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 May 4, 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 W 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 June
11, 1996, was 956,069
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWLEY, MILNER AND COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MAY 4 APRIL 29
1996 1995
----------- -----------
Net Sales $23,266,615 $23,593,390
Cost of merchandise and services sold 16,892,927 17,503,462
----------- -----------
6,373,688 6,089,928
Operating, selling general and
administrative expenses 7,988,031 7,858,334
----------- -----------
(1,614,343) (1,768,406)
Other (charges) credits:
Interest expense (437,347) (388,477)
Investment income 28,769 19,103
Other 952 43,608
Earnings from the operation of Steinbach
Stores, Inc. 652,859
----------- -----------
Loss before income taxes (1,369,110) (2,094,172)
Income tax credit - -
----------- -----------
Net loss $(1,369,110) $(2,094,172)
=========== ===========
Net loss per share $(1.43) $(2.00)
====== ======
Dividends per share $ .00 $ .00
====== ======
Average number of Common equivalent
shares outstanding for earnings per share 956,069 1,018,300
=========== ===========
<PAGE>
CROWLEY, MILNER AND COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
MAY 4 FEBRUARY 3 APRIL 29
1996 1996 1995
---------- ---------- ----------
ASSETS
Current assets
Cash and cash equivalents
(cash equivalents at
5/4/96 $282,883,
2/3/96-$241,047 and
4/29/95 - $327,337) $ 294,846 $ 540,613 $ 88,198
Accounts receivable(less:
allowances at 5/4/96-
$64,558 2/3/96-$61,558
and 4/29/95-$73,887) 1,651,885 2,014,918 758,727
Inventories at FIFO cost 21,258,495 21,250,958 21,599,722
Reduction to LIFO cost (4,671,964) (4,614,420) (3,888,216)
----------- ----------- -----------
Inventories at LIFO cost 16,586,531 16,636,538 17,711,506
Other current assets 2,609,392 2,567,954 2,097,480
----------- ----------- -----------
Total current assets 21,142,654 21,760,023 20,655,911
Other assets 3,184,040 3,186,006 3,140,774
Property, plant and equipment 23,690,963 23,594,510 26,623,947
Less: Allowance for
depreciation and
amortization 14,151,374 13,835,918 16,336,599
----------- ----------- -----------
9,539,589 9,758,592 10,287,348
----------- ----------- -----------
TOTAL ASSETS $33,866,283 $34,704,621 $34,084,033
=========== =========== ===========
<PAGE>
CROWLEY, MILNER AND COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
MAY 4 FEBRUARY 3 APRIL 29
1996 1996 1995
---------- ---------- ----------
LIABILITIES AND SHAREHOLDER'S
EQUITY
Current Liabilities
Accounts payable $ 6,569,071 $ 5,279,188 $ 5,500,097
Short term borrowings 7,725,770 8,499,392 5,496,399
Compensation and Amounts
withheld therefrom 749,036 597,556 743,931
Taxes other than income
taxes 1,705,205 1,797,198 1,751,517
Income taxes 34,495 34,495 37,043
Current maturities of long
term debt 525,000 525,000 485,000
Capital lease obligations
- current 185,438 185,402 187,008
----------- ----------- -----------
Total Current Liabilities 17,494,015 16,918,231 14,200,995
Long Term Liabilities
Long term debt 5,325,000 5,325,000 5,850,000
Capital lease obligations 3,694,904 3,750,868 3,877,044
Other 1,761,362 1,757,278 1,624,661
----------- ----------- -----------
10,781,266 10,833,146 11,351,705
Shareholder's Equity
Common Stock, authorized
4,000,000 shares,
outstanding 956,069
shares 956,069 966,069 1,048,300
Other Capital 1,195,499 1,178,621 2,252,700
Retained Earnings 3,439,434 4,808,554 5,230,333
----------- ----------- -----------
5,591,002 6,953,244 8,531,333
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $33,866,283 $34,704,621 $34,084,033
=========== =========== ===========
<PAGE>
CROWLEY, MILNER AND COMPANY
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MAY 4 APRIL 29
1996 1995
---------- ----------
OPERATING ACTIVITIES
Net Loss $(1,369,110) $(2,094,172)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 315,456 338,078
Amortization of restricted stock award 6,878 41,250
Changes in Operating Assets and Liabilities:
Decrease in net accounts receivable 363,033 283,933
Decrease in inventories 50,007 281,964
(Increase) decrease in prepaid expenses
and other assets (39,472) 362,467
Increase (decrease) in accounts payable 1,289,883 (313,326)
Increase (decrease) in accrued compensation
and other liabilities 63,561 (344,606)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 680,236 (1,444,412)
INVESTMENT ACTIVITIES
Purchase of Properties (96,453) (53,402)
----------- -----------
NET CASH PROVIDED BY (USE IN)
INVESTMENT ACTIVITIES (96,453) (53,402)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 25,842,247 27,399,248
Principal payments on revolving line
of credit (26,615,869) (25,809,366)
Principal payments on capital lease
obligations (55,928) (42,594)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (829,550) 1,547,288
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (245,767) 49,474
Cash and cash equivalents at beginning of
year 540,613 38,724
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 294,846 $ 88,198
=========== ===========
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
May 4, 1996
Note A - Basis of Presentation
The accompanying unaudited 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. Accordingly, they 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 (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
thirteen week period ended May 4, 1996 are not necessarily indicative of the
results that may be expected for the year ending February 1, 1997, due to
the seasonal nature of the retail department store business. For further
information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
February 3, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Net and comparable store sales for the first quarter ended May 4, 1996 were
$23.3 million, a decrease of 1.4% from the $23.6 million recorded for last
year's first quarter ended April 29, 1995. The unseasonably cool weather
was the primary factor contributing to the flat sales performance.
Gross margins improved $284,000, or 4.7%, for the first quarter. Margins,
as a percent of sales, were 27.4% for the quarter this year compared with
25.8% for last year's first quarter. The improvement was due to lower fall
and winter inventory than last year and consequently less markdowns were
needed to clear-out the fall and winter merchandise.
Operating expenses increased $130,000, or 1.7%, in the first quarter
compared with last year's first quarter. Operating expenses, as a percent
of net sales, were 34.3% for the first quarter compared to 33.3% for the
same period last year. Expense categories that increased during the period
were payroll, advertising, energy and supplies. Payroll costs increased
$66,000, or 1.9%, due to additional personnel hired as a result of the
Steinbach Stores, Inc. acquisition. The competitive retail environment
contributed to increased promotional efforts by the Company causing
advertising related expenditures to increase by $35,000, or 4.1%. An
increase of $60,000, or 18.2%, in energy costs related primarily to the
tenant that vacated the Company's headquarters building in May, 1995; the
Company absorbed all of the energy costs of the building in the first
quarter this year whereas the tenant paid a proportionate share last year.
The increase of $42,000, or 20.1%, in supplies also consists primarily of
Steinbach related costs.
Interest expense charges for the first quarter increased $49,000, or 12.6%,
due to higher interest rates and increased borrowings on the Company's line
of credit. As a percent of net sales, interest expense was 1.9% and 1.6%
for the first quarter of this year and last year, respectively.
The decrease of $43,000 in other income was attributable to the loss of
rental income this year compared to the rent received during the first
quarter last year from the above mentioned tenant that has vacated the
Company's headquarters building. The Company is presently attempting to re-
lease the approximate 70,000 square feet of space.
Additionally, in the first quarter the Company recorded a profit of $653,000
from the operation of Steinbach Stores, Inc. Under the Company's Interim
Operating Agreement with the shareholders of Steinbach, the Company has been
operating since December 31, 1995 the fifteen stores to be acquired,
<PAGE>
pursuant to the Agreement and Plan of Reorganization, dated November 17,
1995, between the Company and the Steinbach shareholders for its own benefit
and at its own risk. Included in the Steinbach profit is the reversal of a
$700,000 price reduction reserve that was recorded in January, 1996 and the
reversal of the $3.3 million markdown reserve on the December 30, 1995
beginning Steinbach balance sheet assumed by the Company. The reserve was
recorded in January 1996 for price reductions taken to clear the existing
inventory on hand when the Company began operating the Steinbach stores on
December 31, 1995.
For the first quarter ended May 4, 1996, the Company recorded a reduction of
34.6% in the net loss to $1,369,000 from $2,094,000 for last year's first
quarter. On a per share basis, the loss was $1.43 compared with $2.00.
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 year's first quarter, thus pre-tax and after-tax results
are the same.
Financial Condition
Net cash provided by operating activities amounted to $680,000 for the three
months ended May 4, 1996 compared with cash used of $1,444,000 for the three
months ended April 29,1995. The difference was primarily attributable to
the increase in accounts payable balances and a reduction in the net loss
for the first quarter of the current year.
The increase in capital expenditures to $96,000 for the current year from
$53,000 last year accounted for the increase in cash used in investment
activities.
Cash used in financing activities amounted to $830,000 for the period ended
May 4, 1996 compared with cash provided of $1,547,000 for the period ended
April 29, 1995. The decrease results from more payments than borrowings on
the Company's short term line of credit during the first quarter of the
current year when compared with the first quarter of last year.
Other Developments
The Company is in the process of finalizing its proxy materials relating to
the Steinbach acquisition. Once completed, a date for the 1996 Annual
Meeting of Shareholders will be established. A closing date for the
acquisition will be set as soon as practicable after the Annual Meeting.
The Company anticipates both dates to occur by mid to late-July.
<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) Exhibits
10.14 Amendment No. 2 to Agreement and Plan of
Reorganization, dated May 14, 1996, between the
Shareholders of Steinbach Stores, Inc. and the
Company.
27 Financial Data Schedule (EDGAR filing only).
<PAGE>
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 June 18, 1996 By /S/ Mark A. VandenBerg
-------------------------------- -------------------------------------
Mark A. VandenBerg
Vice President-Finance and Chief
Financial Officer (principal
financial and chief accounting
officer) and a duly authorized
officer of the registrant
AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF REORGANIZATION
("Amendment No. 2") is made as of May 14, 1996 between CROWLEY, MILNER AND
COMPANY, a Michigan corporation ("Crowley's"), and the shareholders of
STEINBACH STORES, INC., an Ohio corporation ("Steinbach"), listed on the
signature page hereof (collectively, the "Shareholders").
Recitals
1. Prior to the date hereof, the parties hereto entered into
that certain Agreement and Plan of Reorganization dated November 17, 1995 as
amended by Amendment No. 1 thereto dated December 29, 1995 (collectively,
the "Agreement and Plan of Reorganization").
2. The parties hereto desire to further amend the Agreement and
Plan of Reorganization.
Agreement
NOW, THEREFORE, in consideration of these premises and subject to
the terms and conditions contained herein and for the other consideration
provided herein, the parties agree to amend the Agreement and Plan of
Reorganization as follows:
A. Delivery of Disclosure Schedules. Section 4.2(b) of the
Agreement and Plan of Reorganization is amended and restated in its entirety
as follows:
(b) Delivery of Disclosure Schedules. The
Shareholders shall deliver the several Schedules described
herein as being part of the Disclosure Schedules (collectively,
the "Disclosure Schedules") on or before February 23, 1996.
B. Delivery of Disclosure Exhibits. Section 4.3(b) of the
Agreement and Plan of Reorganization is amended and restated in its entirety
as follows:
(b) Delivery of Disclosure Exhibits. Crowley's shall
deliver the several Exhibits described herein as being part of the
Disclosure Exhibits (collectively, the "Disclosure Exhibits") on or
before Thursday, February 1, 1996.
C. Due Diligence Review by Shareholders. The last sentence of
Section 5.9 of the Agreement and Plan of Reorganization is amended and
restated in its entirety as follows:
The condition precedent set forth in this Section 5.9 shall expire
on May 31, 1996.
D. Due Diligence Review by Crowley's. The last sentence of
Section 6.6 of the Agreement and Plan of Reorganization is amended and
restated in its entirety as follows:
The condition precedent set forth in this Section 6.6 shall expire
on May 31, 1996.
E. Termination -- Methods. Sections 8.1(d), (e) and (h) of the
Agreement and Plan of Reorganization are amended and restated in their
entirety as follows:
(d) On or before May 31, 1996, by the Shareholders if
the conduct or results of the Shareholders' due diligence review
described in Section 5.9 hereof shall not have been satisfactory to
the Shareholders and their advisors as determined in their sole
discretion.
(e) On or before May 31, 1996, by Crowley's if the
conduct or results of Crowley's due diligence review described in
Section 6.6 hereof shall not have been satisfactory to Crowley's and
its advisors as determined in their sole discretion.
(h) By either the Shareholders or Crowley's if the
Closing has not occurred on or before July 31, 1996.
F. Exchange of Steinbach and Crowley's Common Stock;
Steinbach's Net Book Value. Sections 1.1 and 1.5 of the Agreement and Plan
of Reorganization are amended and restated in their entirety as follows:
1.1 Exchange of Steinbach and Crowley's Common Stock.
Subject to and upon the representations, warranties, covenants,
agreements, terms and conditions in this Agreement, at the Closing
(as defined herein) and as of the Closing Date (as defined herein),
Crowley's shall acquire from the Shareholders and the Shareholders
shall deliver to Crowley's an aggregate of 100 shares of Common
Stock, without par value (the "Steinbach Common Stock"), of
Steinbach, constituting all of the issued and outstanding shares of
the capital stock of Steinbach, in exchange for 514,800 shares of
Common Stock of Crowley's (the "Crowley's Common Stock"), or
approximately thirty-five percent (35%) of the total amount of the
Crowley's Common Stock to be outstanding immediately after the
Closing (the "Consideration").
1.5 Steinbach's Net Book Value. Attached hereto as
Annex 1.5 is a balance sheet (the "December 1995 Balance Sheet")
relative to the net book value of Steinbach's assets and liabilities
as at the close of business on December 30, 1995 (i.e., "Steinbach's
Net Book Value") which has been prepared by Steinbach in accordance
with generally accepted accounting principles (except as otherwise
provided below). It is acknowledged and agreed that (x) for
purposes of determining Steinbach's Net Book Value, neither the
December 1995 Balance Sheet nor Steinbach's Net Book Value contains
or reflects any of the Excluded Assets (as defined herein) or the
Excluded Liabilities (as defined herein) or any of the actions to be
taken by the Shareholders with respect to the disposition thereof as
contemplated in Sections 4.9 and 4.10 hereof, and (y) for purposes
of determining Steinbach's Net Book Value, the fixed assets have
been determined at Steinbach's historical cost and not in accordance
with generally accepted accounting principles.
G. Waivers. Crowley's hereby waives any failure by the
Shareholders to comply with the provisions of Section 4.2(b) prior to
February 23, 1996 and the Shareholders hereby waive any failure by Crowley's
to comply with the provisions of Section 4.3(b) prior to February 1, 1996.
H. Effective Date. The effective date of this Amendment No. 2
is as of the date first written above.
I. Continuation of Agreement. Except as expressly modified or
amended hereby, all of the terms and conditions of the Agreement and Plan of
Reorganization shall continue and remain in full force and effect.
J. Definitions. Capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Agreement and Plan of
Reorganization.
K. Counterparts. This Amendment No. 2 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
Agreement as of the day and year first above written.
CROWLEY, MILNER AND COMPANY, Crowley's
By: /s/ DENNEY CALLAHAN
------------------------------------
Its: President/CEO
--------------------------------
JEROME SCHOTTENSTEIN SUB CHAPTER S TRUST
NOS. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10,
each a Shareholder and collectively the
Shareholders
By: /s/ JAY L. SCHOTTENSTEIN
---------------------------------------
Jay L. Schottenstein, Trustee for
each of the above-named Trusts
ANNEX 1.5
to
Agreement and Plan of Reorganization
December 1995 Balance Sheet; Steinbach's Net Book Value
PROJECTED BALANCE SHEETS
FISCAL 1995
STEINBACH
DECEMBER
---------
ASSETS
Cash and equivalents $ 265,500
Merchandise inventories 15,236,509
Markdown reserve (3,284,000)
----------
Net inventory 11,952,509
Prepaid expenses 286,766
----------
Total Current Assets 12,504,775
Properties 6,144,828
----------
Total Assets $ 18,649,603
==========
LIABILITIES
Accounts payable $ 6,357,330
Accruals 2,824,190
Capital lease obligations 199,447
---------
Total Current Liabilities 9,380,967
LONG TERM DEBT
Capital lease obligations 3,268,636
---------
Total Long Term Debt $ 3,268,636
STOCKHOLDERS' EQUITY
Common stock --
Other capital 6,000,000
---------
Total Equity 6,000,000
Total Liabilities & Equity $ 18,649,603
==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 294,846
<SECURITIES> 0
<RECEIVABLES> 1,651,885
<ALLOWANCES> 64,558
<INVENTORY> 16,586,531
<CURRENT-ASSETS> 21,142,654
<PP&E> 23,690,963
<DEPRECIATION> 14,151,374
<TOTAL-ASSETS> 33,866,283
<CURRENT-LIABILITIES> 17,494,015
<BONDS> 5,325,000
<COMMON> 956,069
0
0
<OTHER-SE> 4,634,933
<TOTAL-LIABILITY-AND-EQUITY> 33,866,283
<SALES> 23,266,615
<TOTAL-REVENUES> 23,266,615
<CGS> 16,892,927
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,988,031
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,347
<INCOME-PRETAX> (1,369,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,369,110)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
