##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 1, 2007
 o
    
    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.
  Delaware
    
    58-0678148(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
  þ o
  o o þ
  o þ




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TABLE OF CONTENTS  ITEM 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 1A   Risk FactorsItem 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 Chief Executive OfficerRule 13a-14(a)/15d-14(a) Certification by the Chief Financial OfficerSection 1350 Certification by the Chief Executive OfficerSection 1350 Certification by the Chief Financial Officer    Table of Contents  
 July 1, 2007
    
    
    April 1, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    484
    
    
    $
    33Accounts receivable (net of allowances of $914
at July 1, 2007 and $989 at April 1, 2007):Due from factor
    
    
    9,697
    
    
    
    11,764Other
    
    
    1,798
    
    
    
    1,121Inventories, net
    
    
    11,553
    
    
    
    7,145Prepaid expenses
    
    
    1,210
    
    
    
    1,313Assets held for sale
    
    
    663
    
    
    
    Deferred income taxes
    
    
    1,906
    
    
    
    2,408Total current assets
    
    
    27,311
    
    
    
    23,784Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    200
    
    
    
    1,322Machinery and equipment
    
    
    2,268
    
    
    
    2,502Furniture and fixtures
    
    
    746
    
    
    
    6543,214
    
    
    
    4,478Less accumulated depreciation
    
    
    2,480
    
    
    
    3,037Property, plant and equipment  net
    
    
    734
    
    
    
    1,441Other assets:Goodwill, net
    
    
    22,884
    
    
    
    22,884Other
    
    
    774
    
    
    
    807Total other assets
    
    
    23,658
    
    
    
    23,691Total Assets
    
    $
    51,703
    
    
    $
    48,916LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,084
    
    
    $
    3,552Accrued wages and benefits
    
    
    1,603
    
    
    
    1,300Accrued royalties
    
    
    1,116
    
    
    
    671Other accrued liabilities
    
    
    162
    
    
    
    73Current maturities of long-term debt
    
    
    17
    
    
    
    19Total current liabilities
    
    
    9,982
    
    
    
    5,615Non-current liabilities:Long-term debt
    
    
    3,089
    
    
    
    5,780Deferred income taxes
    
    
    698
    
    
    
    698Total non-current liabilities
    
    
    3,787
    
    
    
    6,478Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock  par value $0.01 per share;
74,000,000 shares authorized; 10,005,192
shares outstanding at July 1, 2007 and
10,003,692 outstanding at April 1, 2007
    
    
    100
    
    
    
    100Additional paid-in capital
    
    
    38,745
    
    
    
    38,619Accumulated deficit
    
    
    (911
    )
    
    
    (1,896
    )Total shareholders equity
    
    
    37,934
    
    
    
    36,823Total Liabilities and Shareholders Equity
    
    $
    51,703
    
    
    $
    48,916
 See notes to unaudited condensed consolidated financial statements.
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##### Table of Contents



Three Months EndedJuly 1,
    
    
    July 2,2007
    
    
    2006Net sales
    
    $
    15,360
    
    
    $
    15,753Cost of products sold
    
    
    11,054
    
    
    
    11,286Gross profit
    
    
    4,306
    
    
    
    4,467Marketing and administrative expenses
    
    
    2,404
    
    
    
    2,167Income from operations
    
    
    1,902
    
    
    
    2,300Other income (expense):Interest expense
    
    
    (112
    )
    
    
    (723
    )Other  net
    
    
    (35
    )
    
    
    140Income before income taxes
    
    
    1,755
    
    
    
    1,717Income tax expense
    
    
    676
    
    
    
    665Income from continuing operations after income taxes
    
    
    1,079
    
    
    
    1,052Loss from discontinued operations  net of income taxes
    
    
    (94
    )
    
    
    (141
    )Net income
    
    $
    985
    
    
    $
    911Weighted average shares
outstanding  basic
    
    
    10,004
    
    
    
    9,506Weighted average shares
outstanding  diluted
    
    
    10,297
    
    
    
    22,137Basic earnings per share:Income from continuing operations
    
    $
    0.11
    
    
    $
    0.11Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )Income per share
    
    $
    0.10
    
    
    $
    0.10Diluted earnings per share:Income from continuing operations
    
    $
    0.11
    
    
    $
    0.05Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )Income per share
    
    $
    0.10
    
    
    $
    0.04
 See notes to unaudited condensed consolidated financial statements.
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Three Months EndedJuly 1,
    
    
    July 2,2007
    
    
    2006Operating activities:Net income
    
    $
    985
    
    
    $
    911Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation of property, plant and equipment
    
    
    83
    
    
    
    117Goodwill write-off
    
    
    
    
    
    
    90Amortization of intangibles
    
    
    18
    
    
    
    1Deferred income taxes
    
    
    503
    
    
    
    471Loss (gain) on sale of property, plant and equipment
    
    
    8
    
    
    
    (11
    )Discount accretion
    
    
    55
    
    
    
    207Stock-based compensation
    
    
    126
    
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    1,390
    
    
    
    2,247Inventories, net
    
    
    (4,408
    )
    
    
    (3,782
    )Prepaid expenses
    
    
    103
    
    
    
    119Other assets
    
    
    15
    
    
    
    (84
    )Accounts payable
    
    
    3,532
    
    
    
    2,434Accrued liabilities
    
    
    837
    
    
    
    1,083Net cash provided by operating activities
    
    
    3,247
    
    
    
    3,803Investing activities:Capital expenditures
    
    
    (61
    )
    
    
    (17
    )Proceeds from disposition of assets
    
    
    13
    
    
    
    11Net cash used in investing activities
    
    
    (48
    )
    
    
    (6
    )Financing activities:Payments on long-term debt
    
    
    (6
    )
    
    
    (9
    )Repayments under line of credit, net
    
    
    (2,742
    )
    
    
    Net cash used in financing activities
    
    
    (2,748
    )
    
    
    (9
    )Net increase in cash and cash equivalents
    
    
    451
    
    
    
    3,788Cash and cash equivalents at beginning of period
    
    
    33
    
    
    
    3,790Cash and cash equivalents at end of period
    
    $
    484
    
    
    $
    7,578Supplemental cash flow information:Income taxes paid
    
    $
    15
    
    
    $
    Interest paid
    
    
    63
    
    
    
    389
 See notes to unaudited condensed consolidated financial statements.
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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 (the SEC). 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 July 1, 2007 and the
results of its operations and cash flows for the periods presented. Such adjustments include
normal, recurring accruals. Operating results for the three-month period ended July 1, 2007
are not necessarily indicative of the results that may be expected for the year ending March
30, 2008. For further information, refer to the Companys consolidated financial statements
and notes thereto included in the annual report on Form 10-K for the year ended April 1, 2007.Revenue Recognition:Sales are recorded when goods are shipped to customers and are reported net
of allowances for estimated returns and allowances in the consolidated statements of income.
Allowances for returns are estimated based on historical rates. Allowances for returns,
advertising allowances, warehouse allowances and volume rebates are netted against sales. These
allowances are recorded commensurate with sales activity 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 relatively insignificant and are included in net sales.Use of Estimates:The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant estimates
are made with respect to the allowances related to accounts receivable for customer deductions
for returns, allowances and disputes. The Company has a certain amount of discontinued and
irregular raw materials and finished goods which necessitate the establishment of inventory
reserves which are highly subjective. Actual results could differ from those estimates.Segment and Related Information:The Company operates primarily in one principal segment,
infant products. These products consist of infant bedding, bibs and soft goods.Impairment of Long-lived Assets, Identifiable Intangibles and Goodwill:The Company
reviews for impairment of long-lived assets and certain identifiable intangibles whenever events
or changes in circumstances indicate that the carrying amount of any asset may not be
recoverable. In the event of impairment, the asset is written down to its fair market value.
Assets to be disposed of, if any, are recorded at the lower of net book value or fair market
value less cost to sell at the date management commits to a plan of disposal and are classified
as assets held for sale on the consolidated balance sheet.The Company reviews the carrying value of goodwill annually and sooner if facts and
circumstances suggest that the asset may be impaired. Impairment of goodwill and write-downs,
if any, are measured based on estimates of future cash flows. Goodwill is stated net of
accumulated amortization of $6.4 million at July 1, 2007 and April 1, 2007. On April 1, 2002,
the Company implemented Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets(SFAS No. 142). As a result, the Company discontinued amortizing
goodwill but continued to amortize other long-lived intangible assets. In lieu of amortization,
the Company is required to perform an annual impairment review of its goodwill. The Company has
performed a transitional fair value based impairment test on its goodwill in accordance with
SFAS No. 142. With the exception of goodwill related to Churchill Weavers, Inc. (Churchill),
the Company determined that the fair value exceeded the recorded value at April 3, 2006 and
April 2, 2007. Churchills goodwill of $90,000 was written off in June 2006 due to an
impairment indicator, the decline in sales volume and decline in profitability in recent years.
Churchill has ceased operations and the remaining assets are held for sale (see Note 7 to the
Companys consolidated financial statements).Provision for Income Taxes:The provisions for income taxes include all currently payable
federal, state and local taxes that are based upon the Companys taxable income and the change
during the fiscal year in net deferred income tax assets and liabilities. The Company provides
for deferred income taxes based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates that will be in effect when the differences
are expected to reverse.
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Allowances Against Accounts Receivable:The Companys allowances against accounts receivable are
primarily contractually agreed upon deductions for items such as advertising and warehouse
allowances and volume rebates. These deductions are recorded throughout the year commensurate
with sales activity. 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, markdowns and warehouse
and other allowances. Consistent with the guidance provided in Emerging Issues Task Force 01-9,
all such allowances are recorded as direct offsets to sales, and such costs are accrued
commensurate with sales activities. When a customer requests deductions, the allowances are
reduced to reflect such payments.The Company analyzes the components of the allowances for customer deductions monthly and
adjusts the allowances to the appropriate levels. The timing of the customer initiated funding
requests for advertising support can cause the net balance in the allowance account to fluctuate
from period to period. The timing of such funding requests should have no impact on the
consolidated statements of income since such costs are accrued commensurate with sales activity.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 royalty amounts
are accrued based upon historical sales rates adjusted for current sales trends by customers.
Total royalty expenses included in cost of sales amounted to $0.9 million and $1.0 million in
the three-month periods ended July 1, 2007 and July 2, 2006, respectively.Recently Issued Accounting Standards:In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109(FIN No. 48), which clarifies the accounting and
disclosure for uncertain tax positions, as defined. FIN No. 48 seeks to reduce the diversity in
practice associated with certain aspects of the recognition and measurement related to
accounting for income taxes. On April 2, 2007, the Company adopted the provisions of FIN No. 48.
Based on our recent evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in the Companys consolidated financial statements. Our
evaluation was performed for the tax years ended March 28, 2004, April 3, 2005, April 2, 2006
and April 1, 2007, the tax years which remain subject to examination by major tax jurisdictions
as of July 1, 2007. The Companys policy is to accrue interest expense and penalties as
appropriate on its estimated unrecognized tax benefits as a charge to interest expense in the
Companys consolidated financial statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This statement provides companies an option to report selected financial
assets and liabilities at fair value. SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after November 15, 2007. The Company is assessing SFAS No.
159 and has not determined yet the impact that the adoption of SFAS No. 159 will have on its
result of operations or financial position.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. This statement is effective
for financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. Earlier application is encouraged provided that the reporting
entity has not yet issued financial statements for that fiscal year including financial
statements for an interim period within that fiscal year. The Company is assessing SFAS No. 157
and has not determined yet the impact that the adoption of SFAS No. 157 will have on its result
of operations or financial position.2.
    
    Stock-Based Compensation:The Company has two incentive stock plans, the 1995 Stock Option
Plan (1995 Plan) and the 2006 Omnibus Incentive Plan (2006 Plan). The Company granted
non-qualified stock options to employees and non-employee directors from the 1995 Plan through
the fiscal year ended April 2, 2006. In conjunction with the approval of the 2006 Plan by the
Companys stockholders at its Annual Meeting in August 2006, options may no longer be issued
from the 1995 Plan.The 2006 Plan is intended to attract and retain directors, officers and employees of the Company
and its subsidiaries and to motivate these persons to achieve performance objectives related to
the Companys overall goal of increasing stockholder value. The principal reason for adopting
the 2006 Plan is to ensure that the Company has a mechanism for long-term, equity-based
incentive compensation to directors, officers and employees. Awards granted under the 2006 Plan
may be in the form of qualified or non-qualified stock options, restricted stock, stock appreciation rights (SARs),
long-term incentive compensation units consisting of a combination of cash and shares of the
Companys common stock, or any combination thereof within the limitations set forth in the 2006
Plan. The 2006 Plan is administered by the compensation committee of the board of directors,
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which selects eligible employees and non-employee directors to participate in the 2006 Plan and
determines the type, amount and duration of individual awards.On April 3, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment. This standard
requires expensing of stock options and other share-based payments and supersedes SFAS No. 123,
Accounting for Stock-Based Compensation, and Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related implementation guidance that had
previously allowed companies to choose between expensing stock options or providing pro-forma
disclosure only. SFAS No. 123(R) eliminates the ability to account for stock-based compensation
transactions using the intrinsic value method under APB Opinion No. 25 and instead requires that
such transactions be accounted for using a fair-value-based method. In addition, the SEC issued
Staff Accounting Bulletin 107 in April 2005, which provides supplemental implementation guidance
for SFAS No. 123(R).The Company uses the Black-Scholes option-pricing model to determine the fair-value of
stock-based awards under SFAS No. 123(R), consistent with the method previously used for pro
forma disclosures under SFAS No. 123. The Company elected to use the modified prospective
transition method permitted by SFAS No. 123(R). Under the modified prospective method, SFAS No.
123(R) applies to new awards issued on or after April 3, 2006 as well as the unvested portion of
awards that were outstanding as of April 2, 2006, including those that are subsequently
modified, repurchased or cancelled. Under the modified prospective approach, compensation cost
recognized in fiscal year 2007 includes compensation cost for all share-based payments granted
prior to, but not yet vested as of, April 2, 2006 in accordance with the original provisions of
SFAS No. 123. Prior periods were not restated to reflect the impact of adopting the new
standard.The Company recorded $126,000 of stock-based compensation during the quarter ended July 1, 2007,
which affected basic and diluted earnings per share by $0.01. No stock-based compensation costs
were capitalized as part of the cost of an asset as of July 1, 2007.Stock Options:The following table represents stock option activity for fiscal year 2008:
 Weighted-Average
    
    
    Number of OptionsExercise Price
    
    
    OutstandingOutstanding at April 1, 2007
    
    $
    1.68
    
    
    
    593,346Granted
    
    
    
    
    
    
    Exercised
    
    
    0.18
    
    
    
    1,500Forfeited
    
    
    
    
    
    
    Outstanding, July 1, 2007
    
    $
    1.68
    
    
    
    591,846Exercisable, July 1, 2007
    
    $
    0.87
    
    
    
    367,852
 For the quarter ended July 1, 2007, the Company recognized $52,000 of compensation expense
associated with the stock option grants, of which $12,000 was included in cost of products sold
and $39,000 was also included in marketing and administrative expenses in the accompanying
consolidated statements of income. The Company recognized $1,000 of compensation expense
associated with unvested stock options outstanding at April 2, 2006.Non-vested Stock:The fair value of non-vested stock is determined based on the number of
            shares granted and the quoted closing price of the Companys common stock on the date of grant.
All non-vested stock awards issued under the 2006 Plan vest based upon continued service.During the quarter ended October 1, 2006, the Company granted 375,000 shares of non-vested stock
with a weighted-average grant date fair value of $3.15. These shares have four-year cliff
vesting. The Company recognized $74,000 of compensation expense in the quarter ended July 1,
2007 that was included in marketing and administrative expenses in the accompanying consolidated
statements of income. The deferred amount is being amortized by monthly charges to earnings
over the four-year vesting period.As of July 1, 2007, the amount of unrecognized non-vested stock compensation costs amounted to
$0.9 million. The amount of unrecognized non-vested stock compensation will be affected by any
future non-vested stock grants and by the separation from the Company of any employee who has received non-vested stock grants that are unvested as of
such employees separation date.
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3.
    
    Inventory:Major classes of inventory were as follows (in thousands):
 July 1, 2007
    
    
    April 1, 2007Raw Materials
    
    $
    20
    
    
    $
    15Work in Process
    
    
    
    
    
    
    12Finished Goods
    
    
    11,533
    
    
    
    7,118$
    11,553
    
    
    $
    7,145
 Inventory is net of reserves for inventories classified as irregular or discontinued of $0.3
million at July 1, 2007 and April 1, 2007.
 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 July 1, 2007 and April 1, 2007, long-term debt
consisted of:
 July 1,
    
    
    April 1,2007
    
    
    2007Revolving credit facility
    
    $
    
    
    
    $
    2,742Non-interest bearing notes
    
    
    4,000
    
    
    
    4,000Capital leases
    
    
    17
    
    
    
    23Original issue discount
    
    
    (911
    )
    
    
    (966
    )3,106
    
    
    
    5,799Less current maturities
    
    
    17
    
    
    
    19$
    3,089
    
    
    $
    5,780
 The Companys credit facilities at July 1, 2007 include the following:Revolving Creditof up to $22 million, including a $1.5 million sub-limit for letters of credit.
The interest rate is prime minus 1.00% (7.25% at July 1, 2007) for base rate borrowings or
LIBOR plus 2.25% (7.57% at July 1, 2007). The maturity date is July 11, 2009. The facility is
secured by a first lien on all assets. There was no balance outstanding at July 1, 2007. Based
on eligible accounts receivable and inventory balances as of July 1, 2007, the Company had $15.1
million available under the revolving credit facility. As of July 1, 2007, letters of credit of
$550,000 were outstanding against the $1.5 million sub-limit for letters of credit.The financing agreement for the $22 million revolving credit facility contains usual and
customary covenants for transactions of this type, including limitations on other indebtedness,
liens, transfers of assets, investments and acquisitions, merger or consolidation transactions,
dividends, 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 July 1, 2007.Subordinated Notesof $4 million. The notes do not bear interest and are due in two equal
installments of $2 million each, the first of which is payable on July 11, 2010, and the second
of which is payable on July 11, 2011. The original issue discount of $1.1 million on this
non-interest bearing obligation at a market interest rate of 7.25% is being amortized over the
life of the notes. The remaining unamortized balance of $0.9 million is included in the
consolidated balance sheet as of July 1, 2007.
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Fiscal
    
    Sub Notes
    
    
    Other
    
    
    Total2008
    
    
    
    
    
    $
    13
    
    
    $
    132009
    
    
    
    
    
    
    4
    
    
    
    42010
    
    
    
    
    
    
    
    
    
    
    2011
    
    $
    2,000
    
    
    
    
    
    
    
    2,0002012
    
    
    2,000
    
    
    
    
    
    
    
    2,000Total
    
    $
    4,000
    
    
    $
    17
    
    
    $
    4,017
 5.
    
    Earnings per Share:The weighted average number of shares outstanding on a fully diluted
basis was 10,297,000 for the three-month period ended July 1, 2007 compared to 22,137,000 for
the three-month period ended July 2, 2006. The Company had issued to its previous lenders
Common Stock Purchase Warrants for non-voting common stock that were 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. These warrants were extinguished and are, therefore, no longer included
in the Companys calculation of diluted earnings per share.
 6.
    
    Acquisitions:On December 29, 2006, the Company, through its wholly-owned subsidiary Crown
Crafts Infant Products, Inc., acquired substantially all of the assets of Kimberly Grant,
Inc., a designer of various infant and toddler products. The following table summarizes the
allocation of the $550,000 paid at closing and the $50,000 paid upon renewal of the acquired
Kimberly Grant trademark based upon fair values of the assets acquired assumed at the date
of the acquisition. The fair values of certain intangibles were based upon a third-party
valuation of such assets.The table below represents estimated amortization expense for the following periods:
 AggregateGross
    
    
    Estimated
    
    
    
    
    
    
    AmortizationCarrying
    
    
    Useful
    
    
    Accumulated
    
    
    Expense inAmount
    
    
    Life
    
    
    Amortization
    
    
    2007Tradename
    
    $
    466,387
    
    
    15 years
    
    $
    15,553
    
    
    $
    7,773Existing Designs
    
    
    35,924
    
    
    1 year
    
    
    8,978
    
    
    
    8,978Non-compete
    
    
    97,689
    
    
    15 years
    
    
    3,207
    
    
    
    1,629$
    600,000
    
    
    
    
    
    
    $
    27,738
    
    
    $
    18,380
 7.
    
    Discontinued Operations:On February 2, 2007, the Company announced that it would liquidate
Churchill. Goodwill of $90,000 associated with the acquisition of Churchill was written-off
in June 2006. In anticipation of the liquidation of Churchill, the Company recorded valuation
allowances approximating $550,000 in the quarter ended December 31, 2006 to reflect the
expected net realizable value of Churchills receivables, inventories and prepaid expenses.
In the fourth quarter of fiscal year 2007, the Company sold the Churchill Weavers name,
together with Churchills other intellectual property, domain name and website, yarn
inventory, looms and other weaving, sewing and laundry equipment for $275,000. The Company
also sold in the fourth quarter of fiscal year 2007 a small portion of the Churchill property
in Berea, Kentucky, and Churchills archives and certain antiquities for $110,000. During the
first quarter of fiscal year 2008, Churchills operations ceased and all employees were
terminated.The Company is actively marketing Churchills land and building for sale. The property has been
appraised at greater than net book value. In accordance with accounting guidelines, in the first
quarter of fiscal year 2008, the property is classified as assets held for sale in the
consolidated balance sheet and the operations of Churchill are classified as discontinued
operations in the consolidated statement of income. These classifications were not used prior to
the end of fiscal year 2007 because Churchills operations were continuing at that time.
 8




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##### Table of Contents



Three-month period endedJuly 1,
    
    July 2,2007
    
    2006
    
    $ change
    
    % changeDollars in thousandsNet Sales by CategoryBedding, Blankets and Accessories
    
    $
    11,406
    
    
    $
    10,905
    
    
    $
    501
    
    
    
    4.6
    %Bibs and Bath
    
    
    3,954
    
    
    
    4,848
    
    
    
    (894
    )
    
    
    -18.4
    %Total Net Sales
    
    
    15,360
    
    
    
    15,753
    
    
    
    (393
    )
    
    
    -2.5
    %Cost of Products Sold
    
    
    11,054
    
    
    
    11,286
    
    
    
    (232
    )
    
    
    -2.1
    %Gross Profit
    
    
    4,306
    
    
    
    4,467
    
    
    
    (161
    )
    
    
    -3.6
    %% of Net Sales
    
    
    28.0
    %
    
    
    28.4
    %Marketing and Administrative Expenses
    
    
    2,404
    
    
    
    2,167
    
    
    
    237
    
    
    
    10.9
    %% of Net Sales
    
    
    15.7
    %
    
    
    13.8
    %Interest Expense
    
    
    112
    
    
    
    723
    
    
    
    (611
    )
    
    
    -84.5
    %Other Income  net
    
    
    35
    
    
    
    (140
    )
    
    
    175
    
    
    
    125.0
    %Income Tax Expense
    
    
    676
    
    
    
    665
    
    
    
    11
    
    
    
    1.7
    %Income from continuing operations after taxes
    
    
    1,079
    
    
    
    1,052
    
    
    
    27
    
    
    
    2.6
    %Discontinued Operations  net of taxes
    
    
    (94
    )
    
    
    (141
    )
    
    
    47
    
    
    
    33.3
    %Net Income
    
    
    985
    
    
    
    911
    
    
    
    74
    
    
    
    8.1
    %% of Net Sales
    
    
    6.4
    %
    
    
    5.8
    %
 Net Sales:
  9




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##### Table of Contents



Gross Profit:
 Marketing and Administrative Expenses
 Interest Expense:
 Other Income  Net:
      10




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##### Table of Contents



11




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##### Table of Contents



ExhibitNo.
    
    Exhibit31.1
    
    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
 
   CROWN CRAFTS, INC.Date: August 15, 2007
    /s/ Amy Vidrine SamsonAMY VIDRINE SAMSONChief Financial Officer
(duly authorized signatory and
Principal Financial and Accounting
Officer) 12




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##### Table of Contents



Index to Exhibits
 ExhibitNo.
    
    Exhibit31.1
    
    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
 13