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FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 2004 (   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto Commission File No. 1-7604 CROWN CRAFTS, INC. 
  Delaware
    
    58-0678148(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 916 South Burnside Avenue, Gonzales, Louisiana 70737 
  (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    (X)    No    (   ) Indicate by check mark whether registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes    (   )   No    (X) The number of shares of common stock, $0.01 par value, of the Registrant outstanding as of September 26, 2004 was 9,504,937.




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TABLE OF CONTENTS  CONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMECONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4  CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONItem 1  Legal ProceedingsItem 2  Unregistered Sales of Equity Securities and Use of ProceedsItem 3   Defaults Upon Senior SecuritiesItem 4   Submission of Matters to a Vote of Security HoldersItem 5   Other InformationItem 6   ExhibitsSIGNATURESIndex to ExhibitsRule 13a-14(a)/15d-14(a) Certification by the CEORule 13a-14(a)/15d-14(a) Certification by the CFOSection 1350 Certification by the CEOSection 1350 Certification by the CFO    Table of Contents  
 CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 26, 2004 and March 28, 2004
(UNAUDITED)
(dollar amounts in thousands, except share and per share amounts) September 26, 2004
    
    March 28, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    108
    
    
    $
    7Accounts receivable, net of allowances of $3,321 at September 26, 2004 and
$2,058 at March 28, 2004Due from factor
    
    
    10,341
    
    
    
    16,259Other
    
    
    1,419
    
    
    
    962Inventories, net
    
    
    19,028
    
    
    
    14,394Prepaid expense
    
    
    1,010
    
    
    
    1,622Other current assets
    
    
    108
    
    
    
    94Total current assets
    
    
    32,014
    
    
    
    33,338Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    1,803
    
    
    
    1,803Machinery and equipment
    
    
    2,866
    
    
    
    2,802Furniture and fixtures
    
    
    666
    
    
    
    6645,335
    
    
    
    5,269Less accumulated depreciation
    
    
    3,662
    
    
    
    3,435Property, plant and equipment  net
    
    
    1,673
    
    
    
    1,834Other assets:Goodwill, net
    
    
    22,974
    
    
    
    22,974Other
    
    
    244
    
    
    
    241Total other assets
    
    
    23,218
    
    
    
    23,215Total Assets
    
    $
    56,905
    
    
    $
    58,387LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,850
    
    
    $
    5,117Accrued wages and benefits
    
    
    839
    
    
    
    1,408Accrued royalties
    
    
    1,737
    
    
    
    1,274Other accrued liabilities
    
    
    741
    
    
    
    688Current maturities of long-term debt
    
    
    3,017
    
    
    
    3,016Total current liabilities
    
    
    11,184
    
    
    
    11,503Non-current liabilities:Long-term debt
    
    
    26,543
    
    
    
    28,447Total non-current liabilities
    
    
    26,543
    
    
    
    28,447Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock  par value $0.01 per share, 74,000,000 shares
authorized, 9,505,000 shares outstanding
    
    
    95
    
    
    
    95Additional paid-in capital
    
    
    38,244
    
    
    
    38,244Accumulated deficit
    
    
    (19,161
    )
    
    
    (19,902
    )Total shareholders equity
    
    
    19,178
    
    
    
    18,437Total Liabilities and Shareholders Equity
    
    $
    56,905
    
    
    $
    58,387
 See notes to unaudited consolidated financial statements. 1




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Crown Crafts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three and Six-Month Periods Ended September 26, 2004 and September 28, 2003
(UNAUDITED)
(amounts in thousands, except per share amounts) Three Months Ended
    
    Six Months EndedSeptember 26,
    
    September 28,
    
    September 26,
    
    September 28,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    23,025
    
    
    $
    22,001
    
    
    $
    39,933
    
    
    $
    40,466Cost of products sold
    
    
    18,386
    
    
    
    17,129
    
    
    
    31,820
    
    
    
    31,433Gross profit
    
    
    4,639
    
    
    
    4,872
    
    
    
    8,113
    
    
    
    9,033Marketing and administrative expenses
    
    
    2,760
    
    
    
    2,826
    
    
    
    5,383
    
    
    
    5,987Income from operations
    
    
    1,879
    
    
    
    2,046
    
    
    
    2,730
    
    
    
    3,046Other income (expense):Interest expense
    
    
    (937
    )
    
    
    (1,029
    )
    
    
    (1,882
    )
    
    
    (2,064
    )Other  net
    
    
    (10
    )
    
    
    (5
    )
    
    
    5
    
    
    
    (4
    )Income before income taxes
    
    
    932
    
    
    
    1,012
    
    
    
    853
    
    
    
    978Income tax expense
    
    
    88
    
    
    
    88
    
    
    
    112
    
    
    
    168Net income
    
    
    844
    
    
    
    924
    
    
    
    741
    
    
    
    810Other comprehensive income, net of tax:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Comprehensive income
    
    $
    844
    
    
    $
    924
    
    
    $
    741
    
    
    $
    816Basic income per share
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.09Diluted income per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.04Weighted average shares outstanding  basic
    
    
    9,505
    
    
    
    9,505
    
    
    
    9,505
    
    
    
    9,466Weighted average shares outstanding  diluted
    
    
    22,260
    
    
    
    22,872
    
    
    
    22,250
    
    
    
    22,562
 See notes to unaudited consolidated financial statements. 2




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Crown Crafts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six-Month Periods Ended September 26, 2004 and September 28, 2003
(UNAUDITED)
(amounts in thousands) September 26,
    
    September 28,2004
    
    2003Operating activities:Net income
    
    $
    741
    
    
    $
    810Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation of property, plant and equipment
    
    
    250
    
    
    
    273(Gain) loss on sale of property, plant, and equipment
    
    
    (2
    )
    
    
    7Discount accretion
    
    
    331
    
    
    
    293Changes in assets and liabilitiesAccounts receivable
    
    
    5,461
    
    
    
    1,617Inventories, net
    
    
    (4,634
    )
    
    
    (1,868
    )Other current assets
    
    
    598
    
    
    
    148Other assets
    
    
    (3
    )
    
    
    2Accounts payable
    
    
    (267
    )
    
    
    (899
    )Accrued liabilities
    
    
    215
    
    
    
    (103
    )Net cash provided by operating activities
    
    
    2,690
    
    
    
    280Investing activities:Capital expenditures
    
    
    (93
    )
    
    
    (165
    )Proceeds from disposition of assets
    
    
    6
    
    
    
    271Other
    
    
    
    
    
    
    6Net cash (used in) provided by investing activities
    
    
    (87
    )
    
    
    112Financing activities:Payment of long-term borrowing
    
    
    (10,642
    )
    
    
    (19,004
    )Long-term borrowing
    
    
    8,140
    
    
    
    18,416Issuance of common stock
    
    
    
    
    
    
    61Net cash used in financing activities
    
    
    (2,502
    )
    
    
    (527
    )Net increase (decrease) in cash and cash equivalents
    
    
    101
    
    
    
    (135
    )Cash and cash equivalents at beginning of period
    
    
    7
    
    
    
    194Cash and cash equivalents at end of period
    
    $
    108
    
    
    $
    59Supplemental cash flow information:Income taxes paid
    
    $
    
    
    
    $
    1Interest paid
    
    
    1,335
    
    
    
    1,522Accrued interest converted to long-term debt
    
    
    268
    
    
    
    268
 See notes to unaudited consolidated financial statements. 3




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CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT AND FOR THE THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2004 AND SEPTEMBER 28, 2003  1.
    
    Basis of Presentation:The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America applicable to interim
financial information and the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, such interim consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of Crown Crafts, Inc. (the Company) as of
September 26, 2004 and the results of its operations and cash flows for
the periods presented. Such adjustments include normal recurring accruals. Operating
results for the three and six-month periods ended September 26, 2004 are
not necessarily indicative of the results that may be expected for the
year ending April 3, 2005. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K for the year ended March 28, 2004 of the
Company.Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.Goodwill, net: In July 2001, the Financial Accounting Standards Board
(FASB) issued SFAS 141, Business Combinations, and SFAS 142, Goodwill and
Other Intangible Assets. SFAS 141 requires business combinations initiated
after June 30, 2001 to be accounted for using the purchase method of
accounting and eliminates the use of the pooling-of-interests method. The
application of SFAS 141 did not affect any of the Companys previously
reported amounts included in goodwill or other intangible assets. SFAS 142
requires that the amortization of goodwill cease prospectively upon adoption
and that instead the carrying value of goodwill be evaluated using an
impairment approach. Identifiable intangible assets continue to be amortized
over their useful lives and reviewed for impairment in accordance with SFAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS 142 was effective for fiscal years beginning
after December 15, 2001, and was implemented by the Company on April 1, 2002.
Beginning in fiscal 2003, the Company discontinued amortizing goodwill but
continues to amortize other long-lived intangible assets. The Company
performed fair value based impairment tests on its goodwill in accordance
with SFAS 142 and determined that the fair value exceeded the recorded value
at March 31, 2003 and March 29, 2004.Stock Options:The Company accounts for its stock option plans using the
intrinsic value method established by APB Opinion 25, Accounting for Stock
Issued to Employees, and its related interpretations. Accordingly, no
compensation cost has been recognized in the Companys financial statements
for its stock-based compensation plans. The Company complies with the
disclosure requirements of SFAS 123, Accounting for Stock Based-Compensation,
as amended by SFAS 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, which requires pro forma disclosure regarding net earnings
and earnings per share determined as if the Company had accounted for
employee stock options using the fair value method of that statement.For purposes of the pro forma disclosure, the fair value of each option was
estimated as of the date of grant using the Black-Scholes option-pricing
model and is amortized to expense ratably as the option vests. Had
compensation costs for the Companys stock option plans been determined based
on the fair value at the grant date, consistent with the method under SFAS
123, the Companys net earnings and earnings per share would have been as
indicated below: 4




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Three months ended
    
    Six months endedSeptember 26, 2004
    
    September 28, 2003
    
    September 26, 2004
    
    September 28, 2003Net income, as reported
    
    $
    844
    
    
    $
    924
    
    
    $
    741
    
    
    $
    810Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards
    
    
    (9
    )
    
    
    (5
    )
    
    
    (18
    )
    
    
    (15
    )Pro forma net income
    
    $
    835
    
    
    $
    919
    
    
    $
    723
    
    
    $
    795Income per share:Basic  as reported
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.09Basic  pro forma
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.08Diluted  as reported
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.04Diluted  pro forma
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.04
  2.
    
    Segment and Related Information:The Company operates primarily in one
principal segment, infant and juvenile products. These products consist
of infant bedding, bibs, soft goods and juvenile products (primarily
Pillow Buddies®).3.
    
    Inventory:Major classes of inventory were as follows (in thousands): September 26, 2004
    
    March 28, 2004Raw Materials
    
    $
    882
    
    
    $
    1,116Work in Process
    
    
    177
    
    
    
    1,028Finished Goods
    
    
    17,969
    
    
    
    12,250$
    19,028
    
    
    $
    14,394
  Inventory is net of reserves for inventories classified as irregular or
discontinued of $0.6 million and $1.0 million at September 26, 2004 and
March 28, 2004, respectively.4.
    
    Financing ArrangementsFactoring Agreement:The Company assigns the majority of its trade accounts
receivable to a commercial factor. Under the terms of the factoring
agreement, the factor remits payments to the Company on the average due date
of each group of invoices assigned. The factor bears credit losses with
respect to assigned accounts receivable that are within approved credit
limits. The Company bears losses resulting from returns, allowances, claims
and discounts.Notes Payable and Other Credit Facilities: At September 26, 2004 and March
28, 2004, long-term debt consisted of: September 26,
    
    March 28,2004
    
    2004Promissory notes
    
    $
    23,046
    
    
    $
    24,054Floating rate revolving credit facilities
    
    
    
    
    
    
    1,495Non-interest bearing notes
    
    
    8,810
    
    
    
    8,541Original issue discount
    
    
    (2,296
    )
    
    
    (2,627
    )29,560
    
    
    
    31,463Less current maturities
    
    
    3,017
    
    
    
    3,016$
    26,543
    
    
    $
    28,447
 5




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At September 26, 2004, the Companys credit facilities included the
following:Revolving Creditof up to $19 million including a $3 million sub-limit for
letters of credit. The interest rate is prime plus 1.00% (5.75% at
September 26, 2004) for base rate borrowings and LIBOR plus 2.75% (4.59%
at September 26, 2004) for Euro-dollar borrowings. The maturity date is
June 30, 2005. The facility is secured by a first lien on all assets.
There was no balance at September 26, 2004. The Company had $12.9 million
available at September 26, 2004. As of September 26, 2004, letters of
credit of $1.325 million were outstanding against the $3 million sub-limit
for letters of credit associated with the revolving credit facility.Senior Notesof $7.0 million with a fixed interest rate of 10% plus
additional interest of 3% contingent upon cash flow availability. The
maturity date is June 30, 2006 and the notes are secured by a first lien
on all assets. Minimum principal payments of $500,000 are due at the end
of each calendar quarter. In the event that required debt service exceeds
85% of free cash flow (EBITDA (as hereinafter defined) less capital
expenditures and cash taxes paid), the excess of contingent interest and
principal amortization over 85% will be deferred until maturity of the
Senior Notes in June 2006. Contingent interest plus additional principal
payments will be due annually up to 85% of free cash flow. On each of
September 30, 2003 and September 30, 2004, the Company made payments to
the lenders of $1.3 million related to excess cash flow.Senior Subordinated Notesof $16 million with a fixed interest rate of 10%
plus an additional 1.65% payable by delivery of promissory notes due July
23, 2007 (PIK Notes). The maturity date is July 23, 2007 and the notes are secured by
a second lien on all assets. In addition to principal and interest, a
payment of $8 million is due on the earliest of (i) maturity of the notes,
(ii) prepayment of the notes, or (iii) sale of the Company. The original
issue discount of $4.1 million on this non-interest bearing note at a
market interest rate of 12% is being amortized over the life of the notes.
The remaining balance of $2.3 million is included in the Consolidated
Balance Sheet as of September 26, 2004.These credit facilities contain covenants regarding minimum levels of
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA),
maximum total debt to EBITDA, maximum senior debt to EBITDA, minimum EBITDA
to cash interest and minimum shareholders equity. The bank facilities
also place restrictions on the amounts the Company may expend on
acquisitions and purchases of treasury stock and currently prohibit the
payment of dividends.Minimum annual maturities are as follows: (in thousands) Fiscal
    
    Revolver
    
    Senior Notes
    
    Sub Notes
    
    PIK Notes
    
    Total2005
    
    $
    
    
    
    $
    2,500
    
    
    $
    
    
    
    $
    
    
    
    $
    2,5002006
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,0002007
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,5002008
    
    
    
    
    
    
    
    
    
    
    24,000
    *
    
    
    810
    
    
    
    24,810Total
    
    $
    
    
    
    $
    7,000
    
    
    $
    24,000
    
    
    $
    810
    
    
    $
    31,810
  *
    
    Includes $8 million non-interest bearing note issued at an original issue discount of $4.1 million. As part of its refinancing in July 2001, the Company issued to its lenders
warrants for non-voting common stock that are convertible into common stock
equivalent to 65% of the shares of the Company on a fully diluted basis at
a price of 11.3 cents per share. The warrants are non-callable and expire
six years from their date of issuance. The value of the warrants of $2.4
million using the Black-Scholes option pricing model was credited to
additional paid-in capital in the second quarter of fiscal 2002. 6




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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company operates indirectly through its subsidiaries, Crown Crafts Infant
Products, Inc., Hamco, Inc. and Churchill Weavers, Inc., primarily in the
Infant and Juvenile Products segments within the Consumer Products industry.
The Companys offices are located in Huntington Beach and Compton, California;
Gonzales, Louisiana; Berea, Kentucky and Rogers, Arkansas. The Infant and Juvenile Products segments consist of bedding, bibs, soft goods,
Pillow Buddies® and accessories. The infant and juvenile products are marketed
under a variety of Company-owned trademarks, under trademarks licensed from
others, without trademarks as unbranded merchandise and with customers private
labels. The products are produced primarily by foreign contract manufacturers,
then warehoused and shipped from facilities in Compton, California and
Gonzales, Louisiana. Sales are generally made directly to retailers, primarily
mass merchants, large chain stores and gift stores. The Company also produces hand-woven adult throws, adult scarves and infant
blankets. Sales are generally made to major department stores, specialty shops
and designer showrooms. The infant and juvenile consumer products industry is highly competitive. The
Company competes with a variety of distributors and manufacturers and believes
that it is the largest producer of infant bed coverings and bibs, enjoying
approximately one-third of the infant bedding market and one-half of the infant
bib market within these segments. The Company competes on the basis of
quality, design, price, service and packaging. RESULTS OF OPERATIONS THREE-MONTH PERIOD ENDED SEPTEMBER 26, 2004 COMPARED TO THE THREE-MONTH PERIOD
ENDED SEPTEMBER 28, 2003 Total net sales for the second quarter of fiscal year 2005 increased by $1.0
million, or 4.7%, to $23.0 million from $22.0 million for the second quarter of
fiscal year 2004. This increase is primarily attributable to shipments of
modular bedding placements having been made earlier than in the prior year. The increase in
bedding sales is offset to a degree by decreased bath shipments as a result of
the loss of a bath program. In addition, the transition of the Classic Pooh
license to direct-to-retail has had a deflationary effect on sales. Although
replacement programs and the direct-to-retail program have been awarded to the
Company, the average selling price per unit was lower than in the prior year
because of market changes in anticipation of the removal of quotas from several
of the Companys bedding products, which will be effective in January 2005. During the second quarter of fiscal year 2005, cost of sales increased to 79.9%
of net sales from 77.9% for the same period in fiscal year 2004. The lower
gross margin is due to the decrease in the average selling price per unit as
previously discussed. The lower margins are also a direct result of pricing
pressures from customers coupled with demand for enhanced products. Marketing and administrative expenses decreased by $66,000, or 2.3%, in the
second quarter of fiscal year 2005 compared to the same quarter in the prior
year and were 12.0% of net sales for such quarter compared to 12.9% of net sales for the
corresponding quarter of the prior year. These expenses were greater in the
prior year primarily because of legal fees associated with the reincorporation
of the Company in Delaware, which was completed in fiscal year 2004. Interest expense for the second quarter of fiscal year 2005 decreased by
$92,000 compared to the second quarter of fiscal year 2004 because of the Companys lower
average debt balance. Long-term debt was $26.5 million at September 26, 2004
compared to $30.9 million at September 28, 2003. Included in the balance in
the prior fiscal year was revolving credit of $2.2 million, whereas there was
no revolving credit balance outstanding at September 26, 2004. Income tax expense for the quarter ended September 26, 2004 includes an expense
for state and local income taxes of $88,000. Income tax expense for the
quarter ended September 28, 2003 included a provision for federal alternative
minimum taxes of $18,000 and state and local income taxes of $70,000. The
Company has net operating loss carryforwards of $14.6 million that begin to
expire in 2021. 7




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SIX-MONTH PERIOD ENDED SEPTEMBER 26, 2004 COMPARED TO THE SIX-MONTH PERIOD ENDED SEPTEMBER 28, 2003 Total net sales for the first six months of fiscal year 2005 decreased by $0.5
million, or 1.32%, to $39.9 million from $40.5 million for the same period of
fiscal year 2004 as a result of a decrease in bib and bath sales of $1.7
million, which was offset in part by an increase in bedding sales of $1.2
million. As previously discussed, the increased bedding sales resulted from
additional and new modular placement shipments having been made earlier than in the
prior year. The decrease in bath sales is due to the loss of a bath program at
a major customer, and the decrease in bib sales is due to inconsistent buying
patterns from another major customer. During the first six months of fiscal year 2005, cost of sales increased to
79.7% of net sales from 77.7% for the same period in fiscal year 2004 primarily
as a result of a shift from sales of higher margin blankets and NoJo
and Classic
Pooh brands to sales of a greater volume of lower margin merchandise. A
lower margins are a direct result of pricing pressures from customers coupled
with demand for enhanced products and market reaction to the removal of quotas
from certain products effective in January 2005. Marketing and administrative expenses decreased by $604,000, or 10.1%, for the
first six months of fiscal year 2005 compared to the same period in the prior
year and were 13.5% of net sales for such period compared to 14.8% of net sales for the
corresponding period of the prior year. These expenses were greater in the
prior year primarily because of legal fees associated with the reincorporation
of the Company in Delaware and the closing of the Companys Mexican production
facility, both of which were completed in fiscal year 2004. Interest expense for the first six months of fiscal year 2005 decreased by
$182,000 compared to the first six months of fiscal year 2004 because of the Companys
lower average debt balance. Long-term debt was $26.5 million at September 26,
2004 compared to $30.9 million at September 28, 2003. Included in the balance
in the prior fiscal year was revolving credit of $2.2 million, whereas there
was no revolving credit balance outstanding at September 26, 2004. Income tax expense for the six months ended September 26, 2004 includes an
expense for state and local income taxes of $112,000. Income tax expense for
the six months ended September 28, 2003 included a provision for federal
alternative minimum taxes of $31,000 and state and local income taxes of
$137,000. The Company has net operating loss carryforwards of $14.6 million
that begin to expire in 2021. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $2.7 million for the first six
months of fiscal year 2005 compared to net cash provided by operating
activities of $280,000 for the first six months of fiscal year 2004. The
increase in cash provided by operating activities was primarily due to changes
in inventory and receivable balances. Net cash used in investing activities
was $0.1 million in the first six months of fiscal year 2005 compared to net
cash provided by investing activities of $0.1 million in the prior year period.
The decrease in cash provided by investing activities was due in large part to
net proceeds of
$240,000 from the sale of assets disposed of in connection with the closing
of the Companys Mexican production facility in the prior fiscal year. Net cash used in financing activities was $2.5 million compared to
net cash used in financing activities of $0.5 million in the prior year period.
The increase in cash used in financing activities was due to a higher net
payment of long-term debt in the current fiscal year as compared to the prior
fiscal year. The Companys ability to make scheduled payments of principal, to pay the
interest on or to refinance its maturing indebtedness, to fund capital
expenditures or to comply with its debt covenants will depend upon future
performance. The Companys future performance is, to a certain extent, subject
to general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. If the Company is unable to improve its gross
margins, then the Companys ability to comply with its debt covenants in the
future may become impaired. To reduce its exposure to credit losses and to enhance its cash flow, the
Company assigns the majority of its trade accounts receivable to a commercial
factor. The Companys factor establishes customer credit lines and accounts
for and collects receivable balances. Under the terms of the factoring
agreement, which expires in July, 2005, the factor remits payments to the
Company on the average due date of each group of invoices assigned. If a
customer fails to pay the factor on the due date, the Company is charged
interest at prime minus 0.5% (4.25% at September 26, 2004), until payment is
received. The factor bears credit losses with respect to assigned accounts
receivable that are within approved credit limits. The Company bears losses
resulting from returns, allowances, claims and discounts. The Companys factor
at any time may terminate or limit its approval of shipments to a particular
customer. If such a 8




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termination occurs, the Company may either assume the credit risks for
shipments after the date of such termination or cease shipments to such
customer. FORWARD-LOOKING INFORMATION This Form 10-Q contains forward-looking statements within the meaning of 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, changing competition, the level and pricing of future orders from
the Companys customers, the Companys dependence upon third-party suppliers,
including some located in foreign countries with unstable political situations
and unstable foreign currency exchanges, the Companys ability to successfully
implement new information technologies and the Companys dependence upon
licenses from third parties. 
 ITEM 3  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on debt,
changes in commodity prices, changes in international trade regulations, the
concentration of the Companys customers and the Companys reliance upon
licenses. The Companys exposure to interest rate risk relates to the
Companys floating rate debt, of which there was no balance outstanding at
September 26, 2004 and a balance outstanding of $1.5 million at March 28, 2004.
Each 1.0 percentage point increase in interest rates would impact pretax
earnings by $15,000 at the debt level of March 28, 2004. The Companys
exposure to commodity price risk primarily relates to changes in the price of
cotton and oil, which are the principal raw materials used in a substantial
number of the Companys products. Also, changes in import quantity allotments
can materially impact the availability of the Companys products and the prices
at which those products can be purchased by the Company for resale.
Additionally, the Companys top three customers represent 76% of gross sales,
and 43% of the Companys gross sales is of licensed products. The Company
could be materially impacted by the loss of one or more of these customers or
licenses. 
 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 Rule 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 in alerting them on
a timely basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Companys periodic
filings under the Exchange Act. Since such evaluation, there have not been any
significant changes in the Companys internal controls or in other factors that
could significantly affect such controls. 
 PART II  OTHER INFORMATION 
 Item 1  Legal Proceedings From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. Neither the
Company nor any of its subsidiaries is a party to any such legal proceeding the
outcome of which, individually or in the aggregate, is expected to have a
material adverse effect on the Companys financial condition, results of
operations or cash flows. 
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds None 9




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Item 3   Defaults Upon Senior Securities None 
 Item 4   Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of the Company was held on August 10,
2004 at the Companys corporate headquarters in Gonzales, Louisiana. The
proposals set forth below were voted on at the meeting with the following
results:  1.
    
    Election of three members to the board of directors to hold
office for a three-year term. The results were as follows: Director Nominee
    
    For
    
    Authority WithheldE. Randall Chestnut
    
    
    7,066,335
    
    
    
    1,982,310William T. Deyo
    
    
    5,631,003
    
    
    
    3,417,642Steven E. Fox
    
    
    7,007,067
    
    
    
    2,041,578
  2.
    
    Ratification of appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending April
3, 2005. The results were as follows: For
    
    
    7,070,626Against
    
    
    1,975,605Abstain
    
    
    2,414
  3.
    
    Transaction of such other business as may properly come before
the annual meeting or any adjournments or postponements thereof. The
results were as follows: For
    
    
    7,008,999Against
    
    
    2,015,988Abstain
    
    
    23,658
 Each of the foregoing proposals was set forth and described in the Notice
of Annual Meeting and Proxy Statement of the Company dated July 13, 2004. 
 Item 5   Other Information None 
 Item 6   Exhibits  (a)
    
    Exhibits 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer32.1
    
    Section 1350 Certification by the Companys Chief Executive Officer32.2
    
    Section 1350 Certification by the Companys Chief Financial Officer
 10




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SIGNATURES 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: November 10, 2004
    /s/ Amy Vidrine SamsonAMY VIDRINE SAMSONChief Financial Officer
(duly authorized signatory and
Principal Financial and Accounting
Officer) 11




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Index to Exhibits ExhibitNumber
    
    Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification by the Companys Chief Financial Officer32.1
    
    Section 1350 Certification by the Companys Chief Executive Officer32.2
    
    Section 1350 Certification by the Companys Chief Financial Officer
 12