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FORM 10-Q SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 26, 2004 oTRANSITION 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 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 þ  No o Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No  þ The number of shares of common stock, $0.01 par value, of the Registrant outstanding as of
 December 26, 2004 was 9,504,937.




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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 Exhibits7th Amendment to Credit Agreement5th Amendment to Subordinated Note and Warrant Purchase AgreementCertification by the Company's CEOCertification by the Company's CFOCertification by the Company's CEOCertification by the Company's CFO    Table of Contents  CROWN CRAFTS, INC. AND SUBSIDIARIES     December 26, 2004
    
    
    March 28, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    66
    
    
    $
    7Accounts receivable, net of allowances of $4,335 at
December 26, 2004 and $2,058 at March 28, 2004Due from factor
    
    
    10,746
    
    
    
    16,259Other
    
    
    1,234
    
    
    
    962Inventories, net
    
    
    18,240
    
    
    
    14,394Prepaid expense
    
    
    2,160
    
    
    
    1,622Other current assets
    
    
    50
    
    
    
    94Total current assets
    
    
    32,496
    
    
    
    33,338Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    1,803
    
    
    
    1,803Machinery and equipment
    
    
    2,888
    
    
    
    2,802Furniture and fixtures
    
    
    672
    
    
    
    6645,363
    
    
    
    5,269Less accumulated depreciation
    
    
    3,765
    
    
    
    3,435Property, plant and equipment  net
    
    
    1,598
    
    
    
    1,834Other assets:Goodwill, net
    
    
    22,974
    
    
    
    22,974Other
    
    
    214
    
    
    
    241Total other assets
    
    
    23,188
    
    
    
    23,215Total Assets
    
    $
    57,282
    
    
    $
    58,387LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,201
    
    
    $
    5,117Accrued wages and benefits
    
    
    742
    
    
    
    1,408Accrued royalties
    
    
    1,335
    
    
    
    1,274Other accrued liabilities
    
    
    514
    
    
    
    688Current maturities of long-term debt
    
    
    4,184
    
    
    
    3,016Total current liabilities
    
    
    11,976
    
    
    
    11,503Non-current liabilities:Long-term debt
    
    
    25,211
    
    
    
    28,447Total non-current liabilities
    
    
    25,211
    
    
    
    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
    
    
    (18,244
    )
    
    
    (19,902
    )Total shareholders equity
    
    
    20,095
    
    
    
    18,437Total Liabilities and Shareholders Equity
    
    $
    57,282
    
    
    $
    58,387
 See notes to unaudited consolidated financial statements. 1




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Crown Crafts, Inc. and Subsidiaries     Three Months Ended
    
    
    Nine Months EndedDecember 26,
    
    
    December 28,
    
    
    December 26,
    
    
    December 28,2004
    
    
    2003
    
    
    2004
    
    
    2003Net sales
    
    $
    20,664
    
    
    $
    20,717
    
    
    $
    60,597
    
    
    $
    61,183Cost of products sold
    
    
    16,262
    
    
    
    16,228
    
    
    
    48,083
    
    
    
    47,661Gross profit
    
    
    4,402
    
    
    
    4,489
    
    
    
    12,514
    
    
    
    13,522Marketing and administrative expenses
    
    
    2,706
    
    
    
    2,882
    
    
    
    8,089
    
    
    
    8,868Income from operations
    
    
    1,696
    
    
    
    1,607
    
    
    
    4,425
    
    
    
    4,654Other income (expense):Interest expense
    
    
    (932
    )
    
    
    (986
    )
    
    
    (2,814
    )
    
    
    (3,049
    )Other  net
    
    
    83
    
    
    
    5
    
    
    
    88
    
    
    
    Income before income taxes
    
    
    847
    
    
    
    626
    
    
    
    1,699
    
    
    
    1,605Income tax
expense (benefit)
    
    
    (71
    )
    
    
    (93
    )
    
    
    41
    
    
    
    75Net income
    
    
    918
    
    
    
    719
    
    
    
    1,658
    
    
    
    1,530Other comprehensive income, net of tax:Foreign currency translation adjustment
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    25Comprehensive income
    
    $
    918
    
    
    $
    738
    
    
    $
    1,658
    
    
    $
    1,555Basic income per share
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.17
    
    
    $
    0.16Diluted income per share
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.08
    
    
    $
    0.07Weighted average shares outstanding  basic
    
    
    9,505
    
    
    
    9,505
    
    
    
    9,505
    
    
    
    9,479Weighted average shares outstanding  diluted
    
    
    21,154
    
    
    
    22,182
    
    
    
    21,935
    
    
    
    22,443
 See notes to unaudited consolidated financial statements. 2




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Crown Crafts, Inc. and Subsidiaries     December 26,
    
    
    December 28,2004
    
    
    2003Operating activities:Net income
    
    $
    1,658
    
    
    $
    1,530Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation of property, plant and equipment
    
    
    354
    
    
    
    398(Gain) on sale of property, plant, and equipment
    
    
    (2
    )
    
    
    (3
    )Discount accretion
    
    
    503
    
    
    
    447Changes in assets and liabilitiesAccounts receivable
    
    
    5,241
    
    
    
    5,452Inventories, net
    
    
    (3,846
    )
    
    
    (406
    )Other current assets
    
    
    (494
    )
    
    
    (138
    )Other assets
    
    
    27
    
    
    
    (72
    )Accounts payable
    
    
    84
    
    
    
    (1,119
    )Accrued liabilities
    
    
    (511
    )
    
    
    (701
    )Net cash provided by operating activities
    
    
    3,014
    
    
    
    5,388Investing activities:Capital expenditures
    
    
    (122
    )
    
    
    (319
    )Proceeds from disposition of assets
    
    
    6
    
    
    
    282Other
    
    
    
    
    
    
    6Net cash (used in) investing activities
    
    
    (116
    )
    
    
    (31
    )Financing activities:Payment of long-term borrowing
    
    
    (23,471
    )
    
    
    (30,793
    )Long-term borrowing
    
    
    20,632
    
    
    
    26,483Issuance of common stock
    
    
    
    
    
    
    61Net cash (used in) financing activities
    
    
    (2,839
    )
    
    
    (4,249
    )Net increase in cash and cash equivalents
    
    
    59
    
    
    
    1,108Cash and cash equivalents at beginning of period
    
    
    7
    
    
    
    194Cash and cash equivalents at end of period
    
    $
    66
    
    
    $
    1,302Supplemental cash flow information:Income taxes paid
    
    $
    16
    
    
    $
    266Interest paid
    
    
    2,241
    
    
    
    2,586Accrued 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    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 December 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 nine-month periods ended
December 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.Provision for Income Taxes: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 occurs in the fourth quarter of the fiscal year causing the balance
to be highest in the third quarter.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.In December 2004, the FASB issued Statement 123R, Share-Based Payment, an Amendment of FASB
Statements No. 123 and 95(SFAS 123R), 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 interim or 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. The Company will be required to begin expensing stock options in the
second quarter of fiscal year 2006. 4




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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: Three months ended
    
    
    Nine months endedDecember 26, 2004
    
    
    December 28, 2003
    
    
    December 26, 2004
    
    
    December 28, 2003Net income, as reported
    
    $
    918
    
    
    $
    719
    
    
    $
    1,658
    
    
    $
    1,530Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards
    
    
    (5
    )
    
    
    (8
    )
    
    
    (23
    )
    
    
    (21
    )Pro forma net income
    
    $
    913
    
    
    $
    711
    
    
    $
    1,635
    
    
    $
    1,509Income per share:Basic  as reported
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.17
    
    
    $
    0.16Basic  pro forma
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.17
    
    
    $
    0.16Diluted  as reported
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.08
    
    
    $
    0.07Diluted  pro forma
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.07
    
    
    $
    0.07
  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): December 26, 2004
    
    
    March 28, 2004Raw Materials
    
    $
    727
    
    
    $
    1,116Work in Process
    
    
    168
    
    
    
    1,028Finished Goods
    
    
    17,345
    
    
    
    12,250$
    18,240
    
    
    $
    14,394
  Inventory is net of reserves for inventories classified as irregular or discontinued of $0.7
million and $1.0 million at December 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. 5




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Notes Payable and Other Credit Facilities: At December 26, 2004 and March 28, 2004,
long-term debt consisted of: December 26,
    
    
    March 28,2004
    
    
    2004Promissory notes
    
    $
    21,541
    
    
    $
    24,054Floating rate revolving credit facilities
    
    
    1,167
    
    
    
    1,495Non-interest bearing notes
    
    
    8,810
    
    
    
    8,541Original issue discount
    
    
    (2,123
    )
    
    
    (2,627
    )29,395
    
    
    
    31,463Less current maturities
    
    
    4,184
    
    
    
    3,016$
    25,211
    
    
    $
    28,447
 At December 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% (6.25% at December 26, 2004) for base rate borrowings
and LIBOR plus 2.75% (5.17% at December 26, 2004) for Euro-dollar borrowings. The maturity
date is June 30, 2005. The facility is secured by a first lien on all assets. The balance
at December 26, 2004 was $1.2 million. The Company had $12.1 million available at December
26, 2004. As of December 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 $5.5 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 $2.1 million is
included in the Consolidated Balance Sheet as of December 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. The Company also has an equipment lease which expires in May 2007. The balance outstanding
was $41,000 as of December 26, 2004. 6




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Minimum annual maturities are as follows: (in thousands) Senior
    
    
    Sub
    
    
    
    
    
    
    PIKFiscal
    
    Revolver
    
    
    Notes
    
    
    Notes
    
    
    
    
    
    
    Notes
    
    
    Other
    
    
    Total2005
    
    $
    
    
    
    $
    1,000
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    3
    
    
    $
    1,0032006
    
    
    1,167
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    3,1842007
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    2,5192008
    
    
    
    
    
    
    
    
    
    
    24,000
    *
    
    
    

    
    
    
    810
    
    
    
    2
    
    
    
    24,812Total
    
    $
    1,167
    
    
    $
    5,500
    
    
    $
    24,000
    
    
    
    
    
    
    $
    810
    
    
    $
    41
    
    
    $
    31,518
    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. 
 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 DECEMBER 26, 2004 COMPARED TO THE THREE-MONTH PERIOD ENDED DECEMBER 28,
2003 Total net sales of $20.7 million for the third quarter of fiscal year 2005 were stable as compared
to $20.7 million for the third quarter of fiscal year 2004. Increased bib sales were partially
offset by decreased bath sales for a net increase of $248,000. This increase in bib sales was
further offset by decreases in sales of bedding and luxury throws and blankets of $235,000 and
$66,000, respectively. The increase in bib sales is primarily due to sales of a new license and
increased modular replenishment, whereas the decrease in bath sales is due to the loss of a bath
program at a major customer. The transition of the Companys Classic Pooh license to
direct-to-retail has had a deflationary effect on bedding sales. Although replacement programs and
the direct-to-retail program were awarded to the Company, the Companys average selling price per
unit was lower in fiscal year 2005 than in the prior year because of market 7




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changes in anticipation of the removal of quotas from several of the Companys bedding products,
which was effective in January 2005. Sales of high-end luxury throws continue to be negatively
impacted by a slow economy. During the third quarter of fiscal year 2005, cost of sales were 78.7% of net sales as compared to
78.3% for the same period in fiscal year 2004. The slightly lower gross margin is due to the
decrease in the average selling price per unit as previously discussed above. Marketing and administrative expenses decreased by $176,000, or 6.1%, in the third quarter of
fiscal year 2005 compared to the same quarter in the prior year and were 13.1% of net sales for
such quarter compared to 13.9% 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 third quarter of fiscal year 2005 decreased by $54,000 compared to the
third quarter of fiscal year 2004 because of the Companys lower average debt balance. Total debt
was $29.4 million at December 26, 2004 compared to $30.3 million at December 28, 2003. Included in
the balance in the current fiscal year was revolving credit of $1.2 million, whereas there was no
revolving credit balance outstanding at December 28, 2003. Income tax benefit for the quarter ended December 26, 2004 includes a credit for state and local
income taxes of $71,000. Income tax benefit for the quarter ended December 28, 2003 included a
credit of $130,000 for a revision of federal alternative minimum taxes and state and local income
taxes of $37,000. The Company has net operating loss carryforwards of $13.5 million that begin to
expire in 2021. NINE-MONTH PERIOD ENDED DECEMBER 26, 2004 COMPARED TO THE NINE-MONTH PERIOD ENDED DECEMBER 28, 2003 Total net sales for the first nine months of fiscal year 2005 decreased by $0.6 million, or 1.0%,
to $60.6 million from $61.2 million for the same period of fiscal year 2004 as a result of
decreases in bib and bath sales of $1.2 million and luxury throws and blankets of $192,000, offset
in part by an increase in bedding sales of $853,000. The decrease in bib and bath sales is
primarily due to the loss of a bath program at a major customer. The increase in bedding sales
resulted from additional and new modular placement shipments, which were partially offset by the
transition of the Companys Classic Pooh license to direct-to-retail. During the first nine months of fiscal year 2005, cost of sales increased to 79.3% of net sales
from 77.9% 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. The 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 $779,000, or 8.8%, for the first nine months of
fiscal year 2005 compared to the same period in the prior year and were 13.3% of net sales for such
period compared to 14.5% 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 costs associated with the closing of the Companys
Mexican production facility, both of which were completed in fiscal year 2004. Interest expense for the first nine months of fiscal year 2005 decreased by $235,000 compared to
the first nine months of fiscal year 2004 because of the Companys lower average debt balance.
Total debt was $29.4 million at December 26, 2004 compared to $30.3 million at December 28, 2003.
Included in the balance in the current fiscal year was revolving credit of $1.2 million, whereas
there was no revolving credit balance outstanding at December 28, 2003. Income tax expense for the nine months ended December 26, 2004 includes an expense for state and
local income taxes of $41,000. Income tax expense for the nine months ended December 28, 2003
included a benefit for revision of federal alternative minimum taxes of $99,000 and an expense for
state and local income taxes of $174,000. The Company has net operating loss carryforwards of
$13.5 million that begin to expire in 2021. 8




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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $3.0 million for the first nine months of fiscal year
2005 compared to net cash provided by operating activities of $5.4 million for the first nine
months of fiscal year 2004. The decrease in cash provided by operating activities was primarily
due to changes in inventory and accounts payable balances. Net cash used in investing activities
was $116,000 in the first nine months of fiscal year 2005 and $31,000 in the prior year period.
Net cash used in financing activities was $2.8 million compared to net cash used in financing
activities of $4.2 million in the prior year period. The decrease in cash used in financing
activities was due to a lower 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. Based upon the current level of operations, the Company believes that
cash flow from operations together with revolving credit availability will be adequate to meet
liquidity needs. 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% (4.50% at December 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 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 a balance outstanding of $1.2 million at
December 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 $12,000 at the debt level of
December 26, 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 42% 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. 9




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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 
 Item 3  -   Defaults Upon Senior Securities None 
 Item 4  -   Submission of Matters to a Vote of Security Holders None 
 Item 5  -   Other Information None 
 Item 6  -   Exhibits Exhibits10.1
    
    Seventh Amendment to Credit Agreement dated as of February 4, 2005 by and among
the Company, Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc.,
Wachovia Bank, National Association (successor by merger to Wachovia Bank, N.A.), as
Agent, and Wachovia Bank, National Association (successor by merger to Wachovia Bank,
N.A.), Banc of America Strategic Solutions, Inc. (assignee of Bank of America, N.A.) and
The Prudential Insurance Company of America, as Lenders10.2
    
    Fifth Amendment to Subordinated Note and Warrant Purchase Agreement dated as of
February 4, 2005 by and among the Company and Banc of America Strategic Solutions, Inc.
(assignee of Bank of America, N.A.), The Prudential Insurance Company of America, and
Wachovia Bank, National Association (successor by merger to Wachovia Bank, N.A.), as
Lenders31.1
    
    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
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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: February 9, 2005
    
    /s/ Amy Vidrine SamsonAMY VIDRINE SAMSONChief Financial Officer(duly authorized signatory andPrincipal Financial and AccountingOfficer)
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Index to Exhibits ExhibitNumber
    
    Description10.1
    
    Seventh Amendment to Credit Agreement dated as of February 4, 2005 by and among the Company,
Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc., Wachovia Bank,
National Association (successor by merger to Wachovia Bank, N.A.), as Agent, and Wachovia
Bank, National Association (successor by merger to Wachovia Bank, N.A.), Banc of America
Strategic Solutions, Inc. (assignee of Bank of America, N.A.) and The Prudential Insurance
Company of America, as Lenders10.2
    
    Fifth Amendment to Subordinated Note and Warrant Purchase Agreement dated as of February 4,
2005 by and among the Company and Banc of America Strategic Solutions, Inc. (assignee of Bank
of America, N.A.), The Prudential Insurance Company of America, and Wachovia Bank, National
Association (successor by merger to Wachovia Bank, N.A.), as Lenders31.1
    
    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