defa14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Check the appropriate box:
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For Immediate Release
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July 19, 2010 |
CROWN CRAFTS URGES SHAREHOLDERS TO STAY FOCUSED ON THE FACTS
AND SUPPORT ITS SLATE OF
TRULY INDEPENDENT, HIGHLY QUALIFIED DIRECTOR CANDIDATES
Proxy Contest Yet Another Example of Dissident Investors History of Misrepresentations
and Self-Serving, Short-Sighted Agenda at Expense of all Shareholders
Gonzales, Louisiana Crown Crafts, Inc. (the Company) (NASDAQ-CM: CRWS) today issued a letter
to all shareholders in connection with the election of directors at the Companys annual meeting of
shareholders to be held on August 10, 2010.
Commenting on the current proxy fight instigated by the New York-based investment fund Wynnefield
Partners Small Cap Value L.P. and certain affiliates (the Wynnefield Group), E. Randall Chestnut,
the Companys Chairman, President and Chief Executive Officer, said, Crown Crafts continued to
build on its successful strategic trajectory in fiscal 2010, which was a great year for Crown
Crafts despite the recession-related challenges that impacted retail markets. Among other things,
(1) we maintained a stable top line while generating strong cash flows from operations, (2) we
instituted a new quarterly dividend payout of $0.02 per share, further strengthened our enviable
balance sheet and raised shareholders equity by 23%, and (3) we increased Adjusted EBITDA* to
$10.5 million, the highest level since 1998.
We are proud of the positive momentum we have created for our shareholders, and we enter fiscal
2011 with great enthusiasm for the value creation opportunities that are now before us. This is
why the ongoing, misleading antics by the Wynnefield Group to advance their own narrow,
self-serving, short-sighted agenda are so frustrating and counterproductive.
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* |
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Please see discussion of non-GAAP financial measures at the end of the attached
letter. |
In 2007, the Wynnefield Group pursued a costly and distracting proxy fight in which only one of
their candidates was elected. In 2008, the Wynnefield Group threatened a similar campaign before
the Company agreed to allow the dissident investor to add a handpicked director to the Companys
Board.
Chestnut noted that neither individual appears to have the support of the Wynnefield Group anymore
because their 2010 slate does not include their nominee who was elected in 2007 and whose term is
expiring, and they have suggested that their director appointed in 2008 step down from the Board.
Additionally, the dissident investors current nominees have absolutely no experience in our
industry and are lacking in relevant qualifications when compared to the Companys slate, he said.
The following is the letter the Companys Board sent to Crown Crafts shareholders:
AN IMPORTANT MESSAGE FROM YOUR BOARD OF DIRECTORS
July 19, 2010
Dear Fellow Crown Crafts Shareholders:
On August 10, 2010, we will host our annual meeting of shareholders in Gonzales, Louisiana.
Despite the steady progress your Board of Directors and management have made in creating greater
value for Crown Crafts shareholders (see our letter of July 15, 2010 accompanying the proxy
materials we sent to you previously), Wynnefield Partners Small Cap Value, L.P. and certain of its
affiliates (the Wynnefield Group) are insistent on continuing their efforts to embroil your Company
in an unnecessary, distracting and costly proxy battle to drive their self-serving agenda. Your
Board strongly urges all Crown Crafts shareholders to vote FOR all of the Companys
nominees on the enclosed WHITE proxy card today. We urge you to discard and not return any
gold proxy card you may receive from the Wynnefield Group.
DOES THE WYNNEFIELD GROUP TRULY WANT INDEPENDENT DIRECTORS?
In its proxy materials, the Wynnefield Group conveniently ignores the fact that their two
handpicked Board members Frederick Wasserman and Joseph Kling have overwhelmingly supported
the very business strategy for long-term value creation that the Wynnefield Group criticizes, while
offering no alternatives. They also fail to tell you that Mr. Kling supports our agenda, our
strategic plan and our nominees, not theirs.
In Board votes during their tenures, Mr. Wasserman has voted with the majority more than
92% of the time, and Mr. Kling has voted with the majority more than 94% of the time.
This time, the Wynnefield Group has chosen not to re-nominate Mr. Wasserman, whose term is expiring
this year, even though he has gained a thorough understanding of the Company and its business
during his three years on the Board. Also, the Wynnefield Group proposed to the Board earlier this
year that the Board use its best efforts to request Mr. Kling to resign and that the Board elect a
different handpicked representative of the Wynnefield Group to serve as a director in his place.
Could it be that the Wynnefield Group became disillusioned with Messrs. Wasserman and
Kling because, as fully informed directors having a fiduciary obligation to act in the best
interest of all shareholders, they overwhelmingly supported the very business strategy that the
Wynnefield Group is so critical of? Ask yourself does the Wynnefield Group truly want
INDEPENDENT directors for the Company?
YOU CANNOT VOTE THE GOLD CARD AND VOTE FOR YOUR CEO
The Wynnefield Groups proxy card permits you to vote for their nominees, Melvin L. Keating
and Jon C. Biro, but not for any of the Companys Class I nominees, including E. Randall Chestnut.
The Wynnefield Group states that they are not seeking authority to vote for such individuals and
will not exercise any such authority. As a result, you cannot vote the gold proxy card
provided by the Wynnefield Group and also vote for Mr. Chestnut. This means that if you vote
for the Wynnefield Groups nominees, then your Chief Executive Officer, the person primarily
responsible for managing the Companys business and implementing its strategy, may no longer be a
member of the Board. Do you want to run this risk?
THE WYNNEFIELD GROUP IS WRONG ON THE FACTS
As they did in their previous proxy challenge in 2007, the Wynnefield Group is relying largely
on fictitious assertions and misleading allegations to support their case. We believe the
consistent misstatements made by the Wynnefield Group demonstrate their clear lack of knowledge
both about us and our industry, and we must question the integrity of those who so willingly play
fast and loose with the facts. Following are some of the Wynnefield Groups more egregious claims:
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THE WYNNEFIELD |
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GROUPS CLAIM |
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THE FACTS |
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The Wynnefield Group has been a
stockholder of the Company since
1996, and like other long-term
stockholders, has suffered from the
diminution of value of its shares.
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While it is true that the Wynnefield
Group has been a shareholder since
1996, the fact is they have enjoyed
an attractive return on their
investment. According to their SEC
filings, the cost basis of the
Wynnefield Groups holdings in the
Companys stock is approximately
90.4 cents per share, compared with
the stocks current value of $4.00
per share on July 16, 2010, which is
approximately 4.5 times the amount
they paid for their shares. In
addition, the Board has declared,
and the Company has paid, dividends
of $0.02 per share for the past two
quarters. Paying out annual
dividends at this rate would reap an
attractive 8.9% return for the
Wynnefield Group on their investment
through dividends alone. |
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THE WYNNEFIELD |
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GROUPS CLAIM |
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THE FACTS |
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The Company continues to
underperform its peers in the infant
and juvenile products industry.
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While no other public company qualifies as a true peer of Crown Crafts based
on product portfolios and markets served, the Wynnefield Group cites Summer
Infant, Inc. (NasdaqCM: SUMR) and Kid Brands, Inc. (NYSE: KID) as the
Companys peers and uses them as exemplars to criticize the performance of the
Companys stock. What the Wynnefield Group fails to tell you, not
surprisingly, is that the Companys stock price has considerably outperformed
that of SUMR and KID for each of the time periods below (through July 16,
2010): |
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1 Month |
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3 Months |
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6 Months |
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5 Years |
CRWS |
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2.6 |
% |
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6.7 |
% |
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51.5 |
% |
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788.9 |
% |
KID |
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-10.4 |
% |
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-21.6 |
% |
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42.4 |
% |
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-52.8 |
% |
SUMR |
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-8.8 |
% |
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-5.0 |
% |
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22.6 |
% |
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29.2 |
% |
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Failure to publicly disclose a
non-emergency CEO succession plan,
we believe, is evidence of the
Boards desire to maintain the
status quo and its deference to Mr.
Chestnut as Chairman and CEO.
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The Board has long held the view that effective succession planning is pivotal
to the successful governance and management of the Company. To that end, it
has been vigilant in planning and preparing for a seamless leadership
transition both planned and unplanned to preserve stability and
accountability, as well as to maintain the confidence and support of all of
the Companys stakeholders and constituents. You should know that the Board
has a detailed, written CEO succession plan in place, which it reviews at
least once a year. |
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If the Company were to publicly designate a potential successor or group of
successor candidates, it is our view that others who are not publicly
designated as potential successors might leave the Company or that the
Companys other recruitment or retention efforts might be undermined. Public
disclosure of the Companys succession plan may also result in the public
disclosure of long-term strategic objectives that are not otherwise
disclosable and the disclosure of which could result in competitive harm to
the Company from its current and future competitors. |
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THE WYNNEFIELD |
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GROUPS CLAIM |
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THE FACTS |
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Despite our urgings over
many years in this regard,
and the Companys obligation
to comply with the terms of
our Standstill Agreement,
which required a
comprehensive review of all
strategic options, we
[Wynnefield] believe the
Board has not publicly
communicated to its
stockholders the nature and
extent of any strategic
review.
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There should be no doubt that a thorough
review of strategic alternatives took place.
Your Board engaged a well-respected,
independent consultant, with a background of
directly related industry experience, to
lead the strategic planning process.
Subject to the approval of the Strategic
Review Committee which included Mr.
Wasserman, who was the Wynnefield Groups
nominee in 2007 the Boards consultant
determined the scope of the project and its
timeline and prepared a report based on
objective research, including interviews and
metrics derived from the consultants
proprietary financial model. Following a
thorough evaluation of this report, both the
Strategic Review Committee and the Board
unanimously approved the Companys current
strategic growth plan and concluded that it
is the best alternative available to the
Company to create long-term value for all
our shareholders. While we may, at times,
discuss general points of this plan, it is
not prudent from a competitive and
proprietary standpoint, nor is it accepted
corporate governance best practice, to
publicize this detailed and confidential
strategic planning document in its entirety.
If the Wynnefield Group has a particular
agenda they would like to constructively
discuss with us, they know we remain open to
hearing from them and all other
shareholders. |
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...[T]here is a lack of willingness of the
current management-endorsed members of the
Board to provide the leadership necessary to
address, in the opinion of the Wynnefield
Group, deficiencies in the Companys
financial performance, strategic analysis,
corporate governance and alignment of
compensation practices with stockholder
interests.
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Despite the
recession-related challenges
of fiscal 2010, your Company
further strengthened its
balance sheet, raised
shareholders equity by 23%
and achieved its highest
Adjusted
EBITDA*
since 1998. Responding
aggressively to a
challenging economic
environment, the Board
launched its aggressive
five-year strategic plan in
fiscal 2010, designed to
drive sustained top-tier
sales growth and
profitability. So far, the
evidence indicates that the
plans execution is on track
and delivering the desired
results. Making their
assertion even more
ludicrous, in our opinion,
is the fact that the
Wynnefield Group has never
proposed an alternative
strategic plan of their own. |
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* |
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Please see discussion of non-GAAP financial
measures at the end of this letter. |
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THE WYNNEFIELD |
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GROUPS CLAIM |
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THE FACTS |
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We [Wynnefield] believe that the current
executive compensation arrangements and
change in control agreements, coupled with
rich Board annual cash retainers, fail to
align the financial interests of management
and the Board with those of the
stockholders.
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Your Board has always taken
very seriously its fiduciary
duty to properly align the
interests of the Companys
leadership with those of all
shareholders and has put a
plan in place to ensure they
are aligned. Your Board
engaged a highly regarded,
independent, national
compensation consultant,
with more than 30 years of
experience in human
resources management,
including experience with
major human resources
consulting firms, to make
recommendations regarding
Board compensation and the
compensation of executives,
including salary, bonus and
long-term incentive awards
such as restricted stock and
stock option grants. The
most recent incentive award
to the executive team was of
restricted shares that will
vest only when our stock
trades at or above target
prices ranging from $5 to $7
for 10 out of 30 consecutive
trading days and will
terminate after five years
if the shares have not
previously vested. |
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Contrary to the Wynnefield
Groups claims, the
Companys change in control
agreements also serve to
align the financial
interests of management and
those of the Companys
shareholders. These
arrangements provide a
significant incentive to
management to create value
in the Company for all
shareholders giving
management a long-term stake
in the Companys strategic
plan, efficiency and
profitability. These
arrangements have the added
benefit of attracting and
retaining key management
personnel, thus stabilizing
the Companys leadership for
the long-term. |
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In making its
compensation-related claims,
the Wynnefield Group also
neglects to inform you that
its handpicked director
Mr. Wasserman has been on
the Companys Compensation
Committee for the past three
years, during which time he
has approved the
compensation paid to both
the Companys directors and,
with rare exception, its
executive officers. |
THE COMPANYS NOMINEES ARE EXPERIENCED, INDEPENDENT AND FIRMLY
COMMITTED TO ENHANCING VALUE FOR ALL CROWN CRAFTS SHAREHOLDERS
Your Board is comprised of respected business leaders with extensive professional experience
and knowledge of our industry. This Board led an unprecedented turnaround at Crown Crafts that has
resulted in significant increases in shareholder value. In addition to their experience and
knowledge, the incumbent nominees have demonstrated a commitment to our shareholders that is vital
to the stability and success of Crown Crafts. The Wynnefield Groups suggestion that its nominees
be added to the Board to build shareholder value and that they alone not the Board are
capable of doing this is an unwarranted and misguided attack on the highly qualified, dedicated and
experienced members of your Board.
Consider the following qualifications of our Class I nominees, against whom the Wynnefield
Groups nominees are running:
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E. Randall Chestnut joined Crown Crafts in January 1995 and has been President,
Chief Executive Officer and Chairman of the Company since 2001. He has overseen
the successful transformation and complete financial turnaround of the Company.
Prior to joining Crown Crafts, Mr. Chestnut served as President of Beacon
Manufacturing Company, a producer of adult and infant blankets, from December 1988
to January 1995 and as Vice Chairman of Wiscassett Mills Company, a yarn
manufacturer, from 1990 to 1994. |
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William T. Deyo, Jr. has served the Company as a director since its successful
reorganization in 2001. He has been a principal of Goddard Investment Group, LLC,
a real estate investment firm, since 1999. From 1966 to 1999, he held various
positions with Wachovia Bank in Atlanta, Georgia, serving last as Executive Vice
President. Mr. Deyos more than 30 years in the banking industry give him
significant insight into issues faced by the Company that relate to lending and
financing activities. |
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Richard L. Solar brings extensive industry, financial, M&A, public company and
licensing experience to the Company, including serving as a director and as
Chairman of the Audit Committee of Marvel Entertainment, Inc. until its sale to
The Walt Disney Company in 2009 in a transaction valued at more than $4 billion.
From 1996 to June 2002, Mr. Solar served as Senior Vice President, Director and
Chief Financial Officer of Gerber Childrenswear, a publicly-traded infant and
childrens consumer products company. He also co-led the acquisition of the
company prior to its going public and served the company as a consultant from June
2002 to February 2003. |
The Company is also running a highly qualified Class II nominee in Sidney Kirschner. Mr.
Kirschner, who previously served as a director of the Company for almost nine years, brings a
valuable understanding of its business and industry. During a successful and varied career, he has
held top executive officer positions with a former Fortune 500 company and has served on the boards
of other successful companies, including companies in the textile and manufacturing industries.
In its proxy materials, the Wynnefield Group again criticizes the Companys
staggered board structure, asserting that it adversely affects shareholder democracy. However, all
Board members are subject to the same fiduciary duties to the Company and its shareholders without
regard to the length of their term of service or the frequency of their standing for re-election.
Moreover, a staggered board means that the majority of your Board at any given time will have
experience in the Companys business and affairs, promoting continuity and stability of the
Companys business strategies and policies.
All members of your Board, other than Mr. Chestnut, are independent. In addition, because the
Board believes that strong, independent board leadership is a critical aspect of effective
corporate governance, the Board has established the position of lead director, currently held by
Zenon S. Nie. The lead director, who is elected by the independent directors and must be
independent himself, presides over executive sessions of the independent directors, consults with
the Chairman, oversees the flow of information to the Board and acts as liaison between the
non-employee directors and management. As the primary interface between the CEO and the Board, he
provides a valuable counterweight to the Companys combined Chairman and CEO role.
WE HAVE OUR OWN QUESTIONS ABOUT
THE WYNNEFIELD GROUPS CURRENT NOMINEES
We believe that the experience and qualifications of the Wynnefield Groups nominees Melvin
L. Keating and Jon C. Biro raise certain red flags for shareholders.
Mr. Keatings experience, in particular, causes concern. For example, Mr. Keating was
President and Chief Executive Officer of Alliance Semiconductor Corporation from December 2005
until September 2008 when Alliances Board decided to liquidate the company. This was after
Alliance, under Mr. Keatings leadership, had sold virtually all of its operating assets and had
invested $59.4 million of the cash proceeds in short-term, high-risk, high-yield securities that
were later completely written off. Mr. Keating also has served on the boards of a number of
troubled companies, including Plymouth Rubber Co., which delisted itself from the American Stock
Exchange in 2004 following sustained operating losses, and Kitty Hawk, Inc., which filed for
Chapter 11 bankruptcy reorganization in 2007.
Mr. Biro is a certified public accountant whose public company experience appears to be
limited to approximately two years as a CFO with a printing company, about 13 years in various
positions, including serving as a director for a resin manufacturer, and seven months as a director
(with Mr. Keating) for Aspect Medical Systems, Inc. prior to its sale to United States Surgical
Corporation. This lack of breadth and depth in relevant expertise for our industry is not
comparable to the highly qualified Company-nominated candidates who have been fully vetted by the
Board.
We believe that Messrs. Biro and Keating stand in marked contrast to the Companys Class I
nominees against whom they are running when considering relevant industry experience. Your
Board-supported nominees E. Randall Chestnut, William T. Deyo, Jr., Sidney Kirschner and Richard
L. Solar are highly qualified stewards of your investment and are fully committed to diligently
pursuing our successful growth strategy and acting in the best long-term interests of all
shareholders.
SUPPORT YOUR BOARDS NOMINEES AND YOUR COMPANY
Your Board firmly believes that the best path to maximize value for all shareholders is the
continued execution of our strategic plan. This is not the time to disrupt our operations or
distract our employees with concerns about their future and that of Crown Crafts. This is the time
to grow our Company with the leadership of an experienced Board and management team.
Your vote is very important to us, no matter the size of your holdings. We urge you to vote
your shares today by signing, dating and returning the enclosed WHITE proxy card by mailing
it in the enclosed pre-addressed, stamped envelope. You can also vote by internet or telephone by
following the instructions on the WHITE proxy card. Please do not sign or return any gold
proxy card sent to you by the Wynnefield Group as a reminder, you cannot vote the gold proxy
card and also vote for Mr. Chestnut or any other Class I nominee. If you have any questions or
need any assistance voting your shares, do not hesitate to contact Georgeson, who is assisting us
in this matter, toll free at 1-888-605-7561.
On behalf the Board of Directors and the dedicated men and women of Crown Crafts, we thank you
for your ongoing support.
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Sincerely,
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E. Randall Chestnut
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Zenon S. Nie |
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Chairman of the Board, President
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Independent Lead Director |
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and Chief Executive Officer |
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YOUR VOTE IS IMPORTANT
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To vote FOR your Companys nominees, you MUST execute a WHITE proxy card. |
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The Board of Directors urges you to DISCARD any gold proxy cards that you may have
received from the Wynnefield Group. A WITHHOLD AUTHORITY vote on the Wynnefield Groups
gold proxy card is NOT a vote for the Companys nominees. |
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If you have voted on a gold proxy card but wish to support your Companys nominees,
please sign, date and mail the enclosed WHITE proxy card in the postage-paid envelope
provided as soon as possible. You can also vote by internet or telephone by following the
instructions on the WHITE proxy card. |
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Remember ONLY YOUR LATEST DATED PROXY WILL DETERMINE HOW YOUR SHARES ARE TO BE
VOTED AT THE MEETING. |
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If any of your shares are held in the name of a bank, broker or other nominee, please
contact the party responsible for your account and direct them to vote your shares FOR
your Companys nominees on the WHITE proxy card. |
If you have any questions or need assistance in voting your shares,
please contact our proxy solicitor.
199 Water Street, 26
th Floor
New York, NY 10038
Banks and Brokers (212) 440-9800
Shareholders Call Toll Free (888) 605-7561
* Crown Crafts, Inc. and Subsidiaries
Non-GAAP Reconciliation of Net Income to Adjusted EBITDA
In Thousands
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Fiscal Year |
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Ended |
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March 28, 2010 |
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Net income |
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$ |
4,780 |
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Interest expense |
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692 |
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Interest income |
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(17 |
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Income tax expense on continuing operations |
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3,103 |
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Income tax benefit on discontinued operations |
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(69 |
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Depreciation |
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286 |
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Amortization |
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1,544 |
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Impairment charge assets held for sale |
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154 |
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Adjusted EBITDA |
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$ |
10,473 |
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In addition to the Companys disclosure of its financial position and results of operations in
conformity with accounting principles generally accepted in the United States of America (GAAP),
the Company has also disclosed certain measures of its financial position and results of operations
which are not determined in accordance with GAAP. These non-GAAP financial measures include
Adjusted EBITDA, which is used by the Company internally to monitor the Companys operating results
and cash flow and to evaluate the performance of its businesses. The Company believes that its
presentation of Adjusted EBITDA is useful in that it is an important indicator of the Companys
ability to generate cash sufficient to reduce debt, make strategic acquisitions and investments in
capital expenditures, pay dividends and meet its working capital requirements and other obligations
as they become due. The items excluded to calculate Adjusted EBITDA are significant components in
understanding and assessing the Companys financial performance. The non-GAAP financial measures
are presented as supplemental information and should be considered in addition to, and not as a
substitute for, the Companys GAAP financial measures, including its net income, cash flow provided
by or used in operating, investing or financing activities, and other measures of the Companys
financial performance and liquidity. Because non-GAAP financial measures, by definition, are not
determined in accordance with GAAP, companies calculate them in varying ways. Therefore, the
non-GAAP financial measures presented by the Company may not be comparable to similarly titled
measures of other companies.
***END OF SHAREHOLDER LETTER***
About Crown Crafts, Inc.
Crown Crafts, Inc. designs, markets and distributes infant, toddler and juvenile consumer products,
including crib and toddler bedding and blankets; nursery and bath accessories; reusable and
disposable bibs and floor mats; burp cloths; room décor; and disposable placemats, toilet seat
covers and changing mats. The Companys operating subsidiaries include Hamco, Inc. in Louisiana
and Crown Crafts Infant Products, Inc. in California. Crown Crafts is Americas largest producer
of infant bedding, bibs and bath items. The Companys products include licensed and branded
collections as well as exclusive private label programs for certain of its customers. The
Companys website is www.crowncrafts.com.
Forward-Looking Statements
This release 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 managements 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 Companys products, changing
competition, changes in the retail environment, the level and pricing of future orders from the
Companys customers, the extent to which the Companys business is concentrated in a small number
of customers, the Companys dependence upon third-party suppliers, including some located in
foreign countries, customer acceptance of both new designs and newly-introduced product lines,
actions of competitors that may impact the Companys business, disruptions to transportation
systems or shipping lanes used by the Company or its suppliers, and the Companys dependence upon
licenses from third parties. Reference is also made to the Companys periodic filings with the
Securities and Exchange Commission for additional factors that may impact the Companys 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 our expectations, whether as
a result of new information, future events or otherwise.
Contact:
Investor Relations Department (225) 647-9146
or
Halliburton Investor Relations (972) 458-8000