and December 28, 2014, respectively, and $840,000 and $842,000 for the nine-month periods ended December 27, 2015 and December 28, 2014, respectively.

Segment and Related Information: The Company operates primarily in one principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding, bibs, soft bath products, disposable products and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for the three and nine-month periods ended December 27, 2015 and December 28, 2014 are as follows (in thousands):

	Three-Month Periods Ended				Nine-Month Periods Ended
	December 27, 2015		December 28, 2014		December 27, 2015		December 28, 2014
Bedding, blankets and accessories	$	15,821	$	18,378	$	42,456	$	44,566
Bibs, bath and disposable products		4,870		5,365		16,809		15,322
Total net sales	$	20,691	$	23,743	$	59,265	$	59,888

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

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

To reduce the exposure to credit losses and to enhance the predictability of its cash flows, the Company assigns the majority of its trade accounts receivable under factoring agreements with CIT. In the event a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. The Company’s management must make estimates of the uncollectibility of its non-factored accounts receivable to evaluate the adequacy of the Company’s allowance for doubtful accounts, which is accomplished by specifically analyzing accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’ payment terms.

The Company’s accounts receivable as of December 27, 2015 was $19.6 million, net of allowances of $1.1 million. Of this amount, $17.5 million was due from CIT under the factoring agreements, and an additional $7.5 million was due from CIT as a negative balance outstanding under the revolving line of credit. The combined amount of $25.0 million represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

Royalty Payments: The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. These royalties are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold in the accompanying consolidated statements of income and amounted to $2.3 million and $2.5 million for the three-month periods ended December 27, 2015 and December 28, 2014, respectively, and $6.3 million and $5.9 million for the nine-month periods ended December 27, 2015 and December 28, 2014, respectively.

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

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

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

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

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

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

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

Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained. The Company applies the provisions of FASB ASC Sub-topic 740-10-25, which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. During the three-month period ended December 27, 2015, an evaluation was made of the Company’s process regarding the calculation of the state portion of its income tax provision. This evaluation resulted in a tax position which reflects opportunities for the application of more favorable state apportionment percentages for the past few years. After considering all relevant information, the Company believes that the technical merits of this tax position would more likely than not be sustained. However, the Company also believes that the ultimate resolution of the tax position will result in a tax benefit that is less than the full amount being sought. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording during the three-month period ended December 27, 2015 a gross reserve for unrecognized tax benefits of $713,000, less an offset of $573,000 to reflect state income tax overpayments net of the federal income tax impact, for a net reserve for unrecognized tax benefits of $140,000 in the accompanying consolidated financial statements. The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s consolidated statements of income. As the estimated unrecognized tax benefits are associated with state income tax overpayments, no interest expense or penalties will be accrued as long as the overpayments are receivable.

The Company files income tax returns in the many jurisdictions within which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations for the Company’s filed income tax returns varies by jurisdiction; tax years open to federal, state or Chinese audit or other adjustment as of December 27, 2015 were the fiscal years ended April 1, 2012, March 31, 2013, March 30, 2014 and March 29, 2015, as well as the fiscal year ended April 3, 2011 for several states.

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

Recently-Issued Accounting Standards: In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace most existing GAAP guidance on revenue recognition, and which will require the use of more estimates and judgments, as well as additional disclosures. When issued, ASU No. 2014-09 was to become effective in the fiscal year beginning after December 15, 2016, but in August 2015 the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which provides for a one-year deferral of the effective date to apply the guidance of ASU No. 2014-09. Early adoption was originally not permitted in ASU No. 2014-09, but ASU No. 2015-14 permits early adoption in the first interim period of the fiscal year beginning after December 15, 2016. The Company is currently evaluating the effect that its adoption of ASUs 2014-09 and 2015-14 on April 3, 2017 will have on its financial position, results of operations and related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which will clarify that after an entity determines the cost of its inventory, the subsequent measurement and presentation of such inventory should be at the lower of cost or net realizable value. The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2016. The ASU should be applied prospectively, and early adoption is permitted. The Company intends to adopt ASU No. 2015-11 on April 3, 2017, and is currently evaluating the effect that the adoption of the ASU will have on its financial position, results of operations and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which will simplify the presentation of deferred taxes by requiring all deferred tax assets and liabilities to be classified as noncurrent on an entity’s balance sheet. The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2016. The ASU may be applied prospectively or retrospectively, and early adoption is permitted. The Company does not expect that its adoption of ASU No. 2015-17 will have a material impact on its financial position, results of operation and related disclosures.

Note 2 – Goodwill, Customer Relationships and Other Intangible Assets

Goodwill: Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations. The Company considers its wholly-owned subsidiaries, Crown Crafts Infant Products, Inc. (“CCIP”) and Hamco, Inc. (“Hamco”), to each be a reporting unit of the Company for the purpose of presenting and testing for the impairment of goodwill. The goodwill of the reporting units of the Company as of December 27, 2015 and March 29, 2015 amounted to $24.0 million, and is reflected in the accompanying consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $1.1 million.

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

The annual impairment test of the fair value of the goodwill of the reporting units of the Company was performed as of March 30, 2015, and the Company concluded that the fair value of the goodwill of the Company’s reporting units substantially exceeded their carrying values as of that date.

Other Intangible Assets: Other intangible assets at December 27, 2015 and March 29, 2015 consisted primarily of identifiable assets acquired in business combinations, other than tangible assets and goodwill. The gross amount and accumulated amortization of the Company’s other intangible assets as of December 27, 2015 and March 29, 2015, the amortization expense for the three and nine-month periods ended December 27, 2015 and December 28, 2014 and the classification of such amortization expense within the accompanying unaudited consolidated statements of income are as follows (in thousands):

									Amortization Expense
	Gross Amount				Accumulated Amortization				Three-Month Periods Ended				Nine-Month Periods Ended
	December		March		December		March		December		December		December		December
	27, 2015		29, 2015		27, 2015		29, 2015		27, 2015		28, 2014		27, 2015		28, 2014
Tradename and trademarks	$	1,987	$	1,987	$	900	$	801	$	33	$	33	$	99	$	99
Licenses and designs		-		3,571		-		3,571		-		-		-		-
Non-compete covenants		98		454		58		410		1		1		4		17
Patents		1,601		1,601		431		350		27		27		81		81
Customer relationships		5,534		5,411		3,760		3,385		127		121		375		362
Total other intangible assets	$	9,220	$	13,024	$	5,149	$	8,517	$	188	$	182	$	559	$	559

Classification within the accompanying consolidated statements of income:
Cost of products sold									$	1	$	1	$	4	$	17
Other marketing and administrative expenses										187		181		555		542
Total amortization expense									$	188	$	182	$	559	$	559

Note 3 – Inventories

Major classes of inventory were as follows (in thousands):

	December 27, 2015		March 29, 2015
Raw Materials	$	37	$	36
Finished Goods		17,476		15,432
Total inventory	$	17,513	$	15,468

Note 4 – Stock-based Compensation

The Company has two incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”). As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting, grants may no longer be issued under the 2006 Plan.

The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 2014 Plan may be in the form of incentive stock options, non-qualified stock options, shares of restricted or unrestricted stock, stock units, stock appreciation rights or other stock-based awards. Awards may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The 2014 Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”), which selects eligible employees, non-employee directors and other individuals to participate in the 2014 Plan and determines the type, amount, duration and other terms of individual awards. At December 27, 2015, 1.0 million shares of the Company’s common stock were available for future issuance under the 2014 Plan.

Stock-based compensation expense is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation expense to be accounted for using a fair-value-based measurement. The Company recorded stock-based compensation expense of $212,000 and $225,000 during the three-month periods ended December 27, 2015 and December 28, 2014, respectively, and recorded $691,000 and $652,000 during the nine-month periods ended December 27, 2015 and December 28, 2014, respectively. The Company records the compensation expense related to stock-based awards granted to individuals in the same classifications as the cash compensation paid to those same individuals. No stock-based compensation costs have been capitalized as part of the cost of an asset as of December 27, 2015.

Stock Options: The following table represents stock option activity for the nine-month periods ended December 27, 2015 and December 28, 2014:

	Nine-Month Period Ended					Nine-Month Period Ended
	December 27, 2015					December 28, 2014
	Weighted-					Weighted-
	Average		Number of			Average		Number of
	Exercise		Options			Exercise		Options
	Price		Outstanding			Price		Outstanding
Outstanding at Beginning of Period	$	6.83		330,000		$	5.76		185,000
Granted		8.38		110,000			7.90		165,000
Exercised		6.30		(55,000	)		5.78		(10,000	)
Outstanding at End of Period		7.35		385,000			6.80		340,000
Exercisable at End of Period		6.52		192,500			5.60		125,000

As of December 27, 2015, the intrinsic value of the outstanding and exercisable stock options was $334,000 and $314,000, respectively. The intrinsic value of the stock options exercised during the three and nine-months ended December 27, 2015 was $68,000 and $101,000, respectively. The Company received no cash from the exercise of stock options during each of the three and nine-month periods ended December 27, 2015. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash of $25,000 and $37,000 to remit the required income tax withholding amounts from “cashless” option exercises during the three and nine-month periods ended December 27, 2015, respectively, and used cash of $5,000 to remit the required income tax withholding amounts from “cashless” option exercises during each of the three and nine-month periods ended December 28, 2014.

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options which were awarded to certain employees during the nine-month periods ended December 27, 2015 and December 28, 2014, which options vest over a two-year period, assuming continued service.

	Options Issued to Employees
	Nine-Month Periods Ended
	December 27, 2015			December 28, 2014
Options issued		110,000			165,000
Grant date	June 12, 2015			June 18, 2014
Dividend yield		3.82	%		4.05	%
Expected volatility		20.00	%		30.00	%
Risk free interest rate		1.12	%		0.95	%
Contractual term (years)		10.00			10.00
Expected term (years)		3.00			3.00
Forfeiture rate		5.00	%		5.00	%
Exercise price (grant-date closing price) per option	$	8.38		$	7.90
Fair value per option	$	0.77		$	1.19

For the three-month periods ended December 27, 2015 and December 28, 2014, the Company recognized compensation expense associated with stock options as follows (in thousands):

	Three-Month Period Ended December 27, 2015						Three-Month Period Ended December 28, 2014
	Cost of		Other Marketing				Cost of		Other Marketing
	Products		& Administrative		Total		Products		& Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2014	$	-	$	-	$	-	$	6	$	6	$	12
2015		12		10		22		12		10		22
2016		5		4		9		-		-		-

Total stock option compensation	$	17	$	14	$	31	$	18	$	16	$	34

For the nine-month periods ended December 27, 2015 and December 28, 2014, the Company recognized compensation expense associated with stock options as follows (in thousands):

	Nine-Month Period Ended December 27, 2015						Nine-Month Period Ended December 28, 2014
	Cost of		Other Marketing				Cost of		Other Marketing
	Products		& Administrative		Total		Products		& Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2013	$	-	$	-	$	-	$	12	$	12	$	24
2014		7		7		14		19		19		38
2015		40		34		74		26		22		48
2016		11		9		20		-		-		-

Total stock option compensation	$	58	$	50	$	108	$	57	$	53	$	110

As of December 27, 2015, total unrecognized stock option compensation expense amounted to $113,000, which will be recognized as the underlying stock options vest over a weighted-average period of nine months. The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock Granted to Non-Employee Directors: The Board granted the following shares of non-vested stock to the Company’s non-employee directors:

Number of Shares		Fair Value per Share		Three-Month Period Ended
	28,000		$8.20	September 27, 2015
	28,000		$7.97	September 28, 2014
	28,000		$6.67	September 29, 2013
	42,000		$5.62	September 30, 2012

These shares vest over a two-year period, assuming continued service. The fair value of the non-vested stock granted to the Company’s non-employee directors was based on the closing price of the Company’s common stock on the date of each grant. In August 2015, 28,000 shares vested that had been granted to the Company’s non-employee directors, with such shares having an aggregate value of $226,000.

Non-vested Stock Granted to Employees: During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock to certain employees in a series of grants, each of which was to vest only if (i) the closing price of the Company’s common stock was at or above certain target levels for any ten trading days out of any period of 30 consecutive trading days and (ii) the respective employees remained employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the awards amounted to $1.2 million.

With the closing price conditions having been met for these awards, the Board at various times approved amendments to provide for the immediate vesting of all or a portion of several of the grants. The vesting of these awards was accelerated in order to maximize the deductibility of the associated compensation expense by the Company for income tax purposes. During the three-month period ended September 27, 2015, the remaining 240,000 of these shares vested, with such shares having an aggregate value of $1.9 million. Each of the individuals holding shares that vested surrendered to the Company the number of shares necessary to satisfy the income tax withholding obligations that arose from the vesting of the shares, and the Company remitted $948,000 to the appropriate taxing authorities on behalf of such individuals.

Performance Bonus Plan: The Company maintains a performance bonus plan for certain executive officers that provides for awards of shares of common stock in the event that the aggregate average market value of the common stock during the relevant fiscal year, plus the amount of cash dividends paid in respect of the common stock during such period, increases. These individuals may instead be awarded cash, if and to the extent that insufficient shares of common stock are available for issuance from all shareholder-approved, equity-based plans or programs of the Company in effect. The performance bonus plan also imposes individual limits on awards and provides that shares of common stock that may be awarded will vest over a two-year period. Compensation expense associated with performance bonus plan awards are recognized over a three-year period – the fiscal year in which the award is earned, plus the two-year vesting period.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2015, awarded 58,532 shares of common stock with a fair value of $7.18 per share during the three-month period ended June 28, 2015. In connection with these awards, the Company recognized compensation expense of $140,000 during fiscal year 2015, and will recognize, on a straight-line basis, $140,000 in compensation expense during each of fiscal years 2016 and 2017.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2014, awarded 188,232 shares of common stock with a fair value of $5.65 per share during the three-month period ended June 29, 2014. In connection with these awards, the Company recognized compensation expense of $354,000 during each of fiscal years 2014 and 2015, and will recognize, on a straight-line basis, $354,000 in compensation expense during fiscal year 2016. During the three-month period ended June 28, 2015, 94,116 of these shares vested, with such shares having an aggregate value of $735,000. Each of the individuals holding shares that vested surrendered to the Company the number of shares necessary to satisfy the income tax withholding obligations that arose from the vesting of the shares, and the Company remitted $360,000 to the appropriate taxing authorities on behalf of such individuals.

For the three-month periods ended December 27, 2015 and December 28, 2014, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

	Three-Month Period Ended December 27, 2015						Three-Month Period Ended December 28, 2014
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2011	$	-	$	-	$	-	$	51	$	-	$	51
2014		-		-		-		-		23		23
2015		89		28		117		89		28		117
2016		35		29		64		-		-		-

Total stock grant compensation	$	124	$	57	$	181	$	140	$	51	$	191

For the nine-month periods ended December 27, 2015 and December 28, 2014, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

	Nine-Month Period Ended December 27, 2015						Nine-Month Period Ended December 28, 2014
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2011	$	48	$	-	$	48	$	133	$	-	$	133
2013		-		-		-		-		27		27
2014		-		31		31		-		69		69
2015		267		84		351		267		46		313
2016		105		48		153		-		-		-

Total stock grant compensation	$	420	$	163	$	583	$	400	$	142	$	542

As of December 27, 2015, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $510,000, which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 4.7 months. The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has non-vested stock grants as of such individual’s separation date.

Note 5 – Financing Arrangements

Factoring Agreements: The Company assigns the majority of its trade accounts receivable to CIT under factoring agreements whose expiration dates are coterminous with that of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT.

CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination were to occur, the Company must either assume the credit risk for shipments after the date of such termination or limitation or cease shipments to such customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited consolidated statements of income, were $124,000 and $187,000 for the three-month periods ended December 27, 2015 and December 28, 2014, respectively, and were $396,000 and $453,000 for the nine-month periods ended December 27, 2015 and December 28, 2014, respectively. There were no advances from the factor at December 27, 2015 or March 29, 2015.

Credit Facility: The Company’s credit facility at December 27, 2015 consisted of a revolving line of credit under a financing agreement with CIT of up to $26.0 million, which includes a $1.5 million sub-limit for letters of credit, with an interest rate of prime minus 0.50% or LIBOR plus 2.00%. The financing agreement was to mature on July 11, 2016 and is secured by a first lien on all assets of the Company. As of December 27, 2015, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option. The financing agreement also provides for the payment by CIT to the Company of interest at the rate of prime as of the beginning of the calendar month minus 2.00%, which was 1.25% at December 27, 2015, on daily cash balances held at CIT.

Under the financing agreement, a fee was assessed based on 0.125% of the average unused portion of the $26.0 million revolving line of credit, less any outstanding letters of credit (the “Commitment Fee”). The Commitment Fee was $8,000 for each of the three months ended December 27, 2015 and December 28, 2014, and was $25,000 for each of the nine months ended December 27, 2015 and December 28, 2014. At December 27, 2015, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and the Company had $25.4 million available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

The financing agreement for the revolving line of credit contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates and changes in or amendments to the organizational documents for the Company and its subsidiaries. The Company was in compliance with these covenants as of December 27, 2015.

The financing agreement was amended on December 28, 2015 to extend its maturity date to July 11, 2019 and to eliminate the Commitment Fee.

Note 6 – Subsequent Events

As set forth in Note 5 above, the Company’s financing agreement with CIT was amended on December 28, 2015 to extend its maturity date to July 11, 2019 and to eliminate the Commitment Fee. On February 4, 2016, the Board declared a special cash dividend on the Company’s common stock of $0.25 per share, which is in addition to the declaration of the regular quarterly cash dividend of $0.08 per share. Both dividends will be paid on April 8, 2016 to stockholders of record at the close of business on March 18, 2016. The Company has evaluated events which have occurred between December 27, 2015 and the date that the accompanying consolidated financial statements were issued, and has determined that there are no other material subsequent events that require disclosure.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The Company’s products are marketed through a national sales force consisting of salaried sales executives and employees located in Compton, California; Gonzales, Louisiana; and Bentonville, Arkansas. Products are also marketed by independent commissioned sales representatives located throughout the United States. Sales outside the United States are made primarily through distributors.

The Company maintains a foreign representative office located in Shanghai, China, which is responsible for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality.

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

A summary of certain factors that management considers important in reviewing the Company’s results of operations, financial position, liquidity and capital resources is set forth below, which should be read in conjunction with the accompanying consolidated financial statements and related notes included in the preceding sections of this report.

RESULTS OF OPERATIONS

The following table contains results of operations for the three and six-month periods ended December 27, 2015 and December 28, 2014 and the dollar and percentage changes for those periods (in thousands, except percentages):

	Three-Month Periods Ended						Change						Nine-Month Periods Ended						Change
	December 27, 2015			December 28, 2014			$			%			December 27, 2015			December 28, 2014			$			%
Net sales by category
Bedding, blankets and accessories	$	15,821		$	18,378		$	(2,557	)		-13.9	%	$	42,456		$	44,566		$	(2,110	)		-4.7	%
Bibs, bath and disposable products		4,870			5,365			(495	)		-9.2	%		16,809			15,322			1,487			9.7	%
Total net sales		20,691			23,743			(3,052	)		-12.9	%		59,265			59,888			(623	)		-1.0	%
Cost of products sold		14,439			17,115			(2,676	)		-15.6	%		42,526			43,132			(606	)		-1.4	%
Gross profit		6,252			6,628			(376	)		-5.7	%		16,739			16,756			(17	)		-0.1	%
% of net sales		30.2	%		27.9	%								28.2	%		28.0	%
Marketing and administrative expenses		3,182			3,356			(174	)		-5.2	%		9,551			11,025			(1,474	)		-13.4	%
% of net sales		15.4	%		14.1	%								16.1	%		18.4	%
Interest expense		8			10			(2	)		-20.0	%		47			27			20			74.1	%
Other income (expense)		(40	)		(20	)		(20	)		100.0	%		(1	)		(14	)		13			-92.9	%
Income tax expense		879			1,196			(317	)		-26.5	%		2,505			2,111			394			18.7	%
Net income		2,143			2,046			97			4.7	%		4,635			3,579			1,056			29.5	%
% of net sales		10.4	%		8.6	%								7.8	%		6.0	%

Net Sales: Sales decreased by $3.1 million, or 12.9%, for the three-month period ended December 27, 2015 and $623,000, or 1.0%, for the nine-month period ended December 27, 2015 compared with the same periods in the prior year. The sales decrease for the three-month period is primarily due to lower replenishment related to soft retail sales and retail customers shifting their inventory purchases toward seasonal goods. Additionally, the prior year included initial shipments of products gained when a competitor exited the business, which were not repeated in the current year. During the nine-month period, sales increased due to replenishment orders for the new collections gained during the second and third quarter of the prior year; however, these increases were offset by the current quarter decreases previously mentioned.

Gross Profit: Gross profit decreased in amount by $376,000, but increased from 27.9% of net sales for the three months ended December 27, 2014 to 30.2% of net sales for the three months ended December 27, 2015. Gross profit was stable for the nine-month period, having increased in amount by $17,000 and increased from 28.0% of net sales for the nine-month period ended December 28, 2014 to 28.2% for the nine-month period ended December 27, 2015. The increase in the gross margin for the three-month period is primarily due to the Company’s overall tight cost control combined with improved product cost from China resulting from favorable exchange rate fluctuations. For the nine-month period, the gross margin increase as a percentage of net sales was the result of the previously mentioned three-month efficiencies offset by a decrease associated with the assumption of new business from a former competitor with lower pre-set prices beginning in the three-month period ended December 28, 2014.

Legal Expense: Legal expense decreased by $1.3 million for the nine-month period ended December 27, 2015 as compared with the same period of the prior year. The decrease was primarily the result of an $850,000 legal settlement recognized in the second quarter of the prior year and $369,000 of legal fees incurred during nine-month period in the prior year that were associated with a lawsuit that was settled during the three-month period ended December 28, 2014.

Other Marketing and Administrative Expenses: Other marketing and administrative expenses decreased in amount by $136,000, but increased from 13.9% of net sales for the three-month period ended December 28, 2014 to 15.3% of net sales for the three-month period ended December 27, 2015. The increase as a percentage of net sales during the three-month period is primarily related to the decrease in net sales. Other marketing and administrative expenses decreased in amount by $207,000 and was stable at 16.1% of net sales for the nine-month period ended December 28, 2014, compared with 16.0% of net sales for the nine-month period ended December 27, 2015.

Income Tax Expense: The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations for the nine-month period of the current year of 38.3%. During the three-month period ended December 27, 2015, the Company recorded a discrete net income tax benefit of approximately $230,000, primarily resulting from the application of more favorable state apportionment percentages. As a result of the net benefit, the actual ETR for the nine-month period ended December 27, 2015 has been reduced to 35.1%. The favorable apportionment percentages also explain the reduction in the ETR of 1.2% for the nine-month period of the current year over the ETR for the six-month period ended September 27, 2015 of 39.5%. The overall impact of the change in the ETR from 39.5% to 38.3% when applied to the year-to-date earnings is approximately $85,000.

Although the Company does not anticipate a material change to the ETR from continuing operations for the balance of 2016, several factors could impact the ETR, including variations from the Company’s estimates of the amount and source of its pre-tax income and the amount of certain tax credits.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities increased from $2.6 million for the nine-month period ended December 28, 2014 to $9.5 million for the nine-month period ended December 27, 2015, due primarily to a higher decrease in accounts receivable and lower increases in inventory and prepaid expenses, which was offset by a lower increase in accounts payable in the current year.

Net cash used in investing activities increased to $307,000 in the current year from $223,000 in the prior year, due primarily to $123,000 used in the current year to purchase certain intangible assets.

Net cash used in financing activities increased by $1.0 million to $3.5 million in the current year. The increase was primarily associated with the surrender to the Company’s treasury of a portion of the shares of non-vested stock that vested, which was in consideration of the Company remitting the income tax withholding obligations that arose from the vesting of the shares.

From December 28, 2014 to December 27, 2015, the Company’s cash balances increased from $485,000 to $7.5 million. At December 27, 2015, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and the Company had $25.4 million available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

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 its cash balance, its cash flow from operations and its availability from the revolving line of credit will be adequate to meet its liquidity needs.

To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company assigns the majority of its trade accounts receivable to CIT under factoring agreements. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT and bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination were to occur, the Company must either assume the credit risk for shipments after the date of such termination or limitation or cease shipments to such customer. There were no advances from the factor at either December 27, 2015 or March 29, 2015.

FORWARD-LOOKING INFORMATION

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

ITEM 4. 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 such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

During the three-month period ended December 27, 2015, there was not any change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 of the Company’s annual report on Form 10-K for the year ended March 29, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding the Company’s repurchase of its outstanding common stock during the three-month period ended December 27, 2015.

	Total Number of Shares		Average Price		Total Number of Shares Purchased as Part of Publicly Announced Plans or		Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or
Period	Purchased (1)		Paid Per Share		Programs		Programs
September 28, 2015 through November 1, 2015		27,320	$	8.21		0	$	0
November 2, 2015 through November 29, 2015		0	$	0		0	$	0
November 30, 2015 through December 27, 2015		0	$	0		0	$	0
Total		27,320	$	8.21		0	$	0

⁽¹⁾

The shares purchased from September 28, 2015 through November 1, 2015 consist of shares of common stock surrendered to the Company in payment of the income tax withholding obligations relating to the exercise of options.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. 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 Exhibit

10.1		Tenth Amendment to Financing Agreement dated as of December 28, 2015 by and among Crown Crafts, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (1)

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer (2)

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer (2)

32.1		Section 1350 Certification by the Company’s Chief Executive Officer (2)

32.2		Section 1350 Certification by the Company’s Chief Financial Officer (2)

101		The following information from the Registrant’s Form 10-Q for the quarterly period ended December 27, 2015, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Income; (ii) Unaudited Condensed Consolidated Balance Sheets; (iii) Unaudited Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.

(1)		Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated December 28, 2015.
(2)		Filed herewith.

SIGNATURE

Pursuant to the requirements 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.


Date: February 9, 2016	/s/ Olivia W. Elliott
	OLIVIA W. ELLIOTT
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

Index to Exhibits

Exhibit Number		Description of Exhibit

10.1		Tenth Amendment to Financing Agreement dated as of December 28, 2015 by and among Crown Crafts, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (1)

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer (2)

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer (2)

32.1		Section 1350 Certification by the Company’s Chief Executive Officer (2)

32.2		Section 1350 Certification by the Company’s Chief Financial Officer (2)

101		The following information from the Registrant’s Form 10-Q for the quarterly period ended December 27, 2015, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Income; (ii) Unaudited Condensed Consolidated Balance Sheets; (iii) Unaudited Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.

(1)		Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated December 28, 2015.
(2)		Filed herewith.