##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 28, 2003

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File No. 1-7604

CROWN CRAFTS,
INC.

(Exact name of registrant as specified in its charter)


Delaware
    
    58-0678148(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)


916 South Burnside Avenue, Gonzales, Louisiana 70737(Address of principal executive offices)(225) 647-9100(Registrants telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of common stock, $0.01 par value, of the Registrant outstanding as of December 28, 2003 was 9,504,937.





---

TABLE OF CONTENTS



|                                                 |                                                              |  |  |  |  |  |  | 
|------------------------------------------------ | ------------------------------------------------------------ |  |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION                  
|ITEM 1  CONSOLIDATED FINANCIAL STATEMENTS      
|ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
|ITEM 3  QUANTITATIVE AND QUALITATIVE           
|ITEM 4  CONTROLS AND PROCEDURES                
|PART II  OTHER INFORMATION                     
|                                                 | Item 1  Legal Proceedings                                  
|                                                 | Item 2  Changes in Securities and Use of Proceeds          
|                                                 | Item 3  Defaults Upon Senior Securities                    
|                                                 | Item 4  Submission of Matters to a Vote of Security Holders
|                                                 | Item 5  Other Information                                  
|                                                 | Item 6  Exhibits and Reports on Form 8-K                   
|SIGNATURES                                      
|Index to Exhibits                               
|Amended/Restated Certificate of Incorporation   
|Bylaws of the Company                           
|Sixth Amendment to Credit Agreement             
|Certification by the Chief Executive Officer    
|Certification by the Chief Financial Officer    
|Certification by the Chief Executive Officer    
|Certification by the Chief Financial Officer    



---



##### Table of Contents



FORM 10-Q 
CROWN CRAFTS, INC. AND SUBSIDIARIES







PART 1  FINANCIAL INFORMATIONITEM 1  CONSOLIDATED FINANCIAL STATEMENTS







CONSOLIDATED BALANCE SHEETS
December 28, 2003 and March 30, 2003
(Unaudited)

Dollar amounts in thousands
    
    December 28,
    
    March 30,2003
    
    2003 *ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,302
    
    
    $
    194Accounts receivable (net of allowances of $4,956 at
December 28, 2003 and $1,927 at March 30, 2003):Due from factor
    
    
    8,595
    
    
    
    14,472Other
    
    
    1,729
    
    
    
    1,304Inventories, net
    
    
    15,954
    
    
    
    15,548Other current assets
    
    
    1,252
    
    
    
    1,114Total current assets
    
    
    28,832
    
    
    
    32,632Property, plant and equipment  at cost:Land, buildings and improvements
    
    
    1,797
    
    
    
    1,920Machinery and equipment
    
    
    2,754
    
    
    
    3,285Furniture and fixtures
    
    
    664
    
    
    
    6775,215
    
    
    
    5,882Less accumulated depreciation
    
    
    3,349
    
    
    
    3,644Property, plant and equipment  net
    
    
    1,866
    
    
    
    2,238Other assets:Goodwill, net
    
    
    22,974
    
    
    
    22,974Other
    
    
    154
    
    
    
    82Total other assets
    
    
    23,128
    
    
    
    23,056Total Assets
    
    $
    53,826
    
    
    $
    57,926




---

|* |  | The Consolidated Balance Sheet at March 30, 2003 has been derived from the audited balance sheet at that date.
|- |  | --------------------------------------------------------------------------------------------------------------

See notes to unaudited condensed consolidated financial statements.

1



---



##### Table of Contents



Crown Crafts, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 28, 2003 and March 30, 2003
(Unaudited)

December 28,
    
    March 30,Dollar amounts in thousands
    
    2003
    
    2003 *LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,405
    
    
    $
    4,524Accrued wages and benefits
    
    
    871
    
    
    
    1,413Accrued royalties
    
    
    1,833
    
    
    
    1,454Other accrued liabilities
    
    
    539
    
    
    
    1,361Current maturities of long-term debt
    
    
    3,015
    
    
    
    3,014Total current liabilities
    
    
    9,663
    
    
    
    11,766Non-current liabilities:Long-term debt
    
    
    27,299
    
    
    
    30,895Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock  par value $0.01 per share, 74,000,000 shares authorized, 9,504,937 shares outstanding at December
28, 2003; par value $1.00 per share, 50,000,000 shares authorized, 9,421,437 shares outstanding at March 30, 2003
    
    
    95
    
    
    
    9,421Additional paid-in capital
    
    
    38,244
    
    
    
    28,857Accumulated deficit
    
    
    (21,475
    )
    
    
    (22,988
    )Cumulative currency translation adjustment
    
    
    
    
    
    
    (25
    )Total shareholders equity
    
    
    16,864
    
    
    
    15,265Total Liabilities and Shareholders Equity
    
    $
    53,826
    
    
    $
    57,926


* The Consolidated Balance Sheet at March 30, 2003 has been derived from the audited balance sheet at that date.

See notes to unaudited condensed consolidated financial statements.

2



---



##### Table of Contents



Crown Crafts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For The Three and Nine-Month Periods Ended December 28, 2003 and December 29, 2002
(UNAUDITED)

THREE MONTHS ENDED
    
    NINE MONTHS ENDEDAmounts in thousands, except per
    
    December 28,
    
    December 29,
    
    December 28,
    
    December 29,share amounts
    
    2003
    
    2002
    
    2003
    
    2002Net sales
    
    $
    20,717
    
    
    $
    21,636
    
    
    $
    61,183
    
    
    $
    67,962Cost of products sold
    
    
    16,228
    
    
    
    17,023
    
    
    
    47,661
    
    
    
    52,963Gross profit
    
    
    4,489
    
    
    
    4,613
    
    
    
    13,522
    
    
    
    14,999Marketing and administrative expenses
    
    
    2,882
    
    
    
    2,843
    
    
    
    8,868
    
    
    
    9,458Restructuring charge
    
    
    
    
    
    
    1,775
    
    
    
    
    
    
    
    1,775Income (loss) from operations
    
    
    1,607
    
    
    
    (5
    )
    
    
    4,654
    
    
    
    3,766Other income (expense):Interest expense
    
    
    (986
    )
    
    
    (1,122
    )
    
    
    (3,049
    )
    
    
    (3,479
    )Other  net
    
    
    5
    
    
    
    302
    
    
    
    
    
    
    
    378Income (loss) before income taxes
    
    
    626
    
    
    
    (825
    )
    
    
    1,605
    
    
    
    665Income tax (credit) expense
    
    
    (93
    )
    
    
    166
    
    
    
    75
    
    
    
    270Net income (loss)
    
    
    719
    
    
    
    (991
    )
    
    
    1,530
    
    
    
    395Other comprehensive income (loss), net of tax:Foreign currency translation adjustment
    
    
    19
    
    
    
    2
    
    
    
    25
    
    
    
    (29
    )Comprehensive income (loss)
    
    $
    738
    
    
    $
    (989
    )
    
    $
    1,555
    
    
    $
    366Basic income (loss) per share
    
    $
    0.08
    
    
    $
    (0.11
    )
    
    $
    0.16
    
    
    $
    0.04Diluted income (loss) per share
    
    $
    0.03
    
    
    $
    (0.11
    )
    
    $
    0.07
    
    
    $
    0.02Weighted average shares outstanding  basic
    
    
    9,505
    
    
    
    9,421
    
    
    
    9,479
    
    
    
    9,421Weighted average shares outstanding  diluted
    
    
    22,182
    
    
    
    9,421
    
    
    
    22,443
    
    
    
    21,645


See notes to unaudited condensed consolidated financial statements.

3



---



##### Table of Contents



Crown Crafts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine-Month Periods ended December 28, 2003 and December 29, 2002
(UNAUDITED)

|                                                                                  |                                                      |                          |         |                |        |              |         |       |        |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------ | ------- | -------------- | ------ | ------------ | ------- | ----- | ------ | -
|                                                                                  |                                                      |                          |         | (in thousands)
|                                                                                  |                                                      |                          |         |               
|                                                                                  |                                                      |                          |         | December 28,   |        | December 29,
|                                                                                  |                                                      |                          |         | 2003           |        | 2002        
|                                                                                  |                                                      |                          |         |                |        |             
|Operating activities:                                                             |                                                      |                          |         |                |        |              |         |      
|Net income                                                                        |                                                      | $                        | 1,530   |                |        | $            | 395     |      
|Adjustments to reconcile net income to net cash provided by
operating activities: |                                                      |                          |         |                |        |              |         |      
|                                                                                  | Depreciation of property, plant and equipment        |                          |         | 398            |        |              |         | 576   |       
|                                                                                  | Loss on disposition of property, plant and equipment |                          |         | (3             | )      |              |         |      |       
|                                                                                  | Restructuring charge                                 |                          |         |               |        |              |         | 1,775 |       
|                                                                                  | Changes
in assets and liabilities                    |                          |         |                |        |              |         |       |       
|                                                                                  |                                                      | Accounts receivable, net |         |                | 5,452  |              |         |       | 3,546  |  
|                                                                                  |                                                      | Inventories, net         |         |                | (406   | )            |         |       | (1,572 | )
|                                                                                  |                                                      | Income tax receivable    |         |                |       |              |         |       | 1,820  |  
|                                                                                  |                                                      | Other current assets     |         |                | (138   | )            |         |       | 103    |  
|                                                                                  |                                                      | Other assets             |         |                | (72    | )            |         |       | 88     |  
|                                                                                  |                                                      | Accounts payable         |         |                | (1,119 | )            |         |       | 362    |  
|                                                                                  |                                                      | Accrued liabilities      |         |                | (969   | )            |         |       | (792   | )
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Net cash provided by operating activities                                         |                                                      |                          | 4,673   |                |        |              | 6,301   |      
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Investing activities:                                                             |                                                      |                          |         |                |        |              |         |      
|Capital expenditures                                                              |                                                      |                          | (319    | )              |        |              | (274    | )    
|Proceeds from disposition of assets                                               |                                                      |                          | 282     |                |        |              |        |      
|Other                                                                             |                                                      |                          | 6       |                |        |              | (29     | )    
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Net cash (used in) investing activities                                           |                                                      |                          | (31     | )              |        |              | (303    | )    
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Financing activities:                                                             |                                                      |                          |         |                |        |              |         |      
|Payment of long-term borrowing                                                    |                                                      |                          | (30,793 | )              |        |              | (35,311 | )    
|Long-term borrowing                                                               |                                                      |                          | 27,198  |                |        |              | 29,160  |      
|Issuance of common stock                                                          |                                                      |                          | 61      |                |        |              |        |      
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Net cash (used in) financing activities                                           |                                                      |                          | (3,534  | )              |        |              | (6,151  | )    
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Net increase (decrease) in cash and cash equivalents                              |                                                      |                          | 1,108   |                |        |              | (153    | )    
|Cash and cash equivalents at beginning of period                                  |                                                      |                          | 194     |                |        |              | 388     |      
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Cash and cash equivalents at end of period                                        |                                                      | $                        | 1,302   |                |        | $            | 235     |      
|                                                                                  |                                                      |                          |         |                |        |              |         |      
|Supplemental cash flow information:                                               |                                                      |                          |         |                |        |              |         |      
|Income taxes paid (refunded)                                                      |                                                      | $                        | 266     |                |        | $            | (1,703  | )    
|Interest paid                                                                     |                                                      |                          | 2,586   |                |        |              | 2,649   |      

See notes to unaudited condensed consolidated financial statements.

4



---



##### Table of Contents



CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AT AND FOR THE THREE AND NINE-MONTH PERIODS ENDED DECEMBER 28, 2003 AND DECEMBER 29, 2002



|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 28, 2003 and the results of its operations and cash flows for the
three and nine-month periods ended December 28, 2003 and December 29,
2002. Such adjustments include normal recurring accruals. Operating
results for the three and nine-month periods ended December 28, 2003 are
not necessarily indicative of the results that may be expected for the
year ending March 28, 2004. 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 30, 2003 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Recently Issued Accounting Standards: 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
will 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 is
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 continued to amortize other
long-lived intangible assets. The Company has performed a transitional fair
value based impairment test on its goodwill in accordance with SFAS 142 and
has determined that the fair value exceeded the recorded value at April 1,
2002 and March 31, 2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. SFAS 148 amends FASB 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, FASB 148 amends the
disclosure requirements of FASB 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. SFAS 148 was effective for the Companys fiscal period
ended March 30, 2003. The Company adopted this standard on that date and
determined that it would continue to utilize the intrinsic method of
accounting and included the additional disclosures in the current period
financial statements.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | Segment and Related Information:The Companys principal segments
include adult home furnishing products, consisting primarily of hand-woven
throws, and infant and juvenile products, consisting of infant bedding,
bibs, infant soft goods and juvenile products (primarily Pillow Buddies®).
Financial information attributable to the Companys business segments for
the three and nine-month periods ended December 28, 2003 and December 29,
2002 was as follows (in thousands):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5



---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedDecember 28,
    
    December 29,
    
    December 28,
    
    December 29,2003
    
    2002
    
    2003
    
    2002Net SalesAdult home furnishing
products
    
    $
    895
    
    
    $
    871
    
    
    $
    1,935
    
    
    $
    2,119Infant & juvenile products
    
    
    19,822
    
    
    
    20,765
    
    
    
    59,248
    
    
    
    65,843Total
    
    $
    20,717
    
    
    $
    21,636
    
    
    $
    61,183
    
    
    $
    67,962Operating income (loss)Adult home furnishing
products
    
    $
    67
    
    
    $
    54
    
    
    $
    (15
    )
    
    $
    (22
    )Infant & juvenile products
    
    
    1,540
    
    
    
    (59
    )
    
    
    4,669
    
    
    
    3,788Total
    
    $
    1,607
    
    
    $
    (5
    )
    
    $
    4,654
    
    
    $
    3,766




|3. |  | Inventory:Major classes of inventory were as follows (in thousands):
|-- |  | --------------------------------------------------------------------

December 28,
    
    March 30,2003
    
    2003Raw materials
    
    $
    2,330
    
    
    $
    2,991Work in process
    
    
    469
    
    
    
    1,411Finished goods
    
    
    13,155
    
    
    
    11,146$
    15,954
    
    
    $
    15,548




| |  | Inventory is net of reserves for inventories classified as irregular or
discontinued of $1.4 million and $1.6 million at December 28, 2003 and
March 30, 2003, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | Restructuring ChargeIn December 2002, the Company adopted a formal
plan to change its sourcing strategy for certain products and close the
Mexican manufacturing facility operated by its majority-owned subsidiary,
Burgundy Interamericana (Burgundy). This decision was based on
extensive research by management which indicated that, due to lower wages
and the elimination of the quota on bibs, outsourcing the supply of
products then being manufactured by Burgundy to Asian manufacturers was
more cost-effective and competitive than maintaining operations in Mexico.
Under the plan, Burgundy continued to operate through the first quarter
of fiscal 2004, at which time the Company began to liquidate Burgundys
assets. As a result of the decision of the Company to discontinue its
Mexican operations, the Company recorded a $1.8 million restructuring
charge to operations in the quarter ended December 29, 2002, which
consisted primarily of a write-down of the property and equipment at the
Mexican facility of approximately $800,000, inventory items deemed to be
in excess of production requirements of approximately $600,000, an accrual
for contractual termination benefits of approximately $300,000 due
Burgundys entire workforce (approximately 130 employees) under the
provisions of Mexicos labor regulations and the write-off of goodwill of
approximately $60,000. The Company paid approximately $189,000 of the
severance benefits in the first quarter of fiscal 2004 and paid the
remainder through October 2003. The Company continued to charge the
ongoing operating costs associated with Burgundys production in the
period in which the costs were incurred. The Company incurred a loss of
approximately $85,000 related to the operation and closure of this
facility for the three-month period ended June 29, 2003, at which time the
closure was complete.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | Financing Arrangements
|-- |  | ----------------------



| |  | Factoring Agreement:The Company assigns the majority of its trade accounts
receivable to a commercial factor. Under the terms of the associated
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.
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.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



---



##### Table of Contents



Notes Payable and Other Credit Facilities: At December 28, 2003 and March 30,
2003, long-term debt consisted of:

December 28,
    
    March 30,2003
    
    2003Promissory notes
    
    $
    32,558
    
    
    $
    35,068Floating rate revolving credit facilities
    
    
    
    
    
    
    1,799Non-interest bearing notes
    
    
    541
    
    
    
    274Original issue discount
    
    
    (2,785
    )
    
    
    (3,232
    )30,314
    
    
    
    33,909Less current maturities
    
    
    3,015
    
    
    
    3,014$
    27,299
    
    
    $
    30,895


At December 28, 2003, the Companys credit facilities included the following:

Revolving Creditof up to $19 million including a $3 million sub-limit for
letters of credit. The interest rate is prime plus 1.00% (5.00% at
December 28, 2003) for base rate borrowings and LIBOR plus 2.75% (3.89% at
December 28, 2003) for Euro-dollar borrowings. The maturity date is June
30, 2005. The facility is secured by a first lien on all assets. The
balance was $0 at December 28, 2003. The Company had $11.8 million
available at December 28, 2003. As of December 28, 2003, letters of
credit of $1.35 million were outstanding under the revolving credit
facility.

Senior Notesof $8.5 million with a fixed interest rate of 10% plus
additional interest contingent upon cash flow availability of 3%. 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. The Company
made an excess cash flow payment of $1.4 million on September 30, 2003.

Senior Subordinated Notesof $16 million with a fixed interest rate of 10%
plus an additional 1.65% payable by delivery of a promissory note due July
23, 2007. 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) the 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 $2.8 million is included in the
Consolidated Balance Sheet as of December 28, 2003.

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. Certain covenants
included in the credit facilities were amended in conjunction with the
liquidation of Burgundy, as discussed in Note 4, in order to account for the
recording of the related restructuring charge. The Company is in compliance
with its covenants at December 28, 2003. The bank facilities also place
restrictions on the amounts the Company may expend on acquisitions and
purchases of treasury stock and currently prohibit the payment of dividends.

Minimum annual maturities are as follows: (in thousands)

Fiscal
    
    Revolver
    
    Senior Notes
    
    Sub Notes
    
    
    
    
    
    PIK Notes
    
    Total2004
    
    $
    
    
    
    $
    500
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    5002005
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,0002006
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,5002007
    
    
    
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,5002008
    
    
    
    
    
    
    
    
    
    
    24,000
    
    *
    
    
    
    
    
    541
    
    
    
    24,541Total
    
    $
    
    
    
    $
    8,500
    
    
    $
    24,000
    
    
    
    
    
    
    $
    541
    
    
    $
    33,041


* Includes $8 million non-interest bearing note issued at an original issue discount of $4.1 million.

7



---



##### Table of Contents





| |  | As part of its refinancing on July 23, 2001, the Company issued to its
lenders warrants for non-voting common stock that are convertible into common
stock equivalent to approximately 65% of the shares of the Company on a fully
diluted basis at a price of 11.3 cents per share. The warrants are currently
exercisable and non-callable and expire six years from their date of
issuance. The value of the warrants of $2.4 million using the Black-Scholes
option pricing model was credited to additional paid-in capital in the second
quarter of fiscal 2002.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | Stock OptionsThe Company accounts for its stock option plans using the
intrinsic value method established by APB Opinion No. 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 No. 123, Accounting for Stock
Based-Compensation, as amended by SFAS No. 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.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 No. 123, the Companys net income (loss) and income (loss) per share
would have been as indicated below (in thousands, except per share data):
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Nine months endedDecember 28,
    
    December 29,
    
    December 28,
    
    December 29,2003
    
    2002
    
    2003
    
    2002Net income (loss), as reported
    
    
    719
    
    
    
    (991
    )
    
    
    1,530
    
    
    
    395Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards
    
    
    (8
    )
    
    
    (10
    )
    
    
    (21
    )
    
    
    (15
    )Pro forma net income (loss)
    
    
    711
    
    
    
    (1,001
    )
    
    
    1,509
    
    
    
    380Income (loss) per share:Basic  as reported
    
    
    0.08
    
    
    
    (0.11
    )
    
    
    0.16
    
    
    
    0.04Basic  pro forma
    
    
    0.07
    
    
    
    (0.11
    )
    
    
    0.16
    
    
    
    0.04Diluted  as reported
    
    
    0.03
    
    
    
    (0.11
    )
    
    
    0.07
    
    
    
    0.02Diluted  pro forma
    
    
    0.03
    
    
    
    (0.11
    )
    
    
    0.07
    
    
    
    0.02








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 Products segment within the Consumer Products industry. The Companys
offices are located in Huntington Beach and Compton, California; Gonzales,
Louisiana; Berea, Kentucky; Rogers, Arkansas and Lynne Haven, Florida.

The Infant Products segment consists of infant bedding, bibs, infant soft goods
and accessories. The infant 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 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 infant bedding

8



---



##### Table of Contents



market share and one-half of the infant bib market share within these segments.
The Company competes on the basis of quality, design, price, service and
packaging.

RESULTS OF OPERATIONS

THREE-MONTH PERIOD ENDED DECEMBER 28, 2003 COMPARED TO THE THREE-MONTH PERIOD
ENDED DECEMBER 29, 2002

Total net sales for the third quarter of fiscal year 2004 decreased by
$919,000, or 4.2%, to $20.7 million from $21.6 million for the third quarter of
fiscal year 2003. Net sales of throws increased $24,000, or 2.8%, to $895,000.
Net sales of infant and juvenile products decreased by $943,000, or 4.5%, to
$19.8 million primarily as a result of decreased bedding sales as compared to
the prior year. The Company shipped initial sets of several new bedding
collections in the third quarter of the prior year; these were not repeated at
the same levels in the current year. Also contributing to the decrease in
sales of infant and juvenile products was a decline in the Companys Pillow
Buddies® business. Sales of these products continued to be slow in the third
quarter of fiscal year 2004 as the Company chose not to renew certain existing
licenses or enter into new licenses because of the financial commitment
required by such licenses.

During the third quarter of fiscal year 2004, cost of sales decreased to 78.3%
of net sales from 78.7% for the same period in fiscal year 2003. Although the
Companys gross margin has benefited in the current fiscal year from
improvements attributable to its sourcing efforts, most of the savings was
passed on to customers as a result of pricing pressure.

Marketing and administrative expenses increased by $39,000, or 1.4%, in the
third quarter of fiscal year 2004 compared to the same quarter in the prior
year and were 13.9% of net sales for such quarter compared to 13.1% for the
corresponding quarter of the prior year. For the third quarter of fiscal year
2004, the Company achieved reductions in commissions, advertising and tradeshow
expenditures and compensation. However, these savings were offset by costs
incurred in such quarter related to the Companys Delaware reincorporation of
approximately $105,000.

As discussed in Note 4 to the Companys Consolidated Financial Statements, the
Company recorded a $1.8 million restructuring charge in the quarter ended
December 29, 2002. In December 2002, the Company adopted a formal plan to
change its sourcing strategy for certain products and close its Mexican
manufacturing facility operated by its majority-owned subsidiary, Burgundy
Interamericana (Burgundy). This decision was based on extensive research by
management which indicated that, due to lower wages and the elimination of the
quota on bibs, outsourcing the supply of products then being manufactured by
Burgundy to Asian manufacturers was more cost effective and competitive than
maintaining operations in Mexico.

Interest expense for the third quarter of fiscal year 2004 decreased by
$136,000 compared to the third quarter of fiscal year 2003 because of a lower
average debt balance and reduced interest rates. Long-term debt was $30.3
million at December 28, 2003 compared to $33.6 million at December 29, 2002.
Included in the balance in the prior fiscal year was revolving credit of $1.1
million, whereas there was no revolving credit balance outstanding at December
28, 2003.

Income tax benefit for the quarter ended December 28, 2003 includes a credit of
$130,000 for a revision of federal alternative minimum taxes and an expense for
state and local income taxes of $37,000. For the quarter ended December 29,
2002, the Company recorded income tax expense of $37,000 related to federal
alternative minimum taxes and $129,000 related to estimated state and local
taxes. Income tax expense for both periods was reduced by the utilization of a
portion of the Companys net operating loss carryforwards. The remaining net
operating loss carryforwards of $15.7 million are set to expire in 2021.

NINE-MONTH PERIOD ENDED DECEMBER 28, 2003 COMPARED TO THE NINE-MONTH PERIOD
ENDED DECEMBER 29, 2002

Total net sales for the nine months ended December 28, 2003 decreased by $6.8
million, or 10.0%, to $61.2 million from $68.0 million for the same period in
fiscal year 2003. Net sales of throws decreased by $184,000, or 8.7%, to $1.9
million, as sales volumes of high-end luxury throws were negatively impacted
for the first six months of the current year by the recent downturn in the
economy. Net sales of infant and juvenile products decreased by $6.6 million,
or 10.0%, to $59.2 million. This decline in sales, which occurred primarily in
the second quarter of fiscal year 2004, is attributable to changes in buying
patterns by several customers, some of whom lowered on-hand inventory levels in
response to the sluggish economy, and changes in internal business strategies.
Also, during the second and third quarters of fiscal year 2003, the Company
shipped several new product placements to key

9



---



##### Table of Contents



customers; these were not repeated at the same levels in the current year. The
Companys Pillow Buddies® business has been comparatively weaker in the current
year because retail dollars have not been allocated to the product and
increased competition for character licenses has driven royalty commitments
higher than management is comfortable guaranteeing. In addition, a marketing
decision by Disney Consumer Products to take one of its brands direct to retail
beginning in early 2004 has caused the retailers currently offering this brand
to begin reducing their purchase volumes.

During the nine months ended December 28, 2003, cost of sales remained level at
77.9%. Although the Companys gross margin has benefited in the current fiscal
year from improvements attributable to its sourcing efforts, most of the
savings was passed on to customers as a result of pricing pressure.

Marketing and administrative expenses decreased by $590,000, or 6.2%, for the
first nine months of fiscal year 2004 compared to the first nine months of
fiscal year 2003 and were 14.5% of net sales for the current year period
compared to 13.9% of net sales for the corresponding period of the prior year.
For the first nine months of fiscal year 2004, the Company achieved reductions
in labor and commissions expenses. However, these savings were partially
offset by costs related to the Companys Delaware reincorporation of
approximately $380,000 for the nine months ended December 28, 2003.

As discussed above and in Note 4 to the Companys Consolidated Financial
Statements, the Company recorded a $1.8 million restructuring charge in the
quarter ended December 29, 2002 related to the closure of Burgundy.

Interest expense for the nine months ended December 28, 2003 decreased by
$430,000 compared to the nine months ended December 29, 2002 because of a lower
average debt balance and reduced interest rates. Long-term debt was $30.3
million at December 28, 2003 compared to $33.6 million at December 29, 2002.
Included in the balance in the prior fiscal year was revolving credit of $1.1
million, whereas there was no revolving credit balance outstanding at December
28, 2003.

Income tax expense for the nine months ended December 28, 2003 includes a
benefit for a revision of federal alternative minimum taxes of $99,000 and an
expense for state and local income taxes of $174,000. For the nine months
ended December 29, 2002, the Company recorded income tax expense of $75,000
related to federal taxes, including alternative minimum taxes, and $195,000
related to estimated state and local taxes. Income tax expense for both
periods was reduced by the utilization of a portion of the Companys net
operating loss carryforwards.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $4.7 million for the nine months
ended December 28, 2003 compared to net cash provided by operating activities
of $6.3 million for the nine months ended December 29, 2002. The decrease in
cash provided by operating activities was primarily due to the receipt of a
one-time income tax refund of $1.8 million in the prior fiscal year. Net cash
used in investing activities was $31,000 for the nine months ended December 28,
2003 compared to net cash used in investing activities of $0.3 million in the
prior year period. The decrease in cash used in investing activities was due
in large part to net proceeds from the sale of assets disposed of in connection
with the closure of Burgundy in the current fiscal year of $244,000, whereas
the Company had no proceeds from the sale of assets in the prior fiscal year.
Net cash used in financing activities was $3.5 million compared to net cash
used in financing activities of $6.2 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.
A portion of the long-term debt reduction in the prior fiscal year resulted
from the use of the tax refund discussed above to reduce the Companys
revolver.

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 factors the majority of its trade accounts receivable. The Companys
factor establishes customer credit lines and accounts for and collects
receivable balances. The factor remits payment to the Company on the average
due dates of the factored invoices. The factor assumes all responsibility for
credit losses on sales within approved credit lines, but may deduct from its
remittances to the Company the amounts of customer deductions for returns,
allowances, disputes and discounts. The Companys factor at any time may
terminate or limit its approval of shipments to a particular

10



---



##### Table of Contents



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,
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, 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 no balance was
outstanding at December 28, 2003, compared to an outstanding balance of $1.8
million at March 30, 2003. Each 1.0 percentage point increase in interest
rates would have no impact on pretax earnings at the Companys debt level of
December 28, 2003, but would have an impact of $18,000 at its debt level of
March 30, 2003. The Companys exposure to commodity price risk primarily
relates to changes in the price of cotton, which is a principal raw material
used in a substantial number of the Companys products. Additionally, the
Companys top three customers represent approximately 74% of net sales, and 39%
of the Companys net sales is of licensed products. The Company could be
materially impacted by the loss of one or more of these customers or licenses.







ITEM 4  CONTROLS AND PROCEDURES

The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the
period covered by this report, as required by paragraph (b) of Rule 13a-15 or
15d-15 of the Exchange Act. Based on such evaluation, such officers have
concluded that, as of the end of the period covered by this report, the
Companys disclosure controls and procedures are effective in alerting them on
a timely basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Companys periodic
filings under the Exchange Act.







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 or results of
operations.







Item 2  Changes in Securities and Use of Proceeds

None

11



---



##### Table of Contents









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 and Reports on Form 8-K

(a)
    
    Exhibits3.1
    
    Amended and Restated Certificate of Incorporation of the Company3.2
    
    Bylaws of the Company10.1
    
    Sixth Amendment to Credit Agreement dated as of December 16,
2003 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 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(b)
    
    Reports on Form 8-K


The Company filed the following Current Reports on Form 8-K during
the quarter ended December 28, 2003:

(1)
    
    The Companys Current Report on Form 8-K filed with
the SEC on November 12, 2003, setting forth under Item 12 of
such report a press release discussing the Companys financial
results for the second quarter of fiscal year 2004, which ended
September 28, 2003.


12



---



##### Table of Contents









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 11, 2004
    
    /s/ Amy Vidrine SamsonAMY VIDRINE SAMSON
Chief Financial Officer
(duly authorized signatory and
Principal Financial and Accounting
Officer)


13



---



##### Table of Contents









Index to Exhibits

ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of the Company3.2
    
    Bylaws of the Company10.1
    
    Sixth Amendment to Credit Agreement dated as of December 16, 2003 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 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


14