SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20548
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended November 2, 1996
[ ] 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
2301 West Lafayette Boulevard, Detroit, Michigan 48216
(Address of principal executive offices)(Zip Code)
(313) 962-2400
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of Registrant's common stock, as of
December 17, 1996 was 1,503,378.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 2 OCTOBER 28 NOVEMBER 2 OCTOBER 28
1996 1995 1996 1995
(CONSOLIDATED (CONSOLIDATED
09/01/96) (AS RESTATED) 09/01/96) (AS RESTATED)
----------- ----------- ------------ -----------
Net Sales $86,022,297 $69,920,344 $41,255,148 $24,963,823
Cost of merchandise
and services sold 57,545,476 48,658,017 26,706,592 16,664,456
---------- ---------- ---------- ----------
28,476,821 21,262,327 14,548,556 8,299,367
Operating, selling,
general and admin-
istrative expenses 30,505,417 23,919,408 14,496,766 8,494,102
---------- ---------- ---------- ---------
(2,028,596) (2,657,081) 51,790 (194,735)
Other charges (credits):
Interest expense 1,541,412 1,308,498 668,994 492,459
Investment income (112,077) (73,323) (60,158) (24,889)
Other (429,857) (157,493) (427,969) (1,635)
Earnings (loss) from
operation of
Steinbach (837,213) - 556,704 -
--------- --------- --------- ---------
Loss before income
taxes (2,190,861) (3,734,763) (685,781) (660,670)
Income tax credit - - - -
---------- --------- -------- --------
Net loss $(2,190,861) $(3,734,763) $(685,781) $(660,670)
========= ========= ======= =======
Net loss per share $(2.03) $(3.87) $(0.52) $(0.68)
==== ==== ==== ====
Dividends per share $0.00 $0.00 $0.00 $0.00
==== ==== ==== ====
Average number of
Common equivalent
shares outstanding
for earnings per
share 1,077,016 966,069 1,320,895 966,069
========= ======= ========= =======
<PAGE>
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NOVEMBER 2 FEBRUARY 3 OCTOBER 28
1996 1996 1995
(CONSOLIDATED
09/01/96) (AS RESTATED) (AS RESTATED)
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents
(cash equivalents at 11/02/96:
$351,312; at 02/03/96:
$241,047 and at 10/28/95:
$449,802) $ 441,811 $ 540,613 $ 251,021
Accounts receivable
(less allowances at 11/02/96:
$66,558; at 02/03/96: $61,558
and at 10/28/95: $83,854) 6,267,116 2,014,918 833,649
Inventories at FIFO cost 61,316,683 21,250,958 28,327,560
Other current assets 3,632,046 2,567,954 1,816,419
---------- ---------- ----------
Total current assets 71,657,656 26,374,443 31,228,649
---------- ---------- ----------
Other assets 3,409,056 4,766,006 4,771,881
Property, plant and equipment 27,014,702 23,594,510 25,101,801
Less: Allowance for depreciation
and amortization (15,603,763) (13,835,918) (15,283,443)
---------- ---------- ----------
11,410,939 9,758,592 9,818,358
---------- ---------- ---------
TOTAL ASSETS $86,477,651 $40,899,041 $45,818,888
========== ========== ==========
<PAGE>
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Continued)
NOVEMBER 2 FEBRUARY 3 OCTOBER 28
1996 1996 1995
(CONSOLIDATED
09/01/96) (AS RESTATED) (AS RESTATED)
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Accounts payable $35,458,276 $ 5,279,188 $10,579,600
Short-term borrowings 20,513,622 8,499,392 10,008,372
Compensation and related
withholdings 1,054,198 597,556 728,837
Taxes other than income
taxes 1,564,442 1,797,198 1,208,570
Income taxes 109,972 309,495 309,495
Current maturities of long
term debt 525,000 525,000 485,000
Current portion of capital
lease obligations 284,199 185,402 183,543
---------- --------- ----------
Total Current Liabilities 59,509,709 17,193,231 23,503,417
Long-Term Liabilities:
Long-term debt 5,325,000 5,325,000 5,850,000
Capital lease obligations 6,424,225 3,750,868 3,795,321
Other 1,976,157 1,757,278 1,595,780
--------- --------- ---------
13,725,382 10,833,146 11,241,101
Shareholders' Equity:
Common Stock (authorized
4,000,000 shares; out-
standing 1,501,378
shares at 11/02/96;
966,069 shares
at 02/03/96 and
10/28/96) 1,501,378 966,069 966,069
Other capital 3,204,069 1,178,621 1,199,156
Retained earnings 8,537,113 10,727,974 8,909,145
--------- ---------- ---------
13,242,560 12,872,664 11,074,370
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $86,477,651 $40,899,041 $45,818,888
========== ========== ==========
<PAGE>
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
November 2 October 28,
1996 1995
(Consolidated
09/01/96) (Restated)
---------- ----------
OPERATING ACTIVITIES
Net Loss $(2,190,861) $(3,734,763)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 976,152 986,219
Amortization of restricted stock award 57,193 79,720
Changes in Operating Assets and Liabilities:
Gain on termination of capital lease (372,514) 0
(Increase) decrease in net accounts
receivable (2,118,667) 209,012
(Increase) in inventories (19,135,556) (6,319,687)
Decrease in prepaid expenses and
other assets (949,188) 592,421
Increase in accounts payable 10,971,666 4,766,177
Increase (decrease) in accrued compensation
and other liabilities 1,599,249 (934,076)
---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (11,162,526) (4,354,977)
INVESTMENT ACTIVITIES
Purchase of properties 327,933) (232,554)
Steinbach Acquisition 486,122 0
--------- ---------
NET CASH USED IN INVESTMENT ACTIVITIES (814,055) (232,554)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 106,056,568 83,444,226
Principal payments on revolving line
of credit (94,042,338) (77,342,371)
Principal payments on capital lease
obligations (323,415) (127,782)
Purchase of common stock and stock
options 0 (1,228,212)
Proceeds from sale of common stock 186,964 53,967
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,877,779 4,799,828
---------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (98,802) 212,297
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 540,613 38,724
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 441,811 $ 251,021
======= =======
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
November 2, 1996
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited, consolidated, and condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. As a result, the financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments necessary for a fair
presentation of quarterly operating results are reflected herein and are of
a normal, recurring nature.
Given the seasonal nature of the specialty department store business,
operating results for the thirteen week and for the 39 week periods ended
November 2, 1996, are not necessarily indicative of the results that may be
expected for the year ending February 1, 1997.
It is suggested that these condensed, consolidated, financial statements be
read in conjunction with the financial statements and notes to financial
statements included in the Company's Annual Report on Form 10-K for the year
ended February 3, 1996.
Note B - Acquisition of Steinbach Stores, Inc.
and Presentation of Financial Information
- ---------------------------------------------
As previously reported by the Company in its Quarterly Report on Form 10-Q
for the period ended August 3, 1996, the Company acquired from the several
shareholders (the "Steinbach Shareholders") of Steinbach Stores, Inc.
("Steinbach"), all of the issued and outstanding shares of the capital stock
of Steinbach in exchange for 514,800 shares of the Common Stock of the
Company, pursuant to the terms of an Agreement and Plan of Reorganization,
dated November 17, 1995, as amended (the "Reorganization Agreement"),
between the Company and the Steinbach Shareholders. As a result of this
acquisition, Steinbach, which operates 15 retail department stores in
Connecticut, New Hampshire, New York, New Jersey and Vermont, became a
wholly-owned subsidiary of the Company as of August 31, 1996. As a result
of the terms of the Reorganization Agreement, prior to completion of the
acquisition the results of Steinbach's operations through August 31, 1996,
are reflected as a separate line item on the Company's consolidated
condensed statements of income. Effective at the time of the acquisition on
August 31, 1996, and thereafter, the Company consolidates the results of
operations for and the financial condition of Steinbach, as a wholly-owned
subsidiary.
As used herein, the "Company" means Crowley, Milner and Company on a
consolidated basis, including Steinbach, "Steinbach" means the Steinbach
Stores, Inc., a wholly-owned subsidiary of Crowley, Milner and Company, and
"Crowley's" means Crowley, Milner and Company without inclusion of
Steinbach. Unless otherwise indicated, the discussions set forth herein
pertains to the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended November 2, 1996 Compared to Thirteen Weeks Ended
October 28, 1995
Crowley's net and comparable store sales for the quarter ended November 2,
1996 increased 5.5%, to $26.3 million, from the $25.0 million recorded for
the quarter ended October 28, 1995. A substantial part of the sales
increase occurred in September, when Crowley's undertook an extensive and
aggressive sales promotion effort in order to move spring and summer
clearance merchandise. For September and October, Steinbach reported net
sales of $14,9 million. Inasmuch as the Company acquired only certain of
Steinbach stores, comparable store sales figures for Steinbach are
unavailable.
Crowley's gross profit, as a percentage of sales, exclusive of the operation
of the Steinbach Stores, increased slightly from 33.3% to 33.7%.
Consolidating the operating results of Steinbach for September and October
improved the gross profit percentage to 35.3%.
Impacting the 35.3% gross profit percentage were positive adjustments to
both the merchandise and gift certificate redemptions ($250,000) and the
accrual for provisions for merchandise returns ($225,000). Absent these two
positive adjustments, the consolidated gross profit percentage nonetheless
would have improved to 34.1%.
Exclusive of the operation of Steinbach Crowley's selling, general, and
administrative expenses, expressed as a percentage of sales, decreased to
32.8% from 34.0%. The decrease was primarily attributable to the
reallocation of a pro rata share of the corporate overhead to Steinbach.
Taking into consideration the operating results of Steinbach for September
and October, this percentage increased slightly to 35.1%.
The increase generally is attributable to the additional administrative and
corporate expenses incurred in operating Steinbach.
On a consolidated basis, interest expense, expressed as a percentage of
sales, decreased nearly 18% from approximately 2% of sales to 1.6% of sales.
This improvement generally was attributable to the reduction in the nominal
interest rate charged on the Company's revolving loan. The reduced interest
rate (8.5% versus 9.25%, or prime plus .25%) was effective as of September
5, 1996. Miscellaneous income includes a $95,000 rent adjustment, and the
elimination of a capital lease asset and its related long-term obligation
resulting in a one-time long-term gain of approximately $377,000.
Exclusive of the operation of the Steinbach Stores, for the quarter ended
November 2, 1996, Crowley's recorded a net loss of $29,565 compared to a net
loss of $660,670 for last year's third quarter. The improvement generally
is attributable to the reallocation of approximately $625,000 of corporate
overhead to Steinbach's stores for September and October. On a consolidated
basis, the Company recorded a net loss of $685,781, or $0.52 per share,
compared to a net loss of $660,670, or $0.68 per share, for last year's
third quarter.
Since the Company has fully exhausted all tax loss carrybacks and is in a
net operating loss carryforward position it was unable to tax effect the
losses in either the current year's or the prior year's third quarter and
nine month periods. Thus, pre-tax and after-tax results are the same.
Thirty-Nine Weeks Ended November 2, 1996 Compared To Thirty-Nine Weeks Ended
October 28, 1995
Crowley's net and comparable store sales for the thirty-nine weeks ended
November 2, 1996, increased 1.7%, to $71.1 million, from the $69.9 million
recorded for the thirty-nine weeks ended October 28, 1995. On a consolidated
basis, the Company reported net sales of $86.0 million. The $15 million in
net sales reported by Steinbach for September and October represented over
43% of the total of the Company's consolidated net sales for these two
months.
For the thirty-nine weeks ended November 2, 1996, the Company's gross profit
percentage improved from 30.4% to 32.0%. The improvement in the Company's
gross profit percentage reflects a trend which has continued throughout the
current fiscal year. As previoiusly noted, this improvement generally can
be attributed to efforts to enhance procedures to control inventory
shrinkage, with a particular focus in revising and implementing loss
prevention techniques and procedures. On a consolidated basis, the gross
profit percentage improved to 33.1%. For a detailed explanation of the
increase in the Company's gross profit percentage, please refer to the
discussion included under the analysis of operating results for the thirteen
weeks ended November 2, 1996.
Exclusive of the operation of Steinbach, on a year-to-date basis Crowley's
selling, general, and administrative expenses, expressed as a percentage of
sales, increased slightly from 34.2% to 35.0%. The increase generally was
attributable to the increased expenses incurred in operating Steinbach
pursuant to an interim operating agreement which was in place for the first
seven months of the fiscal year. Taking into consideration the operating
results of Steinbach for September and October, this percentage increased to
35.5%.
For the thirty-nine weeks ended November 2, 1996, on a consolidated basis
the Company's interest expense, expressed as a percentage of sales,
decreased slightly from 1.9% to 1.8%. As noted earlier, this improvement
generally is attributable to the reduction in the nominal interest rate
charged on the Company's revolving loan. Given that the change in rate was
effective September 5, 1996, the year-to-date impact on the Company's
interest expense is not as dramatic as the impact realized during the
quarter.
Exclusive of the operations of Steinbach, for the thirty-nine weeks ended
November 2, 1996, Crowley's reported a net loss of $2.9 million compared to
a net loss of $3.7 million for the thirty-nine weeks ended October 28, 1995.
The improvement generally was attributable to improved gross profit margins
(see discussion above), and the reallocation of approximately $625,000 of
corporate overhead to Steinbach for September and October. On a
consolidated basis, the Company reported a net loss of $2.2 million, or
$2.03 per share.
FINANCIAL CONDITION
Cash and cash equivalents decreased from $1.6 million to $442,000 in the
thirteen weeks since August 3, 1996. Inasmuch as the third quarter reflects
the most intense buying time of the fiscal year where inventories
traditionally are at their highest levels, this decrease in cash and cash
equivalents is neither surprising or unanticipated. The cash and cash
equivalents balance of $442,000 represents a 76% increase from last year's
balance of $251,000.
Investing activities used cash of $814,000 in the thirty-nine weeks this
year compared to $233,000 in 1995. Investing activities included certain
purchases related to the acquisition of Steinbach, and capital expenditures
for the modernization and refixturing of existing stores.
Financing activities used cash of $11.9 million in the thirty-nine weeks
this year compared to $4.8 million last year. This increase is attributable
to increased borrowing on the Company's revolving line of credit in order to
fund merchandise purchases for both Crowley's and Steinbach. This is
reflected in the increase in the net borrowing on the Company's line of
credit from $6.1 million last year to $12.0 million at November 2, 1996.
Given that the Company was able to secure an increase in its revolving line
of credit from $12 million to $24 million effective as of September 5, 1996
(see discussion included in the Form 10-Q filed for the quarter ended August
3, 1996), and inasmuch as the Company now is funding the operations of
Crowley's and Steinbach -- two specialty department store operations of
comparable size -- the increase in cash used for financing activities is not
unexpected.
The short-term financial effect of the Company's acquisition of Steinbach,
coupled with the Company's change in its method of valuing inventories from
the last-in, first-out (LIFO) to the first-in, first-out (FIFO) method has
improved the Company's working capital. At November 2, 1996, the Company's
working capital increased to $12.2 million, a significant 32.3% improvement
from the $9.2 million of working capital available at October 28, 1995.
OTHER DEVELOPMENTS
As a result of the Company's acquisition of Steinbach, effective September
1, 1996 the Company operates 10 stores in the Detroit metropolitan area, and
fifteen stores in the states of Connecticut, New Hampshire, New York, New
Jersey, Vermont and New York. With respect to the Steinbach store located
in North Utica, New York, the landlord advised the Company during the
recently completed quarter of its intention to exercise its right to
terminate the lease. The North Utica store conducted a going-out-of-
business sale, and is scheduled to close its doors permanently on or before
December 31, 1996. The North Utica store reported sales of $3.0 million
during the current fiscal year. Final profitability figures are not yet
available, but the North Utica locatioin was one fo the Company's weakest
stores in terms of profitability.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings in which the Company
is a party to which its assets are subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K: None.
(b) Exhibits:
No. Description
--- -----------
27 Financial Data Schedule (EDGAR filing only)
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.
CROWLEY, MILNER AND COMPANY
(Registrant)
DATE: December 17, 1996 By /S/ John R. Dallacqua
-----------------------
John R. Dallacqua
Vice President-Finance and Chief
Financial Officer (principal
financial and accounting officer
and duly authorized officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 441,811
<SECURITIES> 0
<RECEIVABLES> 6,267,116
<ALLOWANCES> 66,558
<INVENTORY> 61,316,683
<CURRENT-ASSETS> 71,657,656
<PP&E> 27,014,702
<DEPRECIATION> 15,603,763
<TOTAL-ASSETS> 86,477,651
<CURRENT-LIABILITIES> 59,509,709
<BONDS> 5,325,000
<COMMON> 1,501,378
0
0
<OTHER-SE> 11,741,182
<TOTAL-LIABILITY-AND-EQUITY> 86,477,651
<SALES> 86,022,297
<TOTAL-REVENUES> 86,022,297
<CGS> 57,545,476
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,505,417
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,541,412
<INCOME-PRETAX> (2,190,861)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,190,861)
<EPS-PRIMARY> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
