SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1594
CROWLEY, MILNER AND COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0454910
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2301 West Lafayette Boulevard, Detroit, MI 48216
(Address of principal executive offices with Zip Code)
Registrant's telephone number, including area code: (313) 962-2400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common Stock
Name of each Exchange on which registered: American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes |X| No | |
Indicate by check mark whether the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: |X|
As of April 5, 1995, there were 1,048,300 shares of the registrant's Common
Stock outstanding and the aggregate market value of such Common Stock held by
non-affiliates (based on the closing price on the American Stock Exchange on
such date) was $1,979,625.
Portions of the registrant's Proxy Statement for its 1995 Annual Meeting of
Shareholders to be held May 17, 1995 ("Proxy Statement"), only to the extent
expressly so stated herein, are incorporated by reference into Part III of
this Report.
<PAGE>
PART I
Item 1. BUSINESS.
Crowley, Milner and Company (the "Company") was organized under Michigan
law as a corporation in 1914 and is presently engaged in the operation of
retail specialty department stores in the metropolitan Detroit, Michigan and
suburban Flint, Michigan areas. In addition to its own merchandise, the
Company offers certain goods and services through licensed (or so-called
leased) departments. The Company uses a 52/53 week fiscal year, with the
fiscal year ending on the Saturday closest to January 31 for financial
reporting purposes, a practice typical in the retail industry.
The Company is a quality fashion department store selling moderate priced
lines in men's, women's and children's apparel, accessories and decorative
home furnishings.
Retail operations are presently conducted in ten store locations (seven
are located in shopping malls or shopping centers in suburban areas north and
west of Detroit; one is located in a downtown shopping district of a northern
Detroit suburb; one is located in a shopping mall in suburban Flint, Michigan;
and one is located within the city limits of Detroit in an office/retail
center).
In addition to its own merchandise, the Company offers certain goods and
services (principally shoes, fine jewelry, millinery, and maternity) through
licensed or so-called leased departments which are operated by independent
lessees. The Company participates in several well-recognized national credit
card programs and, in October, 1992, the Company, in conjunction with
Beneficial National Bank USA, introduced a private label credit card for use
by its customers in its stores.
Except as described below in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which is incorporated herein by
reference, there have been no material changes or developments in the sources
and availability of raw materials or supplies essential to the Company's
business since January 29, 1994.
During the fiscal year ended January 28, 1995, the Company did not spend
any amounts for material research activities relating to the development of
new products or services.
Competition facing the Company is intense and is expected to remain so.
Several national retailers have opened stores in the Company's market area
within the last few years. The ongoing impact of the new competition on the
Company's sales and earnings cannot be determined at this time. Similar
merchandise is generally available to competitors at approximately the same
cost. The Company competes with a multitude of retail department stores in
its market areas, including branches of regional and local companies which are
substantially larger in size as well as smaller department stores. In
addition, competition from specialty stores and boutiques, as well as
off-price merchandisers, is an important factor. The Company is unable to
estimate the number of competitors or its competitive position. The principal
methods of competition are price, service, and quality of merchandise.
At January 28, 1995, the Company employed approximately 1,060 full-time
and part-time persons. The Company's sales in its fourth quarter
traditionally have been materially greater than sales in the other three
quarters due to seasonal buying patterns of consumers. As a result, the
number of employees increased during the fourth quarter to a maximum of
approximately 1,250 persons. An average of 1,119 employees were employed
during the remaining three quarters of the year.
The Company's business involves only one industry segment, as described
above, and no identifiable class of similar products or services contributes
10% or more of the Company's total sales or revenues.
Item 2. PROPERTIES.
The Company currently operates one central corporate office and
distribution center and ten department stores. Set forth below are brief
descriptions of these properties.
Corporate Offices and Central Distribution Center
Located at 2301 West Lafayette Boulevard, Detroit, Michigan, the
Company's central corporate office and distribution center is being acquired
under a lease-purchase agreement with The Economic Development Corporation of
the City of Detroit. The Company began occupying the facility in March 1980
after refurbishing was substantially completed. The facility houses the
Company's executive offices and a retail distribution center. Effective at
the end of April, 1995, the Company's agreement to sublease a portion of the
facility (approximately 70,000 square feet) and a portion of the adjacent
parking area to Greyhound Lines, Inc. will expire. The Company intends to
sublet this portion of its facility.
Retail Department Stores
Set forth below are brief descriptions of the ten retail department
stores currently operated by the Company:
(a) Westborn Store, 23303 Michigan Avenue, Dearborn, Michigan. This
facility was opened by the Company in February 1959, is leased
until February 2004, and contains approximately 106,000 square
feet of floor space.
(b) Macomb Store, 32385 Gratiot Avenue, Roseville, Michigan. This
facility was opened by the Company in 1964, is leased until
November 2001, and contains approximately 127,000 square feet of
floor space.
(c) Livonia Store, 29650 Seven Mile Road, Livonia, Michigan. This
facility was opened by the Company in 1964, is leased until
January 2000, and contains approximately 127,000 square feet of
floor space.
(d) New Center Store, 3031 West Grand Boulevard, Detroit, Michigan.
This facility was opened by the Company in August 1986, is leased
until August 2006, and contains approximately 49,400 square feet
of floor space.
(e) Birmingham Store, 200 North Woodward Avenue, Birmingham, Michigan.
This facility was opened by the Company in August 1972, is leased
until January 1997, and contains approximately 68,700 square feet
of floor space.
(f) Farmington Hills Store, 33250 Twelve Mile Road, Farmington Hills,
Michigan. This facility was opened by the Company in July 1972,
is leased until August 1998, and contains approximately 81,900
square feet of floor space.
(g) Lakeside Store, 14150 Lakeside Circle, Sterling Heights, Michigan.
This facility was opened by the Company in September 1975, is
leased until February 2006, and contains approximately 115,300
square feet of floor space.
(h) Universal Store, 28300 Dequindre Road, Warren, Michigan. This
facility was opened by the Company in September 1980, is leased
until September 2000, and contains approximately 102,400 square
feet of floor space.
(i) Tel-Twelve Store, 29694 Telegraph Road, Southfield, Michigan.
This facility was opened by the Company in September 1985, the
land on which the building stands is leased until February 2016,
and the building contains approximately 57,000 square feet of
floor space. Construction of the building and store equipment
were financed through City of Southfield Economic Development
Corporation bonds. In addition, a 12,665 square foot Crowley's
Men's Store was opened in November 1990 adjacent to the existing
Tel-Twelve Store and is leased until October 2015.
(j) Flint Store, 4224 East Court Street, Burton, Michigan. This
facility was opened by the Company in August 1986, is leased until
August 2001, and contains approximately 61,000 square feet of
floor space.
Item 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in various routine legal
proceedings and claims incidental to the normal conduct of its business, which
are not material to the financial condition or results of operations of the
Company, either individually or in the aggregate.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock is traded on the American Stock Exchange under the
symbol COM. As of April 5, 1995, there were 150 record holders of the
Company's Common Stock according to the records maintained by the Company's
stock transfer agent. The price range of the Company's Common Stock during
the two fiscal years ended January 28, 1995 is shown in the table below (stock
prices have been adjusted to reflect the 2 for 1 stock split which occurred
May 25, 1994).
High Low
Fiscal Year Ended January 28, 1995:
First Quarter . . . . . . . . . . . . $ 11-7/8 $ 7-15/16
Second Quarter . . . . . . . . . . . 8-5/8 6-1/2
Third Quarter . . . . . . . . . . . . 8-1/8 4-1/2
Fourth Quarter . . . . . . . . . . . 6-1/8 3-3/4
Fiscal Year Ended January 29, 1994:
First Quarter . . . . . . . . . . . . $ 8-1/8 $ 6-3/4
Second Quarter . . . . . . . . . . . 7-5/8 4-7/8
Third Quarter . . . . . . . . . . . . 4-7/8 3-1/16
Fourth Quarter . . . . . . . . . . . 12-1/8 3-7/8
During the two fiscal years ended January 28, 1995, the Company has not
paid or declared cash dividends in respect of its Common Stock. Under the
terms of the Company's three-year line of credit, the Company's ability to pay
dividends on its Common Stock is restricted. See Item 7, "Management's
Discussion and Analyis of Results of Operations and Financial Condition" and
Note 1 of the Notes to Financial Statements for a description of this line of
credit. The Company's ability to pay cash dividends in the future will depend
upon its future earnings, results of operations, capital requirements and
financial condition, its ability to obtain modification of its debt covenants
and such other factors as the Company's Board of Directors deems relevant.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year
1994 1993 1992
1991 1990
(In Thousands Except Per Share and Certain
Statistical Data)
<S> <C> <C> <C> <C>
<C>
Operations:
Net sales, including leased departments .... $109,927 $106,935 $106,349
$103,906 $112,320
Cost of merchandise and services sold ...... 73,774 70,937 69,663
65,562 72,157
Operating expenses (includes
restructuring charge of $1,900,000
for 1993) ................................ 33,784 34,389 39,391
40,112 43,054
Interest expense ........................... 1,615 1,366 1,394
1,369 1,363
Earnings (loss) before income taxes ........ 1,031 514 (3,947)
(2,960) (3,984)
Income tax credits ......................... -- -- --
(345) (1,349)
Net earnings (loss) ........................ 1,031 514 (3,947)
(2,615) (2,635)
Dividends paid ............................. -- -- --
- -- 382
Capital expenditures ....................... 527 57 626
452 1,768
Depreciation and amortization .............. 1,671 2,128 2,626
2,869 2,903
Cash provided by (used in) operations ...... 1,654 (4,933) 3,560
(746) 1,238
Per Share:
Net earnings (loss) ........................ $ 0.84 $ 0.45 $(3.88)
$(2.57) $(2.59)
Dividends paid ............................. -- -- --
- -- 0.38
Shareholders' equity ....................... 10.09 9.26 8.87
13.00 15.57
Market price -- High ....................... 11.88 12.13 8.75
8.13 13.63
Market price -- Low ........................ 3.75 3.07 4.50
5.00 7.07
Financial Position:
Working capital ............................ $ 8,143 $ 6,939 $ 1,485 $
7,999 $ 9,683
Ratio of current assets to
current liabilities ...................... 1.61x 1.45x 1.09x
1.74x 2.02x
Inventories ................................ $ 17,993 $16,898 $ 12,646 $
14,674 $ 11,842
Properties -- net .......................... 10,572 11,715 13,896
16,511 18,915
Total assets ............................... 35,248 37,092 35,154
37,948 40,385
Long-term debt (including capital
lease obligations ........................ 9,766 10,442 7,013
12,762 13,685
Shareholders' equity ....................... 10,584 9,431 9,027
13,230 15,845
Shareholders' return on equity ............. 9.7% 5.4% -- --
--
</TABLE>
Note: All per share calculations for prior years have been adjusted to
reflect the 2 for 1 stock split which occurred May 25, 1994.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Results of Operations
For fiscal 1994, the Company recorded net earnings of $1,031,000 or
$0.84 per share, more than doubling the $514,000, or $0.45 per share, recorded
in fiscal 1993, and compared to a net loss of $3,947,000, or $3.88 per share,
for fiscal 1992. Fiscal 1992 results included a $1,900,000, or $1.87 per
share, restructuring charge. The improved operating performance for fiscal
1994 and 1993 were the result of the implementation of managements operating
plan as described in Note B of the Notes to the Financial Statements. Also
refer to Note B for a discussion of the fiscal 1992 restructuring charge. All
per share data for prior years have been adjusted to reflect the 2-for-1 stock
split which occurred May 25, 1994.
Net sales in fiscal 1994 were $109,927,000, an increase of 2.8% from the
$106,935,000 recorded in fiscal 1993, and have increased 3.4% from the
$106,349,000 recorded in fiscal 1992. Comparable store sales for fiscal 1994
increased 4.0% and have increased 7.3% from fiscal 1992. The Company's
competitive pricing policy and new merchandise offerings are the primary
reasons for the increase in sales. The Company has been very promotional in
an effort to maintain a pricing advantage on the competition. In addition,
new merchandise lines, such as more casual attire, maternity apparel, large
and petite size apparel, plush animals, and home furnishings including small
appliances, luggage, and gift items, have contributed to the improvement in
sales. The increased use of direct mail as a promotional vehicle has helped
the Company improve the efficiency of its advertising expenditures and also
contributed to the sales increase. The impact of inflation on the Company's
sales has been minimal during the past three years, although the precise
impact cannot be determined. The Company has experienced price increases in
its purchase of merchandise and other operating expenses, but has generally
been able to offset the increases through adjusting retail prices and
controlling expenses.
Gross margin dollars increased $155,000, or less than one percent, in
fiscal 1994 from fiscal 1993 and are $534,000, or 1.5%, lower than fiscal 1992
levels. Gross margins as a percent of sales were 32.9% in fiscal 1994, 33.7%
and 34.5% in fiscal 1993 and 1992, respectively. The highly promotional
retail environment resulted in additional markdowns that were needed to
achieve the increased sales, which contributed to the decline in margins as a
percent of sales.
In fiscal 1992 the Company converted its shoe departments to licensed
departments from owned departments and sold the existing inventory to the
licensee. As a result of the inventory sale, $547,000 of additional gross
margin dollars were generated primarily from the reversal of the LIFO reserve
associated with the shoe inventory. Gross margins represent income derived
from the sale of the Company's owned inventory as well as commissions earned
on the sales of the licensed departments. Licensed departments income
represented 4.9% of the total gross margins for fiscal 1994, 4.8% for fiscal
1993, and 3.2% for fiscal 1992. The lower percentage for fiscal 1992 is due
to the shoe departments being owned departments for the first six months of
the year and licensed departments thereafter. LIFO inventory credits during
each of the past three fiscal years positively impacted gross margins. The
LIFO inventory credits amounted to $697,000 in fiscal 1994, $582,000 in fiscal
1993, and $790,000 in fiscal 1992. The fluctuation in the LIFO inventory
credits during each period occur due to the change in the inventory price
indices published by the United States Department of Labor, the dollar value
of the Company's retail inventory, and gross margin changes. Reductions in
LIFO inventory layers has also had a favorable impact on gross margins. For a
more detailed discussion of the shoe inventory sale and LIFO inventory layer
reductions impact on gross margins, refer to Note C of the Notes to the
Financial Statements. The Company also had a frequent buyer program that
awarded savings certificates to customers based on their previous months
purchases. The cost of this program was charged against gross margins. The
Company discontinued the frequent buyer program in September 1993. The
frequent buyer certificate charges were $1,283,000 for fiscal 1993, and
$2,245,000 for fiscal 1992.
Operating expenses for fiscal 1994 declined $604,000, or 1.8%, from the
fiscal 1993 levels and have declined $3,706,000, or 9.9%, since fiscal 1992.
Operating expenses as a percent of sales were 30.7%, 32.2%, and 35.3% for
fiscal 1994, 1993, and 1992, respectively. The Company's expense reduction
program has reduced costs in all areas and expense categories between fiscal
1992 and fiscal 1994, with payroll reductions and the closing of the Westland,
Michigan store in 1993 accounting for the largest savings. Operating expense
savings from the Westland store closing amounted to $1,212,000 in fiscal 1993
when compared to fiscal 1992. Payroll costs for fiscal 1994 increased
$375,000, or 2.9%, when compared with fiscal 1993, but still remained
$1,520,000, or 10.1%, below fiscal 1992 levels.
Expense categories, other than payroll, that had significant reductions
in fiscal 1994, when compared with fiscal 1993 and fiscal 1992, included
supplies, insurance, depreciation, and real estate costs. Supply costs
declined $175,000, or 15.6%, in fiscal 1994 from fiscal 1993 and are
$532,000,or 35.8%, lower than fiscal 1992. The decrease is attributable to a
more competitive bidding process and a constant monitoring of all supply
usage. Insurance costs for fiscal 1994 were $375,000, or 31.6%, lower than
fiscal 1993 and have declined $525,000, or 39.3%, since fiscal 1992. The
insurance costs savings were achieved by obtaining premium reductions on the
Company's property, liability and workers compensation policies. Also more of
the cost of health insurance premiums were shifted to the employees. Prior to
fiscal 1992, the Company was self-funded for workers compensation, and during
fiscal 1994 favorable settlements on previously reserved claims also
contributed to the lower insurance costs. The Company was able to achieve the
insurance reductions without increasing its risk exposure. Depreciation
charges decreased $457,000, or 21.5%, in fiscal 1994 from fiscal 1993 and have
declined $956,000, or 36.4%, since fiscal 1992. A significant number of fixed
assets having become fully depreciated in recent years combined with limited
capital expenditures resulted in the lower depreciation charges. Real estate
costs in fiscal 1994 were $151,000, or 2.7%, lower than fiscal 1993 and have
declined $305,000, or 5.2%, since fiscal 1992. The closing of the Westland,
Michigan store, and a new property tax reduction law in Michigan that went
into effect in fiscal 1994, were the contributing factors to the lower real
estate costs.
Interest expense charges increased $250,000, or 18.3%, in fiscal 1994
compared to fiscal 1993 and were $221,000, or 15.9%, higher than fiscal 1992.
Increased borrowings on the Company's short term line of credit, and higher
interest rates contributed to the increased interest expense charges. The
increased borrowings were used to finance the higher inventory levels carried
during fiscal 1993 and fiscal 1994.
The Company is in a net operating loss carryforward position and thus
did not record any income tax expense in fiscal 1994 and 1993 nor was it able
to tax effect any of the fiscal 1992 loss. See Note F of the Notes to the
Financial Statements for a detailed analysis of the Company's tax position.
Liquidity and Capital Resources
Cash provided by operating activities, and borrowings under the
Company's short term line of credit provide the Company with its primary
source of liquidity. The Company maintains a secured $12,000,000 line of
credit to support its short term borrowing needs. For a more detailed
discussion of the line of credit refer to Note C of the Notes to the Financial
Statements. Cash provided by operating activities amounted to $1,654,000 in
fiscal 1994, compared with cash used of $4,933,000 in fiscal 1993, and cash
provided of $3,560,000 in fiscal 1992. The improvement in cash provided by
operating activities in fiscal 1994 was generated by the improvement in
earnings, a decrease in accounts receivable, and a smaller increase in
inventories than in fiscal 1993. Accounts receivable balances at January 28,
1995 were lower than January 29, 1994 due primarily to the elimination of
pre-payment requests by some of the Company's vendors. The Company's improved
earnings results virtually eliminated pre-payments for inventory, which were
classified as accounts receivable until the merchandise was received.
Cash used in investment activities for fiscal 1994 was $527,000,
compared with $57,000 in fiscal 1993, and $626,000 in fiscal 1992. Capital
expenditures accounted for all of the cash used in investment activities.
During fiscal 1994, the Company invested in a store remodel and update, as
well as additional computer equipment to improve productivity and efficiency,
and heating system updates at two store locations. For fiscal 1995, capital
expenditures are planned at $750,000 and include store leasehold improvements,
computer equipment, and two additional heating system updates for the
Company's corporate office and one store location. The fiscal 1995 capital
expenditures are expected to be funded from internal sources. Presently, the
Company has no commitments for any new stores or other major capital
expenditures and does not anticipate any new long term financing arrangements.
However, the Company's long range plan is to open additional stores and
management will be exploring available methods of financing.
Cash used in financing activities amounted to $1,664,000 in fiscal 1994
compared with cash provided of $3,249,000 for fiscal 1993 and cash used of
$922,000 for fiscal 1992. A reduction of $867,000 in short term borrowings
outstanding at January 28, 1995 from the outstandings at January 29, 1994 was
the largest component of the cash used in financing activities for fiscal
1994. Principal payments on long term debt and capital lease obligations
accounted for the remainder. In fiscal 1993, the cash provided by financing
activities of $3,249,000 was generated primarily from having $4,774,000 of
outstanding short term borrowings at January 29, 1994 compared with no
outstandings at January 30, 1993. The principal payments on long term debt
for fiscal 1993 included the early redemption of the entire $795,000
outstanding on the Economic Development Corporation of the City of Westland
bonds related to the Westland, Michigan store that was closed in fiscal 1993.
For a more detailed discussion of the Westland bonds refer to Note D of the
Notes to the Financial Statements. Increased borrowings on the Company's
short-term line of credit during fiscal 1994 caused proceeds from and payments
on the revolving line of credit to increase significantly from fiscal 1993
levels. The increase over fiscal 1992 levels was due to the structure of the
Company's secured lines of credit in fiscal 1994 and 1993 compared with the
unsecured arrangement in fiscal 1992. Under the secured arrangements, all
funds in the Company's bank accounts are swept daily and applied against any
outstanding balance on the line of credit. Additionally the line of credit is
increased as Company checks are presented for payment. In fiscal 1992 under
the unsecured arrangement, borrowings and repayments would occur only when
needed.
The Company's working capital of $8,143,000 at January 28, 1995 was
greater than the $6,939,000 at January 29, 1994 and significantly higher than
the $1,485,000 at January 30, 1993. The current ratio has also improved to
1.61:1 at January 28, 1995 compared to 1.45:1 and 1.09:1 at January 29, 1994
and January 30, 1993, respectively.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements (together with the report thereon of Ernst &
Young LLP) included in this report under this Item are listed under Item 14 of
this report, and can be found beginning on page F-1. Schedule II, Valuation
and Qualifying Accounts, is included with this report on page S-1, immediately
following the financial statements. No other supplementary financial
statement schedules are required to be filed with this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is included in the Proxy Statement
under the captions "Election of Directors", "Executive Officers" and "Certain
Reporting Requirements" and is hereby incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
The information required by this Item is included in the Proxy Statement
under the captions "Executive Compensation", "Employment Contracts,
Termination of Employment, and Change-in-Control Arrangements", "Compensation
Committee Interlocks and Insider Participation", "Compensation Committee
Report on Executive Compensation" and "Stock Performance Graph" and is hereby
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is included in the Proxy Statement
under the captions "Election of Directors" and "Principal Shareholders" and is
hereby incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements and Supplementary Information. The following
financial statements and supplementary data are included in this report:
Page
Description Number
Report of Independent Auditors ................................. F-1
Balance Sheets at January 28, 1995 and January 29, 1994 ........ F-2
Statements of Operations for the fiscal years
ended January 28, 1995 and January 29, 1994 .................. F-4
Statements of Shareholders' Equity for the fiscal
years ended January 28, 1995,
January 29, 1994 and January 30, 1993 ........................ F-5
Statements of Cash Flows for the fiscal years
January 28, 1995, January 29, 1994 and January 30, 1993 ...... F-6
Notes to Financial Statements .................................. F-7
2. Financial Statement Schedules. The following financial statement schedule
is included with this report: Schedule II -- Valuation and Qualifying
Accounts, appears on Page S-1 immediately following the Registrant's Financial
Statements.
3. Exhibits. The following exhibits are included in this report:
Exhibit
No. Description
3.1 Restated Articles of Incorporation, as amended to date (previously
filed as an exhibit to the Company's Form 10-K Annual Report for
the year ended January 30, 1988 and the Company's Form 10-G
Quarterly Report for the quarter ended August 1, 1992 and the
Company's Form 10-Q Quarterly Report for the quarter ended October
29, 1994 and incorporated herein by reference).
3.2 Bylaws, as amended to date (previously filed as an exhibit to the
Company's Form 10-K Annual Report for the year ended January 28,
1989 and incorporated herein by reference).
10.1 Amended and Restated Supplemental Executive Retirement Plan
effective December 1, 1992 (previously filed as an exhibit to the
Company's Form 10-K Annual Report and Form 10-K/A Amendment 1 for
the year ended January 30, 1993 and incorporated hereby by
reference).
10.2 Employment Agreement with Mr. Soffel dated November 2, 1992
(previously filed as an exhibit to the Company's Form 10-K Annual
Report and Form 10-K/A Amendment 1 for the year ended January 30,
1993 and incorporation herein by reference).
10.3 Employment Agreement with Mr. Callahan dated November 2, 1992
(previously filed as an exhibit to the Company's Form 10-K Annual
Report and Form 10-K/A Amendment 1 for the year ended January 30,
1993 and incorporated herein by reference).
10.4 Severance Compensation Agreement with Mr. VandenBerg dated May 7,
1991 (previously filed as an exhibit to the Company's Form 10-K
Annual Report for the year ended February 1, 1992 and incorporated
herein by reference).
10.5 Severance Compensation Agreement with Mr. Toloff dated May 20,
1992 (previously filed as an exhibit to the Company's Form 10-Q
Quarterly Report for the quarter ended May 2, 1992 and
incorporated herein by reference).
10.6 The Economic Development Corporation of the City of Detroit Lease
Purchase Agreement dated December 1, 1979, as amended to date
(previously filed as an exhibit to the Company's Form 10-K Annual
Report for the year ended January 31, 1981 and the Company's Form
10-K Annual Report for the year ended January 29, 1994 and
incorporated herein by reference).
10.7 Loan Agreement between The Economic Development Corporation of the
City of Southfield and the Company dated January 15, 1985
(previously filed as an exhibit to the Company's Form 10-K Annual
Report for the year ended January 29, 1985 and incorporated herein
by reference).
10.8 Profit Sharing Plan dated February 1, 1984, as amended to date
(previously filed as an exhibit to the Company's Form 10-K Annual
Report and Form 10-K/A Amendment 1 for the year ended January 30,
1993 and incorporated herein by reference).
10.9 Crowley, Milner and Company 1992 Incentive Stock Plan effective as
of March 25, 1992 (previously filed as an exhibit to the Company's
Form 10-K Annual Report and Form 10-K/A Amendment 1 for the year
ended January 30, 1993 and incorporated herein by reference).
10.10 Loan and Security Agreement, dated November 4, 1994, between
Congress Financial Corporation (Central) and the Company
(previously filed as an exhibit to the Company's Form 10-Q
Quarterly Report for the quarter ended October 31, 1994 and
incorporated herein by reference).
10.11 Option Agreement, dated May 20, 1993, as amended to date between
Schottenstein Stores Corporation and the Company (previously filed
as an exhibit to the Company's Form 10-K Annual Report and Form
10-K/A Amendment 1 for the year ended January 30, 1993 and the
Company's 10-Q Quarterly Report for the quarter ended October 29,
1994 and incorporated herein by reference).
10.12 Restricted Stock Agreement, dated August 24, 1994, between Dennis
P. Callahan and the Company (previously filed as an exhibit to the
Company's Form 10-Q Quarterly Report for the quarter ended October
29, 1994 and incorporated herein by reference).
10.13 *Amendment to Exhibit 10.12, dated March 22, 1995, effective
January 28, 1995.
11 *Computation of Per Share Earnings
23 *Consent of Ernst & Young LLP
27 *Financial Data Schedule (EDGAR filing only)
* Filed herewith
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last quarter
of the fiscal year covered by this report.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Crowley, Milner and Company
We have audited the balance sheets of Crowley, Milner and Company as of
January 28, 1995 and January 29, 1994 and the related statements of
operations, shareholders' equity and cash flows for each of the three fiscal
years in the period ended January 28, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crowley, Milner and Company
at January 28, 1995 and January 29, 1994 and the results of its operations and
its cash flows for each of the three years in the period ended January 28,
1995 in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Detroit, Michigan,
March 10, 1995
F-1
<PAGE>
CROWLEY, MILNER AND COMPANY
BALANCE SHEETS
ASSETS January 28 January 29
Current Assets: 1995 1994
Cash and cash equivalents
(cash equivalents of $213,678 for
1994 and $21,747 for 1993) ................. $ 38,724 $ 575,517
Accounts receivable, less
allowances ($63,887 for 1994 and
$216,209 for 1993) ......................... 1,042,660 2,117,325
Inventories--at the lower of first-in,
first-out cost or market ................... 21,824,142 21,474,103
Reduction to LIFO cost ....................... (3,830,672) (4,576,027)
----------- ----------
Inventories at the lower of last-in,
first-out cost or market--Note C ........... 17,993,470 16,898,076
Deferred property taxes ...................... 1,536,886 1,735,392
Other current accounts ....................... 793,561 1,036,261
---------- ----------
TOTAL CURRENT ASSETS .................... 21,405,301 22,362,571
Other Assets:
Deposits under EDC financing arrangements-Note D 634,308 634,308
Miscellaneous ................................ 2,635,966 2,379,653
---------- ----------
3,270,274 3,013,961
Properties--Notes D and E:
Land ......................................... 315,000 315,000
Buildings .................................... 10,226,181 10,227,200
Leasehold improvements ....................... 6,414,925 6,353,680
Furniture, fixtures and equipment ............ 7,918,847 9,900,709
---------- ----------
24,874,953 26,796,589
Less allowances for depreciation and
amortization ............................... (14,302,929) (15,081,335)
---------- ----------
10,572,024 11,715,254
---------- ----------
TOTAL ASSETS ............................. $ 35,247,599 $ 37,091,786
========== ==========
F-2
<PAGE>
BALANCE SHEETS (Cont'd.)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................. $ 5,813,423 $ 7,237,675
Notes payable short term ..................... 3,906,517 4,773,616
Compensation and amounts withheld therefrom .. 717,015 712,350
Property taxes ............................... 1,714,649 1,785,500
Income taxes ................................. 37,043 37,043
Other taxes .................................. 398,404 80,430
Current maturities of long-term debt--Note B . 485,000 450,000
Current maturities of capital
lease obligations .......................... 190,509 346,585
---------- ----------
TOTAL CURRENT LIABILITIES ................ 13,262,560 15,423,199
Long-Term Liabilities:
Long-term debt--Notes B & D .................. 5,850,000 6,335,000
Capital lease obligations--Note E ............ 3,916,137 4,106,657
Other ........................................ 1,634,647 1,796,074
---------- ----------
11,400,784 12,237,731
Shareholders' Equity--Note D:
Common stock (authorized 4,000,000 shares,
outstanding 1,048,300 shares for 1994,
outstanding 509,067 shares for 1993)...... 1,048,300 509,067
Other capital ............................... 2,211,450 2,240,558
Retained earnings ........................... 7,324,505 6,681,231
---------- ----------
10,584,255 9,430,856
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 35,247,599 $ 37,091,786
========== ==========
See notes to financial statements
F-3
<PAGE>
CROWLEY, MILNER AND COMPANY
STATEMENTS OF OPERATIONS
Fiscal Year Ended
January 28 January 29 January 30
1995 1994 1993
REVENUES
Net sales--owned departments ..... $ 97,074,194 $ 94,192,329 $ 97,598,667
Net sales--leased departments .... 12,852,490 12,742,270 8,750,661
Total net sales ............... 109,926,684 106,934,599 106,349,328
Investment income ................ 68,726 63,439 95,120
Other income ..................... 209,331 370,257 101,426
----------- ----------- -----------
110,204,741 107,368,295 106,545,874
=========== =========== ===========
COSTS AND EXPENSES:
Cost of merchandise and services
sold .......................... 73,774,075 70,936,606 69,662,516
Restructuring charge--Note B ..... -- -- 1,900,000
Operating expenses ............... 33,784,441 34,388,520 37,490,686
Interest ......................... 1,615,248 1,365,692 1,394,201
Other ............................ -- 163,760 45,486
109,173,764 106,854,578 110,492,889
Earnings (Loss) Before Income
Taxes ...................... 1,030,977 513,717 (3,947,015)
Federal income taxes - Note F ...... -- -- --
----------- ----------- -----------
Net Earnings (Loss) ........... $ 1,030,977 $ 513,717 $(3,947,015)
=========== =========== ===========
PER SHARE DATA:
Net earnings (loss) ................ $0.84 $0.45 $(3.88)
Average number of common and common
equivalent shares outstanding
for earnings per share .......... 1,220,903 1,148,058 1,018,134
=========== =========== ==========
See notes to financial statements
F-4
<PAGE>
CROWLEY, MILNER AND COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Other Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance at February 1, 1992 ....... 509,067 $ 509,067 $2,240,558 $10,480,392
Pension plan charge .............. -- -- -- (256,120)
Net loss ......................... -- -- -- (3,947,015)
-------- ------- --------- -----------
Balance at January 30, 1993 ....... 509,067 509,067 2,240,558 6,277,257
Pension plan charge .............. -- -- -- (109,743)
Net earnings ..................... -- -- -- 513,717
------- ------- --------- ---------
Balance at January 29, 1994 ....... 509,067 509,067 2,240,558 6,681,231
Issuance of common stock
pursuant to exercise of
incentive stock options
and restricted stock award ...... 30,083 30,083 (29,108) --
Pension plan credit .............. -- -- -- 121,447
Issuance of common stock pursuant
to stock split ................ 509,150 509,150 -- (509,150)
Net earnings ...................... -- -- -- 1,030,977
--------- --------- --------- ---------
Balance January 28, 1995 .........1,048,300 $1,048,300 $2,211,450 $ 7,324,505
========= ========= ========= =========
See notes to financial statements
F-5
<PAGE>
CROWLEY, MILNER AND COMPANY
STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
January 28 January 29 January 30
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) ...................$ 1,030,977 $ 513,717 $(3,947,015)
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization ...... 1,670,615 2,127,882 2,626,431
Loss on sale of equipment .......... -- 150,872 61,310
Restructuring charge ............... -- (1,300,000) 1,900,000
Changes in operating assets
and liabilities:
(Increase) decrease in net
accounts receivable ............. 1,074,665 (980,353) 57,189
(Increase) decrease in inventories. (1,095,394) (4,251,984) 2,028,009
(Increase) decrease in prepaid
expense and other assets ........ 184,893 (667,722) 58,978
Increase (decrease) in accounts
payable ......................... (1,424,252) 386 912,308
Increase (decrease) in accrued
compensation and other
liabilities ..................... 212,772 (525,820) (136,790)
NET CASH PROVIDED BY (USED IN) ---------- ---------- ---------
OPERATING ACTIVITIES ................. 1,654,276 (4,933,022) 3,560,420
INVESTMENT ACTIVITIES
Purchase of properties ................ (527,385) (56,532) (625,506)
--------- --------- ---------
NET CASH USED IN INVESTMENT ACTIVITIES... (527,385) (56,532) (625,506)
FINANCING ACTIVITIES
Proceeds from revolving line of credit. 120,053,977 87,455,862 8,850,000
Principal payments on revolving line
of credit ............................(120,921,076) (82,682,246) (8,850,000)
Principal payments on long-term debt .. (450,000) (1,210,000) (600,000)
Principal payments on capital
lease obligations .................... (346,585) (314,173) (322,320)
NET CASH PROVIDED BY (USED IN) ----------- ---------- ---------
FINANCING ACTIVITIES ................. (1,663,684) 3,249,443 (922,320)
INCREASE (DECREASE) IN CASH AND ----------- ---------- ---------
CASH EQUIVALENTS ..................... (536,793) (1,740,111) 2,012,594
Cash and cash equivalents at
beginning of year ................... 575,517 2,315,628 303,034
CASH AND CASH EQUIVALENTS AT END ---------- --------- --------
OF YEAR .............................. 38,724 575,517 2,315,628
======== ======== =========
See notes to financial statements
F-6
<PAGE>
CROWLEY, MILNER AND COMPANY
NOTES TO FINANCIAL STATEMENTS
January 28, 1995
NOTE A - INDUSTRY DESCRIPTION AND
SIGNIFICANT ACCOUNTING POLICIES
Industry Description: The Company is engaged in the operation of ten
retail department stores in the Detroit-metropolitan and suburban Flint,
Michigan areas. In addition to its own merchandise, it offers certain goods
and services through leased departments. The Company reports on a 52/53 week
fiscal year with the fiscal year ending on the Saturday closest to January 31.
Fiscal years 1994, 1993 and 1992 ended on January 28, 1995, January 29, 1994,
and January 30, 1993, respectively and all had 52 weeks.
Inventories: Merchandise in stores is priced at last-in, first-out
(LIFO) cost determined by the retail inventory method, and the first-in
first-out (FIFO) method is used to determine the cost of in-transit
merchandise and other inventories, which represent approximately 4% and 16% of
total inventories at January 28, 1995 and January 29, 1994, respectively.
Properties, Depreciation and Amortization: Properties, including
amounts recorded under capital lease obligations, are stated an the basis of
cost. When assets become fully depreciated their cost and related accumulated
depreciation and amortization are removed from the property accounts.
Depreciation is computed by the straight-line method for financial reporting
purposes and by accelerated cost recovery methods, except for buildings and
assets purchased with tax exempt bond proceeds, for income tax purposes.
Cash Equivalents: The Company considers cash on hand in stores,
deposits in banks, and marketable securities with a maturity of three months
or less when purchased to be cash equivalents.
Net Earnings (Loss) Per Share: Net earnings (loss) per share is
computed on the basis of the weighted average number of common and common
equivalent shares outstanding, assuming dilutive stock options were exercised
at the beginning of each quarter or at the date of issuance, if later, with
applicable proceeds used to acquire additional shares at the average market
price. All per share data for prior years has been adjusted to reflect the 2
for 1 stock split which occurred May 25, 1994.
Frequent Buyer Program: In fiscal 1991 the Company introduced a
frequent buyer program that awarded savings certificates to customers based on
their previous months purchases. The certificates had varying expiration
dates throughout the program. The cost of the certificates was charged
directly against the cost of merchandise and services sold at the time of
issuance with the value of the unused certificates recorded as income at the
time of expiration. The Company discontinued the program in September, 1993.
F-7
<PAGE>
NOTE B - RESTRUCTURING PLAN
During the three fiscal years ended January 30, 1993, the Company
incurred cumulative net losses of $9,197,000, including a restructuring charge
of $1,900,000 in fiscal 1992, due primarily to the intense promotional
activity and economic conditions in the Company's operating market. In
response to these losses, management developed a four-phase plan that was
intended to improve operating results and address liquidity needs. The plan
included the restructuring of the Company's financing arrangements, including
its short-term borrowing facility to provide increased availability, as well
as the EDC financing of its Corporate Office and Distribution Center. The
plan also included the closing of an unprofitable store, the implementation of
a new merchandise strategy involving new merchandise lines that better match
customer needs, and the continuation of the Company's expense reduction
program.
The Company in May 1993, entered into an $8,000,000 revolving loan
agreement to replace the then existing $3,000,000 unsecured facility. In
order to obtain the increased availability, the Company granted a security
interest in its inventories, and certain other assets. Management believed
the additional $5,000,000 of credit availability was needed, to provide
sufficient liquidity for the Company to properly operate during fiscal 1993,
given the uncertainty of the impact of granting the security interest in the
inventory an the availability of trade financing with normal terms and
conditions.
The Company closed its store in Westland, Michigan in July 1993. This
store was the Company's only unprofitable store, before Corporate Office
expense allocation, for fiscal 1992. Also, on July 1, 1993, the entire
balance of $795,000 of the Economic Development Corporation of the City of
Westland financing relating to the store was redeemed early.
Management also implemented a new merchandise strategy that along with
the on-going expense reduction program was the basis for the improved
operating results for fiscal 1993 and 1994. Prior to fiscal 1993, in response
to increased competition from discount and moderate-priced retailers, the
Company upgraded certain merchandise lines and, as a result, management
believes that it abandoned a portion of its customer base. The demographic
profile of the Company's customers made it difficult to sell higher-priced
merchandise without extensive promotions and management had limited success in
attracting a new customer base. The new strategy implemented in fiscal 1993
involved introducing new merchandise lines that offer good quality and valued
products to customers. Management's advertising strategy was to remain
promotional, but to offer staple items at everyday value pricing to compete
with the discount and moderate-priced retailers.
In the fourth quarter of fiscal 1992 the Company recorded a
restructuring charge of $1,900,000 which decreased per share earnings by
$1.87. The charge consisted of costs relating to the closing of the Westland,
Michigan store and professional fees incurred to implement the Company's
restructuring plan. The provision for store closing costs included the lease
termination payment, estimated fixed asset write-offs, the loss on the sale of
the inventory, and the estimated operating loss for the store from January 31,
1993 to the closing date.
F-8
<PAGE>
The cumulative operating losses of $9,197,000 for the three fiscal years
ended January 30, 1993, along with the Company's operating loss for the first
quarter ended May 1, 1993, caused a violation of the required minimum net
worth of $8,000,000 of The Economic Development Corporation of the City of
Detroit bonds for the Company's Corporate Office and Distribution Center.
Management's plan to cure the covenant violation was to request an amendment
from the bondholders to lower the minimum net worth requirement to $5,000,000.
On April 18, 1994, after receiving the required fifty percent affirmative
responses from the bondholders, the Company, the trustee, and the Economic
Development Corporation of the City of Detroit executed the amendment to the
bond documents lowering the net worth requirement to $5,000,000.
NOTE C - INVENTORIES
During each of the last three fiscal years certain merchandise lines
decreased, resulting in reductions of LIFO inventory layers, which increased
net earnings for the fiscal year's ended January 28, 1995 and January 29, 1994
and reduced the net loss for the fiscal year ended January 30, 1993, by
approximately $9,000 ($.01 per share), $25,000 ($.02 per share), and $233,000
($1.23 per share), respectively.
Also in the second quarter ended August 1, 1992, the company converted
the shoe departments at each of its stores into licensed departments rather
then Company-owned departments and sold the existing inventory of $1,924,000
to the licensee. The Company received $1,500,000 in cash and a two year note
for $147,000 from the sale of the inventory. An after tax loss (no tax
credit) of $277,000 was incurred on the sale of the inventory and charged as
part of cost of merchandise and services sold. Additionally the LIFO reserve
associated with the shoe inventory was reversed resulting in an after tax
credit (no tax effect) of $824,000.
NOTE D - FINANCING ARRANGEMENTS
On November 4, 1994, the Company and Congress Financial Corporation
(Central) entered into a Loan and Security Agreement, replacing the Credit and
Security Agreement, dated May 20, 1993, between the Company and Schottenstein
Stores Corporation ("Schottenstein"). The new Agreement provides for a
three-year line of credit, secured by substantially all of the assets of the
Company, of up to $12,000,000 (based on certain lending formulas) and,
included within such line of credit, a facility for letters of credit of up to
$2 million, with the interest rate at 1.0% above prime rate or, at the
Company's option (and subject to certain terms and conditions), at 3.5% above
the adjusted London Interbank Offered Rate ("LIBOR"). Interest on the line is
payable monthly. The new Agreement also provides for a 1.0% commitment fee,
payable in annual installments over the three-year term, an unused line fee of
0.25% payable monthly, and a monthly monitoring fee of $1,500. Borrowings are
generally limited to 30% of the retail value of eligible inventory as defined
in the new Agreement. The weighted average interest rates for outstandings as
of January 28, 1995 and January 29, 1994 were 9.50% and 7.50%, respectively.
There were no short term borrowings outstanding at January 30, 1993. The
weighted average interest rates during the fiscal years ended January 28,
1995, January 29,
F-9
<PAGE>
1994 and January 30, 1993 were 9.41%, 7.77%, and 7.61% respectively. In
addition, the new Agreement prohibits the payment of dividends. The
termination of the Schottenstein Loan Agreement, in the fourth quarter of
1994, resulted in a $60,000 charge for the write-off of the unamortized
portion of the loan origination fee paid to Schottenstein.
Long-term debt consists of the following:
January 28 January 29
1995 1994
EDC Financing:
City of Detroit . . . . . . . . . . . $3,980,000 $4,225,000
City of Southfield . . . . . . . . . 2,355,000 2,560,000
--------- ---------
6,335,000 6,785,000
Less Current Maturities . . . . . . . 485.000 450,000
--------- ---------
$5,850,000 $6,335,000
========= ==========
The Company's executive offices and central distribution center (the
"CDC") are capitalized under a lease-purchase obligation represented by City
of Detroit Economic Development Corporation bonds.
The CDC obligation is comprised of $3,980,000 in term bonds which are
required to be redeemed through annual sinking fund payments ranging from
$265,000 in 1995 to $565,000 at the December 1, 2004 maturity date. The
Company may redeem the bonds prior to maturity at par. Interest on the bonds
is payable semi-annually at the current weighted average annual rate of 9.00%.
The Company has given a guaranty regarding the prompt payment of principal and
interest. The CDC mortgage and trust agreement provides for a security
interest in the real estate, and fixtures and equipment, with a carrying
amount of $2,900,000 at January 28, 1995. During the first quarter of fiscal
1993, the Company violated the minimum net worth covenant of these bonds, and
an June 10, 1993 notified the bond trustee it was in default. In early April,
1994, the minimum net worth covenant was amended and the Company is no longer
in default. Refer to Note B of the Notes to the Financial Statements for a
more detailed discussion.
The Tel-Twelve Mail store was financed through City of Southfield
Economic Development Corporation bonds. The underlying obligations are
comprised of $2,355,000 in term bonds to be redeemed through annual sinking
fund payments ranging from $220,000 in 1995 to $380,000 at maturity on January
15, 2003. The Company may redeem the bonds prior to maturity at a reducing
premium (currently 1-1/2%). Interest on the bonds is payable semi-annually at
the current weighted average annual rate of 9.61%.
The various financing agreements provide for real estate mortgages and
other security interests as collateral. Payments of long-term debt in the
four fiscal years subsequent to February 3, 1996 amount to $525,000 in 1996,
$575,000 in 1997, $620,000 in 1999, and $670,000 in 2000.
At January 28, 1995, the Company had an outstanding irrevocable letter
of credit of $250,000 for the purchase of insurance.
F-10
<PAGE>
Interest paid aggregated $1,615,000, $1,366,000, and $1,394,000 for the
fiscal years ended January 28, 1995, January 29, 1994, and January 30, 1993,
respectively.
NOTE E - LEASE OBLIGATIONS
The Company occupies retail stores under various capital and operating
lease agreements which contain varying renewal options for terms ranging to
2035, with no significant change in minimum annual payments.
At January 28, 1995, the aggregate minimum annual commitments for all
noncancelable leases are as follows:
For Fiscal Capital Operating
Years Ending In Leases Leases
1995 ................. $ 524,645 $ 2,280,840
1996 ................. 524,645 2,309,746
1997 ................. 524,645 1,909,746
1998 ................. 537,310 1,638,936
1999 ................. 537,310 1,368,126
Thereafter ........... 5,281,930 2,928,820
--------- ----------
Total minimum lease payments 7,930,485 $12,436,214
--------- ----------
Amounts representing
interest ................. 3,823,839
---------
Present value of net
minimum lease payments ... $4,106,646
=========
Capital leases for stores and equipment included in buildings, and
furniture, fixtures and equipment amounted to $5,560,390 at January 28, 1995
and $6,313,827 at January 29, 1994 and accumulated amortization amounted to
$2,801,985 and $3,205,142, respectively. Amortization of capital leases is
included with depreciation and amortization expense.
Required rental payments on stores are based on sales with certain
minimum annual payments. Rental expense amounted to:
Fiscal Year Ended
January 28 January 29 January 30
1995 1994 1993
Minimum rentals for
store operating leases ... $2,251,413 $2,299,958 $2,449,924
Contingent rentals:
Capital leases ......... 8,099 --- ---
Operating leases ......... 665,119 601,475 542,560
Other rentals ............ 434,939 411,978 346,997
--------- --------- ---------
$3,359,570 $3,313,411 $3,339,481
========= ========= =========
F-11
<PAGE>
A store lease provides for a security interest in fixtures and equipment
having a carrying amount of $94,000 at January 28, 1995.
NOTE F - FEDERAL INCOME TAXES
A reconciliation of the total income taxes and the amount computed by
applying the statutory federal income tax rate of 34 percent to earnings or
loss before income taxes is as follows:
Fiscal Year Ended
January 28 January 29 January 30
1995 1994 1993
Computed amounts ....... $ 351,000 $ 175,000 $(1,342,000)
Impact of net operating
loss carry-forward ... (351,000) (175,000) 1,342,000
------- ------- ---------
$ --- $ --- $ ---
======== ======== ==========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as
of January 28, 1995 and January 29, 1994 are as follows:
Fiscal Year Ended
January 28 January 29
1995 1994
Deferred tax liability:
Tax over book depreciation .... $(1,089,000) $(1,220,000)
Deferred tax assets:
Employee benefits ............. 503,000 568,000
Inventory costs ............... 39,000 207,000
Other ......................... 7,000 60,000
Net operating loss
carryforward ................ 1,957,000 2,177,000
---------- ----------
Total deferred tax asset ........ 2,506,000 3,012,000
---------- ----------
Net deferred tax assets ......... 1,417,000 1,792,000
Valuation allowance for net
deferred tax asset ............ (1,417,000) (1,792,000)
---------- ----------
Net deferred taxes .............. $ --- $ ---
========== ==========
F-12
<PAGE>
The Company's net operating loss carryforward of approximately
$5,750,000 for federal tax purposes expires as follows:
2006 ............ $1,250,000
2007 ............ 1,863,000
2008 ............ 1,537,000
2009 ............ 1,100,000
NOTE G - RETIREMENT PLANS
The Company has a defined contribution retirement plan covering
substantially all full-time employees. Contributions to the plan are made at
the discretion of the Board of Directors.
The Company also sponsors an unfunded Supplemental Executive Retirement
Program (SERP), which is a non-qualified plan that provides certain former
officers additional retirement benefits.
The unfunded status for this plan was as follows:
Fiscal Year Ended
January 28 January 29
1995 1994
Projected Benefit Obligation.. $1,622,151 $1,831,655
Unrecognized Net Loss
on Assets .................. (244,417) (365,864)
Unrecognized Net Obligation
at February 1, 1987 ........ (186,107) (212,694)
Unrecognized Prior Service
Cost ....................... (283,828) (308,987)
-------- --------
Accrued Liability ............ $ 907,799 $ 944,110
Minimum Liability Adjustments:
Plan Amendment ............. 256,120 256,120
Change in Discount Rate .... (11,704) 109,744
--------- ---------
Net Recorded Liability ....... $1,152,215 $1,309,974
========= =========
F-13
<PAGE>
The cost of the retirement plans, including the SERP plan expense of
$189,000, $192,000, and $185,000, for the fiscal years ended in 1995, 1994,
and 1993, respectively, consisted of the following components:
Fiscal Year Ended
January 28 January 29 January 30
1995 1994 1993
Service Cost:
Interest Cost on
Projected Benefit
Obligation .......... $124,672 $135,506 $135,991
Net Amortization and
Deferral:
Amortization of Initial
Unrecognized Transition
Obligation ........... 26,587 26,587 26,587
Amortization of Net
Loss ................. 12,582 4,748 874
Amortization of Prior
Service Cost ......... 25,159 25,159 21,548
Defined Contribution
Plan ................. 109,000 123,000 138,000
------- ------- -------
Net Periodic Retirement
Cost ................. $298,000 $315,000 $323,000
======= ======= =======
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 81/2% and 0% at January 28, 1995, 7-1/4% and
0% at January 29, 1994, and 8% and 0% at January 30, 1993.
NOTE H - STOCK OPTIONS AND RESTRICTED STOCK PLAN
The Company has a 1992 Incentive Stock Plan for its eligible officers
and employees under which the Company may grant stock options (consisting of
incentive stock options (ISOs) and nonqualified stock options (NQSOs)) and may
make awards of restricted stock for up to 100,000 shares of common stock.
Options may be exercised for such prices and at such times as the Compensation
Committee of the Board determines, provided the ISOs may not be exercised at a
price less than the fair market value at the date of grant. Options become
exercisable on a cumulative basis in equal installments at a rate of 33-1/3%
per year, commencing one year after grant. On January 28, 1995, ISOs for
56,000 shares were outstanding, and 30,000 shares had been issued as an award
of restricted stock. The ISOs carried exercise prices ranging from $5.5625 to
$10.375 per share (weighted average of $8.08 per share), of which ISOs to
acquire 17,331 shares were exercisable, and 14,000 shares were available for
future grants or awards under the plan.
Shares of restricted stock awarded under the Plan generally may not be
sold or otherwise transferred until the termination of applicable restriction
periods established by the Committee. The shares also vest at a rate of
F-14
<PAGE>
33-1/3% per year subject to certain performance objectives being satisfied.
January 28 January 29
Stock Option Plan 1995 1994
Outstanding at beginning of
fiscal year ................. 26,166 30,000
Granted ....................... 30,000 --
Exercised ..................... 166 --
Cancelled or expired .......... -- 3,834
------ ------
Outstanding at end of fiscal
year ........................ 56,000 26,166
====== ======
As part of the consideration for its 1993 $8,000,000 revolving loan
agreement with Schottenstein, the Company granted Schottenstein an irrevocable
option to purchase up to 198,000 shares of the Company's common stock at a
purchase price of $.50 per share. The option may be exercised in whole or in
part at any time until its expiration on May 18, 1997. The option agreement
stipulates that if the revolving credit agreement is terminated, the Company,
if requested by Schottenstein on or before the second anniversary of such
termination, agrees to pay Schottenstein, in lieu of delivery of the option
shares, an amount in cash equal to the difference between the average of the
closing prices for the Company's Common Stock on the American Stock Exchange
during the twenty business days preceding the request date and the $99,000
exercise price. The payment is due within 180 days of the request date and
bears interest at the rate of six percent per annum. In anticipation of the
termination of the Schottenstein loan agreement (See Note D of the Notes to
the Financial Statements), the Company and Schottenstein, by a letter
agreement, dated September 14, 1994, amended their Option Agreement, dated May
20, 1993, such that Schottenstein's right to receive the spread between the
exercise price and the then fair market value of the shares subject to the
option is capped at $6.36 per share.
F-15
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to
Beginning Costs and Other Accounts Deductions
Balance at
Description of Period Expenses (A) (B)
End of Period
<S> <C> <C> <C> <C>
<C>
VALUATION RESERVES
Year ended January 28, 1995
Allowance for:
Doubtful accounts receivable $216,209 $ 44,545 $ 10,441 $(207,308)
$ 63,887
Purchase discounts in inventories 494,845 61,155
556,000
Year ended January 29, 1994
Allowance for:
Doubtful accounts receivable 171,000 216,542 47,164 (218,497)
$216,209
Purchase discounts in inventories 452,000 42,845
494,845
Year ended January 30, 1993
Allowance for:
Doubtful accounts receivable 277,000 (29,316) 31,932 (108,616)
$171,000
Purchase discounts in inventories 495,000 (43,000)
452,000
</TABLE>
(A) Recoveries on accounts charged off
(B) Accounts charged off
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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, on April 27, 1995.
CROWLEY, MILNER AND COMPANY (Registrant)
By: /S/ DENNIS P. CALLAHAN
Dennis P. Callahan, President and Chief Executive
Officer (principal executive officer)
By: /S/ MARK A. VANDENBERG
Mark A. VandenBerg, Vice President-Finance and Chief
Financial Officer (principal financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 27, 1995.
Signature Capacity
/S/ DENNIS P. CALLAHAN Director
Dennis P. Callahan
/S/ JOANN S. COUSINO Director
JoAnn S. Cousino
/S/ CARROLL E. EBERT Director
Carroll E. Ebert
/S/ ALFRED M. ENTENMAN, JR. Director
Alfred M. Entenman, Jr.
/S/ JOSEPH C. KEYS Director
Joseph C. Keys
/S/ RICHARD S. KEYS Director
Richard S. Keys
/S/ JULIUS L. PALLONE Director
Julius L. Pallone
/S/ PAUL R. RENTENBACH Director
Paul R. Rentenbach
/S/ JAMES L. SCHAYE, JR. Director
James L. Schaye, Jr.
/S/ ANDREW J. SOFFEL Director
Andrew J. Soffel
/S/ ROBERT E. WINKEL Director
Robert E. Winkel
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Articles of Incorporation, as amended to date
(previously filed as an exhibit to the Company's Form 10-K Annual
Report for the year ended January 30, 1988 and the Company's Form
10-G Quarterly Report for the quarter ended August 1, 1992 and
the Company's Form 10-Q Quarterly Report for the quarter ended
October 29, 1994 and incorporated herein by reference).
3.2 Bylaws, as amended to date (previously filed as an exhibit to the
Company's Form 10-K Annual Report for the year ended January 28,
1989 and incorporated herein by reference).
10.1 Amended and Restated Supplemental Executive Retirement Plan
effective December 1, 1992 (previously filed as an exhibit to the
Company's Form 10-K Annual Report and Form 10-K/A Amendment 1 for
the year ended January 30, 1993 and incorporated hereby by
reference).
10.2 Employment Agreement with Mr. Soffel dated November 2, 1992
(previously filed as an exhibit to the Company's Form 10-K Annual
Report and Form 10-K/A Amendment 1 for the year ended January 30,
1993 and incorporation herein by reference).
10.3 Employment Agreement with Mr. Callahan dated November 2, 1992
(previously filed as an exhibit to the Company's Form 10-K Annual
Report and Form 10-K/A Amendment 1 for the year ended January 30,
1993 and incorporated herein by reference).
10.4 Severance Compensation Agreement with Mr. VandenBerg dated May 7,
1991 (previously filed as an exhibit to the Company's Form 10-K
Annual Report for the year ended February 1, 1992 and
incorporated herein by reference).
10.5 Severance Compensation Agreement with Mr. Toloff dated May 20,
1992 (previously filed as an exhibit to the Company's Form 10-Q
Quarterly Report for the quarter ended May 2, 1992 and
incorporated herein by reference).
10.6 The Economic Development Corporation of the City of Detroit Lease
Purchase Agreement dated December 1, 1979, as amended to date
(previously filed as an exhibit to the Company's Form 10-K Annual
Report for the year ended January 31, 1981 and the Company's Form
10-K Annual Report for the year ended January 29, 1994 and
incorporated herein by reference).
10.7 Loan Agreement between The Economic Development Corporation of
the City of Southfield and the Company dated January 15, 1985
(previously filed as an exhibit to the Company's Form 10-K Annual
Report for the year ended January 29, 1985 and incorporated
herein by reference).
10.8 Profit Sharing Plan dated February 1, 1984, as amended to date
(previously filed as an exhibit to the Company's Form 10-K Annual
Report and Form 10-K/A Amendment 1 for the year ended January 30,
1993 and incorporated herein by reference).
10.9 Crowley, Milner and Company 1992 Incentive Stock Plan effective
as of March 25, 1992 (previously filed as an exhibit to the
Company's Form 10-K Annual Report and Form 10-K/A Amendment 1 for
the year ended January 30, 1993 and incorporated herein by
reference).
10.10 Loan and Security Agreement, dated November 4, 1994, between
Congress Financial Corporation (Central) and the Company
(previously filed as an exhibit to the Company's Form 10-Q
Quarterly Report for the quarter ended October 31, 1994 and
incorporated herein by reference).
10.11 Option Agreement, dated May 20, 1993, as amended to date between
Schottenstein Stores Corporation and the Company (previously
filed as an exhibit to the Company's Form 10-K Annual Report and
Form 10-K/A Amendment 1 for the year ended January 30, 1993 and
the Company's 10-Q Quarterly Report for the quarter ended October
29, 1994 and incorporated herein by reference).
10.12 Restricted Stock Agreement, dated August 24, 1994, between Dennis
P. Callahan and the Company (previously filed as an exhibit to
the Company's Form 10-Q Quarterly Report for the quarter ended
October 29, 1994 and incorporated herein by reference).
10.13 *Amendment to Exhibit 10.12, dated March 22, 1995, effective
January 28, 1995.
11 *Computation of Per Share Earnings
23 *Consent of Ernst & Young LLP
27 *Financial Data Schedule (EDGAR filing only)
* Filed herewith
AMENDMENT NO. 1 TO RESTRICTED STOCK AGREEMENT
Crowley, Milner and Company
1992 Incentive Stock Plan
This AMENDMENT NO. 1 TO RESTRICTED STOCK AGREEMENT ("Amendment No. 1")
is made as of March 22, 1995 by and between CROWLEY, MILNER AND COMPANY, a
Michigan corporation ("the Corporation"), and DENNIS P. CALLAHAN (the
"Executive").
Recitals
1. Prior to the date hereof, the parties hereto entered into that
certain Restricted Stock Agreement, dated August 24, 1994 (the "Agreement").
2. The parties hereto desire to amend the Agreement.
Agreement
NOW, THEREFORE, in consideration of these premises and subject to the
terms and conditions contained herein and for other consideration, the receipt
of which is hereby acknowledged, the parties agree to amend the Agreement as
follows:
A. Performance Objectives. ANNEX A attached to the Agreement,
relative to the performance objectives, is hereby deleted, amended and
restated in its entirety as follows:
"ANNEX A
Performance Objectives
Effective as of January 28, 1995, February 3, 1996 and February 1,
1997, as the case may be (each of the foregoing a "Fiscal Year End
Date"), one-third (1/3) of the shares in the Award (rounded downwards
to the nearest whole number) shall be automatically forfeited to the
Corporation and no longer considered part of the shares in the Award
unless the performance objectives described below (the "Performance
Objectives") are satisfied with respect to the fiscal year immediately
preceding each such Fiscal Year End Date; in the event the Performance
Objectives are satisfied, such one-third (1/3) portion of the shares in
the Award not so forfeited shall be deemed vested effective as of such
Fiscal Year End Date corresponding to such Performance Objectives (the
"Vested Shares"):
Fiscal Year Ending Performance Objectives
January 28, 1995 Net pre-tax earnings of $1.0 million*
February 3, 1996 Net pre-tax earnings of $1.5 million*
February 1, 1997 Net pre-tax earnings of $2.0 million*
* The Corporation's independent certified public accountants shall
determine whether the Performance Objectives have been satisfied for
each period in question using generally accepted accounting principles
then in effect, provided that, in each case, the Performance Objective
shall be determined before giving effect to any charge related to the
Award under this Agreement."
B. Effective Date. The effective date of this Amendment No. 1 is
January 28, 1995.
C. Continuation of Agreement. Except as expressly modified or
amended hereby, all of the terms and conditions of the Agreement shall
continue and remain in full force and effect.
D. Definitions. Capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Agreement.
E. Counterparts. This Amendment No. 1 may be executed in any number
of counterparts, each of which shall be treated as an original but all of
which, collectively, shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 as of the day and year first above written.
CROWLEY, MILNER AND COMPANY,
the Corporation
By: /S/ MARK A. VANDENBERG
Mark A. VandenBerg, Vice President-Finance
/S/ DENNIS P. CALLAHAN
DENNIS P. CALLAHAN, the Executive
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
REPORT ON FORM 10-K FOR THE PERIOD
ENDED JANUARY 28, 1995
Fiscal Year Ended
January 28 January 29 January 30
1995 1994 1993
PRIMARY
Average shares outstanding 1,018,300 1,018,134 1,018,134
Net effect of dilutive stock
options--based on the treasury
stock method using average
market price 202,603 129,924 ---
--------- --------- ---------
TOTAL 1,220,903 1,148,058 1,018,134
========= ========= =========
Net earnings (loss) $1,030,977 $ 513,717 $(3,947,015)
Per share amount $0.84 $0.45 $(3.88)
FULLY DILUTED
Average shares outstanding N/A (a) N/A (a) N/A (a)
(a) The fully-diluted computations for the years ended January 28, 1995,
January 29, 1994 and January 30, 1993 are not reported as the
calculation did not exceed 3% of the primary calculation.
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-48389) pertaining to the Crowley, Milner and Company 1992
Incentive Stock Plan of our report dated March 10, 1995, with respect to the
financial statements and schedule of Crowley, Milner and Company incorporated
by reference and included in its Annual Report (Form 10-K) for the year ended
January 28, 1995.
ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 38,724
<SECURITIES> 0
<RECEIVABLES> 1,106,547
<ALLOWANCES> 63,887
<INVENTORY> 17,993,470
<CURRENT-ASSETS> 21,405,301
<PP&E> 24,874,953
<DEPRECIATION> 14,302,929
<TOTAL-ASSETS> 35,247,599
<CURRENT-LIABILITIES> 13,262,560
<BONDS> 5,850,000
<COMMON> 1,048,300
0
0
<OTHER-SE> 9,535,955
<TOTAL-LIABILITY-AND-EQUITY> 35,247,599
<SALES> 109,926,684
<TOTAL-REVENUES> 110,204,741
<CGS> 73,774,075
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,784,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,615,248
<INCOME-PRETAX> 1,030,977
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,030,977
<EPS-PRIMARY> .84
<EPS-DILUTED> .85
</TABLE>
