##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
   CROWN CRAFTS, INC.
  Delaware
    
    58-0678148(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
  
   
   þ o
  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 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 CEORule 13a-14(a)/15d-14(a) Certification by CFOSection 1350 Certification by CEOSection 1350 Certification by CFO    Table of Contents   
 July 3, 2005
    
    April 3, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    393
    
    
    $
    955Accounts receivable, net of allowances of $1,603 at July
3, 2005 and $1,411 at April 3, 2005Due from factor
    
    
    7,817
    
    
    
    13,258Other
    
    
    1,440
    
    
    
    1,110Inventories, net
    
    
    15,739
    
    
    
    12,544Prepaid expense
    
    
    1,340
    
    
    
    1,450Total current assets
    
    
    26,729
    
    
    
    29,317Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    1,452
    
    
    
    1,447Machinery and equipment
    
    
    2,843
    
    
    
    2,657Furniture and fixtures
    
    
    665
    
    
    
    6614,960
    
    
    
    4,765Less accumulated depreciation
    
    
    3,288
    
    
    
    3,179Property, plant and equipment  net
    
    
    1,672
    
    
    
    1,586Other assets:Goodwill, net
    
    
    22,974
    
    
    
    22,974Other
    
    
    253
    
    
    
    247Total other assets
    
    
    23,227
    
    
    
    23,221Total Assets
    
    $
    51,628
    
    
    $
    54,124LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,686
    
    
    $
    3,729Accrued wages and benefits
    
    
    809
    
    
    
    669Accrued royalties
    
    
    1,121
    
    
    
    1,051Other accrued liabilities
    
    
    324
    
    
    
    398Current maturities of long-term debt
    
    
    18
    
    
    
    2,317Total current liabilities
    
    
    7,958
    
    
    
    8,164Non-current liabilities:Long-term debt
    
    
    23,064
    
    
    
    25,085Total non-current liabilities
    
    
    23,064
    
    
    
    25,085Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock  par value $0.01 per share, 74,000,000 shares
authorized, 9,505,937 shares outstanding
    
    
    95
    
    
    
    95Additional paid-in capital
    
    
    38,244
    
    
    
    38,244Accumulated deficit
    
    
    (17,733
    )
    
    
    (17,464
    )Total shareholders equity
    
    
    20,606
    
    
    
    20,875Total Liabilities and Shareholders Equity
    
    $
    51,628
    
    
    $
    54,124
 See notes to unaudited consolidated financial statements.
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##### Table of Contents



July 3,
    
    June 27,2005
    
    2004Net sales
    
    $
    13,659
    
    
    $
    16,908Cost of products sold
    
    
    10,692
    
    
    
    13,434Gross profit
    
    
    2,967
    
    
    
    3,474Marketing and administrative expenses
    
    
    2,468
    
    
    
    2,622Income from operations
    
    
    499
    
    
    
    852Other income (expense):Interest expense
    
    
    (802
    )
    
    
    (946
    )Other  net
    
    
    42
    
    
    
    16(Loss) before income taxes
    
    
    (261
    )
    
    
    (78
    )Income tax expense
    
    
    8
    
    
    
    24Net (loss)
    
    
    (269
    )
    
    
    (102
    )Basic (loss) per share
    
    $
    (0.03
    )
    
    $
    (0.01
    )Diluted (loss) per share
    
    $
    (0.03
    )
    
    $
    (0.01
    )Weighted average shares outstanding  basic
    
    
    9,506
    
    
    
    9,505Weighted average shares outstanding  diluted
    
    
    9,506
    
    
    
    9,505
 See notes to unaudited consolidated financial statements.
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July 3,
    
    June 27,2005
    
    2004Operating activities:Net (loss)
    
    $
    (269
    )
    
    $
    (102
    )Adjustments to reconcile net (loss) to net cash
provided by operating activities:Depreciation of property, plant and equipment
    
    
    109
    
    
    
    137Discount accretion
    
    
    183
    
    
    
    163Changes in assets
and liabilitiesAccounts receivable
    
    
    5,111
    
    
    
    7,506Inventories, net
    
    
    (3,195
    )
    
    
    (4,805
    )Prepaid expenses
    
    
    110
    
    
    
    188Other assets
    
    
    (6
    )
    
    
    (10
    )Accounts payable
    
    
    1,957
    
    
    
    1,013Accrued liabilities
    
    
    136
    
    
    
    81Net cash provided by operating activities
    
    
    4,136
    
    
    
    4,171Investing activities:Capital expenditures
    
    
    (195
    )
    
    
    (45
    )Proceeds from disposition of assets
    
    
    
    
    
    
    3Net cash (used in) investing activities
    
    
    (195
    )
    
    
    (42
    )Financing activities:Payment of long-term borrowing
    
    
    (4,503
    )
    
    
    (3,945
    )Long-term borrowing
    
    
    
    
    
    
    1,946Net cash (used in) financing activities
    
    
    (4,503
    )
    
    
    (1,999
    )Net (decrease) increase in cash and cash equivalents
    
    
    (562
    )
    
    
    2,130Cash and cash equivalents at beginning of period
    
    
    955
    
    
    
    7Cash and cash equivalents at end of period
    
    $
    393
    
    
    $
    2,137Supplemental cash flow information:Income taxes received
    
    $
    (41
    )
    
    $
    (2
    )Interest paid
    
    
    679
    
    
    
    685
 See notes to unaudited consolidated financial statements.
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##### Table of Contents



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 July 3, 2005 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 3, 2005 are not
necessarily indicative of the results that may be expected for the year ending April 2, 2006.
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 April 3, 2005 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. 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 and juvenile products. These products consist of infant bedding, bibs, soft goods and
juvenile products (primarily Pillow Buddies®).Impairment of Long-lived Assets, Identifiable Intangibles and Goodwill:The Company reviews for
impairment 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 are recorded at the lower of net book value or fair market value less cost to sell at the
date management commits to a plan of disposal and are classified as assets held for sale on the
consolidated balance sheet.Goodwill, which represents the unamortized excess of purchase price over fair value of net
identifiable assets acquired in business combinations, was amortized through March 31, 2002
using the straight-line method over periods of up to 30 years. The Company discontinued
amortization of goodwill effective April 1, 2002. 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 $6.3 million at July 3, 2005 and
April 3, 2005. The Company performed fair value based impairment tests on its goodwill in
accordance with SFAS 142, Goodwill and Other Intangible Assetsand determined that the fair
value exceeded the recorded value at March 29, 2004 and April 4, 2005.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. Deferred tax assets have been reduced by a valuation allowance, if
necessary, in the amount of any tax benefits that based on available evidence, are not expected
to be realized. Since the Company has federal income tax net operating loss carryforwards, the
future benefits of which are largely offset by a valuation allowance, provisions for income
taxes relate primarily to state and local income taxes.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. Historically, funding occurred in the fourth quarter of the fiscal year
causing the balance to be highest in the third quarter. However, beginning in fiscal year 2006,
funding of the majority of the Companys allowances will occur on a per-invoice basis.
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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 incurred in cost of sales amounted to $1 million in each of the three
months ended July 3, 2005 and June 27, 2004.Stock-Based Compensation: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.In December 2004, the FASB issued Statement 123R, Share-Based Payment, an Amendment of FASB
Statement No. 123, which will require all companies to measure compensation cost for all
share-based payments (including employee stock options) at fair value and will be effective for
public companies for annual periods beginning after June 15, 2005. This Statement will
eliminate the ability to account for stock-based compensation transactions using APB 25 and,
generally, will require instead that such transactions be accounted for using a fair-value based
method. Had the Company adopted SFAS 123R in prior periods, the impact of the standard would
have approximated the impact of SFAS No. 123 as described in the disclosure of pro-forma net
income and earnings per share as set forth below. The Company will be required to begin
expensing stock options in the first quarter of fiscal year 2007.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 loss and loss per share would have been as indicated below:
 Three months endedJuly 3, 2005
    
    June 27, 2004Net (loss), as reported
    
    $
    (269
    )
    
    $
    (102
    )Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards
    
    
    (5
    )
    
    
    (9
    )Pro forma net (loss)
    
    $
    (274
    )
    
    $
    (111
    )(Loss) per share:Basic  as reported
    
    $
    (0.03
    )
    
    $
    (0.01
    )Basic  pro forma
    
    $
    (0.03
    )
    
    $
    (0.01
    )Diluted  as reported
    
    $
    (0.03
    )
    
    $
    (0.01
    )Diluted  pro forma
    
    $
    (0.03
    )
    
    $
    (0.01
    )
 2. Inventory:Major classes of inventory were as follows (in thousands):
 July 3, 2005
    
    April 3, 2005Raw Materials
    
    $
    796
    
    
    $
    633Work in Process
    
    
    309
    
    
    
    210Finished Goods
    
    
    14,634
    
    
    
    11,701$
    15,739
    
    
    $
    12,544
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3.
    
    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 3, 2005 and April 3, 2005, long-term debt
consisted of:


July 3,
    
    April 3,2005
    
    2005Senior notes and senior subordinated notes
    
    $
    16,034
    
    
    $
    20,538Floating rate revolving credit facilities
    
    
    
    
    
    
    Non-interest bearing notes
    
    
    8,810
    
    
    
    8,809Original issue discount
    
    
    (1,762
    )
    
    
    (1,945
    )23,082
    
    
    
    27,402Less current maturities
    
    
    18
    
    
    
    2,317$
    23,064
    
    
    $
    25,085




Revolving Credit


Senior Notes


Senior Subordinated Notes






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Sub
    
    PIKFiscal
    
    Revolver
    
    Notes
    
    Notes
    
    Other
    
    Total2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    132007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    192008
    
    
    
    
    
    
    24,000
    *
    
    
    810
    
    
    
    2
    
    
    
    24,812Total
    
    $
    
    
    
    $
    24,000
    
    
    $
    810
    
    
    $
    34
    
    
    $
    24,844
 
 *  Includes $8 million non-interest bearing note issued at an original issue discount of $4.1
million.  
 
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Three-months endedJuly 3, 2005
    
    June 27, 2004
    
    $ change
    
    % changeDollars in thousandsNet Sales by CategoryBedding, Blankets and Accessories
    
    $
    8,984
    
    
    $
    11,060
    
    
    $
    (2,076
    )
    
    
    -18.8
    %Bibs and Bath
    
    
    4,159
    
    
    
    5,334
    
    
    
    (1,175
    )
    
    
    -22.0
    %Handwoven Products
    
    
    516
    
    
    
    514
    
    
    
    2
    
    
    
    0.4
    %Total Net Sales
    
    
    13,659
    
    
    
    16,908
    
    
    
    (3,249
    )
    
    
    -19.2
    %Cost of Products Sold
    
    
    10,692
    
    
    
    13,434
    
    
    
    (2,742
    )
    
    
    -20.4
    %Gross Profit
    
    
    2,967
    
    
    
    3,474
    
    
    
    (507
    )
    
    
    -14.6
    %% of Net Sales
    
    
    21.7
    %
    
    
    20.5
    %Marketing and Administrative Expenses
    
    
    2,468
    
    
    
    2,622
    
    
    
    (154
    )
    
    
    -5.9
    %% of Net Sales
    
    
    18.1
    %
    
    
    15.5
    %Interest Expense
    
    
    802
    
    
    
    946
    
    
    
    (144
    )
    
    
    -15.3
    %Other  net
    
    
    42
    
    
    
    16
    
    
    
    26
    
    
    
    162.6
    %Income Tax Expense
    
    
    8
    
    
    
    24
    
    
    
    (16
    )
    
    
    66.7
    %Net (Loss)
    
    
    (269
    )
    
    
    (102
    )
    
    
    (167
    )
    
    
    163.5
    %% of Net Sales
    
    
    -2.0
    %
    
    
    -0.6
    %


Net Sales:


Gross Profit:


Marketing and Administrative Expenses


Interest Expense:


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9
    Table of Contents   
   
  
   
   
   
   1.
    
    Election of two members to the board of directors to hold office for a three-year
term. The results were as follows :
 Director Nominee
    
    For
    
    Authority WithheldDonald Ratajczak
    
    
    6,873,086
    
    
    
    1,625,881James A. Verbrugge
    
    
    6,895,986
    
    
    
    1,602,981
 2.
    
    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
    
    
    6,608,111Against
    
    
    1,680,042Abstain
    
    
    210,814
  
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Exhibits31.1
    
    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 16, 2005
    
    /s/ Amy Vidrine SamsonAMY VIDRINE SAMSONChief Financial Officer(duly authorized signatory andPrincipal Financial and AccountingOfficer)
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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