SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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 2, 1998
[ ] 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 (IRS 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 June
15, 1998, was 1,552,462
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
------------------
May 2 May 3
1998 1997
---- ----
Revenues
Net sales--owned departments $ 38,799,202 $39,863,316
Net sales--leased departments 3,975,720 4,232,853
----------- ----------
Total net sales 42,774,922 44,096,169
Investment income 18,740 31,879
Other income 31,789 310,210
----------- ----------
42,825,451 44,438,258
Costs and Expenses
Cost of merchandise and services sold 29,482,269 32,882,880
Operating expenses 15,709,434 14,979,775
Interest 944,876 579,474
----------- ----------
46,136,579 48,442,129
Earnings (Loss) Before Income Taxes (3,311,128) (4,003,871)
Federal income taxes - -
---------- ----------
Net Earnings (Loss) $ (3,311,128) $(4,003,871)
========= =========
Per Share Data:
Net earnings (loss) per fully diluted share $ (2.14) $ (2.67)
Average number of common and common equivalent
shares outstanding for earnings per share 1,544,462 1,510,578
<PAGE>
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 2 January 31 May 3
1998 1998 1997
----- ---------- -----
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents (cash equivalents of
$389,618 at 5/2/98, $275,494 at 1/31/98 and
$284,807 at 5/3/97) $ 737,669 $ 563,615 $ 275,018
Accounts receivable, less allowances
($66,658 at 5/2/98, $66,558 at 1/31/98
and $66,558 at 5/3/97) 2,334,377 2,778,501 2,504,573
Inventories at FIFO cost 50,296,186 46,089,589 46,057,720
Refundable income taxes 310,028 310,028 --
Prepaid property taxes 52,100 315,610 1,151,250
Other current assets 1,656,889 1,530,506 1,891,353
---------- ---------- ----------
Total Current Assets 55,387,249 51,587,849 51,879,914
========== ========== ==========
Other Assets
Deposits under EDC financing arrangements 634,308 634,308 634,308
Deferred tax asset 1,040,000 1,040,000 1,580,000
Miscellaneous 3,174,638 3,211,797 2,906,085
--------- --------- ---------
4,848,946 4,886,105 5,120,393
--------- --------- ---------
Properties
Land 315,000 315,000 315,000
Buildings 13,292,609 13,274,700 13,288,594
Leasehold improvements 7,952,039 7,359,388 6,826,822
Furniture, fixtures and equipment 8,286,507 7,943,931 7,388,424
--------- --------- ---------
29,846,155 28,893,019 27,818,840
Less: Allowance for depreciation and amortization 15,676,382 15,159,544 15,500,972
---------- ---------- ----------
14,169,773 13,733,475 12,317,868
---------- ---------- ----------
Total Assets $74,405,968 $70,207,429 $69,318,175
========== ========== ==========
</TABLE>
<PAGE>
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
May 2 January 31 May 3
1998 1998 1997
----- ---------- -----
<S> <C> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 17,373,599 $ 14,992,802 $ 16,895,959
Notes payable short term 32,078,307 26,862,759 21,764,356
Compensation and amounts withheld therefrom 1,315,624 1,356,784 1,428,862
Property taxes - 61,379 1,224,043
Income and other taxes 414,251 255,142 440,632
Current maturities of long-term debt 1,009,481 1,001,228 575,000
Current maturities of capital lease obligations 293,858 288,882 248,742
---------- ---------- ----------
Total Current Liabilities 52,485,120 44,818,976 42,577,594
---------- ---------- ----------
Long-Term Liabilities
Long-term debt 4,916,720 4,998,772 4,750,000
Capital lease obligations 5,941,487 6,018,683 6,267,017
Other 2,209,556 2,215,572 1,979,748
---------- ---------- ----------
13,067,763 13,233,027 12,996,765
---------- ---------- ----------
Shareholders' Equity
Common stock, (authorized 4,000,000 shares,
outstanding 1,544,462 shares at 5/2/98,
1,544,462 shares at 1/31/98 and 1,523,796
shares at 5/3/97) 1,544,462 1,544,462 1,523,796
Other capital 3,405,664 3,396,877 3,368,420
Retained earnings 3,902,959 7,214,087 8,851,600
---------- ---------- ----------
8,853,085 12,155,426 13,743,816
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $74,405,968 $70,207,429 $69,318,175
========== ========== ==========
</TABLE>
<PAGE>
CROWLEY, MILNER AND COMPANY AND CONSOLIDATED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
May 2 May 3
1998 1997
---- ----
Operating Activities
Net earnings (loss) $ (3,311,128) $ (4,003,871)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 828,776 414,457
Amortization of restricted stock award 8,787 -
Changes in operating assets and liabilities:
(Increase) decrease in net accounts
receivable 573,564 309,186
(Increase) decrease in inventories (4,336,037) 498,049
(Increase) decrease in prepaid expense
and other assets 174,285 321,329
Increase (decrease) in accounts payable 2,336,765 (567,778)
Increase (decrease) in accrued compensation
and other liabilities 94,587 (515,659)
---------- ----------
(3,630,401) (3,544,287)
Net Cash Provided By (Used In) Operating
Activities
Investment Activities
Purchase of properties (1,265,074) (113,166)
---------- ----------
Net Cash Used in Investment Activities (1,265,074) (113,166)
Financing Activities
Proceeds from revolving line of credit 50,491,398 49,048,488
Principal payments on revolving line of
credit (45,275,850) (45,376,926)
Principal payments on capital lease
obligations (146,019) (55,675)
Proceeds from sale of common stock - 101,268
----------- ----------
Net Cash Provided By (Used In) Financing
Activities 5,069,529 3,717,155
----------- ----------
Increase (Decrease) in Cash and Cash
Equivalents (174,054) 59,702
Cash and Cash Equivalents at beginning
of year 563,615 215,316
----------- ----------
Cash and Cash Equivalents at End of Period $ 737,669 $ 275,018
=========== ==========
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 2, 1998
Note A - Basis of Presentation
The accompanying condensed, consolidated, and unaudited financial statements
for the Company 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. For purposes of this report the
"Company" refers to Crowley, Milner and Company ("Crowley's") and its
wholly-owned subsidiary, Steinbach Stores, Inc. ("Steinbach"), collectively.
Given the seasonal nature of the specialty department store business,
operating results for the thirteen week period ended May 2, 1998 are not
necessarily indicative of the results that may be expected for the year
ending January 30, 1999.
It is suggested that these condensed, consolidated and unaudited 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 January 31, 1998.
Note B - Anticipated Effect of Pronouncement
On January 31, 1998, the Company adopted SFAS No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"), and attempts to simplify the approach
for computing EPS previously required in APB Opinion No. 15. SFAS No. 128
is effective for financial statements issued for periods ending after
December 15, 1997, and while it did not have an impact on the quarterly
information presented herein, it may impact future quarters. The computation
of EPS is shown below:
THREE MONTHS ENDED
May 2 May 3
1998 1997
----- -----
Numerator:
Net earnings (loss) $(3,311,120) $(4,003,871)
Denominator:
Weighted average shares--basic 1,544,462 1,500,578
Effect of nonvested restricted shares -- --
Dilutive weighted average shares 1,544,462 1,500,578
Dilutive earnings (loss) per share $(2.14) $(2.67)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Note on Forward-Looking Statements
This report includes various "forward-looking statements" within the meaning
of the Private Securities Reform Act of 1995 that represent the Company's
expectations or beliefs concerning future events and involve risks and
uncertainties. Expressions such as "believes", "anticipates", "intends",
"plans" or "expects" are intended to identify these forward-looking
statements. Although the Company believes its expectations are based upon
reasonable assumptions, the Company cautions that such forward-looking
statements are subject to important factors that could cause actual results
to differ materially from those anticipated. These factors include, but are
not limited to, increasing competition in existing markets; adverse economic
conditions either nationally or in existing markets; unexpected or severe
weather conditions, and possible unavailability of merchandise from existing
vendors. The Company is under no obligation to update such forward-looking
statements to reflect events or circumstances after the date hereof.
Results of Operations
Thirteen Weeks Ended May 2, 1998 Compared To Thirteen Weeks Ended May 3,
1997
The Company's net comparable store sales for the first quarter ended May 2,
1998, decreased 4.6%, to $40.7 million, from the $42.7 million recorded for
the first quarter ended May 3, 1997. Although Management was disappointed
in the sales performance, the decline in net comparable sales was not
unanticipated. An analysis of the prior year's operating results, during
which the Company incurred a net loss of $5.6 million, evidenced that the
Company was too heavily promotional. As a result, the Company's sales
performance increased at the expense of overall profitability. In response
to this, Management has restructured and downsized its promotional calendar.
In the short-term, the restructuring has translated into lower sales, but
higher margins. Management anticipates that this lower sales trend will
continue until the third quarter or early part of the fourth quarter because
historically the Company has placed less reliance on promotions to generate
slaes in the third and fourth quarters. In addition, in anticipation of a
mild winter during the first quarter of 1998, the Company accelerated
markdowns relative to its fall and winter merchandise into December and
January. The lower levels of clearance inventories maintained by the
Company also contributed to the relatively lower sales performance for the
first quarter.
For the first quarter ended May 2, 1998, the Company's gross profit
increased approximately $2.1 million, to $13.3 million from $11.2 million
reported during the first quarter of 1997. As a percentage of sales, gross
margin increased to 31.1% from 25.4%. As noted previously, this improvement
in margin performance can be principally attributed to the Company's change
in strategy relative to its promotional calendar, and to the Company's
acceleration of markdowns relative to its fall and winter merchandise.
The Company's operating expenses increased $700,000 in the first quarter to
$15.7 million from $15.0 million reported during last year's first quarter.
As a percentage of sales, operating expenses increased to 36.7% from 34.0%.
The increase is primarily attributable to the additional operating expenses
incurred in the operation of two Steinbach stores which were added during
the fourth quarter of 1997, additional expenses incurred in the conversion
of the Company's computer systems, and a 3.0% decrease in the Company's
sales performance.
During the first quarter of 1998, the Company's interest expense increased
$365,000 to $945,000 from $580,000 reported during the first quarter of
1997. As described below under "Financial Condition", this increase is all
attributable to the Company's increased usage of its revolving line of
credit in order to fund the recent losses incurred during the prior fiscal
year and the first quarter.
For the first quarter ended May 2, 1998, the Company reported a net loss of
$3,311,128, or $2.14 per share, compared to a net loss of $4,003,871, or
$2.67 for last year's first quarter.
As a result of the Company's conversion from LIFO to FIFO in 1996, the
Company paid $270,000 of federal income tax in fiscal year 1996, which can
be recovered by carrying back losses incurred in fiscal year 1997. Aside
from the loss that will be carried back to recover the tax paid as a result
of the conversion to FIFO, the Company has fully exhausted all tax loss
carrybacks, is in a net operating loss carryforward position, and is
therefore unable to tax effect the losses in either year's first quarter;
thus pre-tax and after-tax results are the same.
Financial Condition
The Company's cash and cash equivalents balance on May 2, 1998 increased to
$738,000 from $564,000 at January 31, 1998, and $275,000 at May 3, 1997.
Management attributes this increase to the timing of receipts and
disbursements relative to the Company's revolving line of credit.
Net cash used in operating activities remained relatively constant when
comparing the first quarter of 1998 ($3.6 million) against the net cash used
in operating activities during the first quarter of 1997 ($3.5 million). As
was the case in the first quarter of last year, a significant portion of the
net cash used in operating activities can be attributed to the loss incurred
during the quarter. The Company's decision to accelerate markdowns of fall
and winter merchandise into December 1997 and January 1998 resulted in lower
inventory levels at fiscal year-end; the subsequent build-up of inventories
for the spring and Easter selling season during the first quarter of 1998
resulted in the $4.3 million increase in inventories between year-end and
the quarter ended May 2, 1998. Management attributes the $2.3 million
increase in accounts payables during the quarter to personnel turnover which
slowed the processing of payments and the inefficiencies created by the
conversion of the computer system. Management believes that processing of
vendor payments should improve during the second and third quarters.
Investing activities used cash of $1.3 million during the first quarter of
1998, as compared to $113,000 during the comparable period last year. The
significant increase in the amount of cash used in investing activities can
be attributed to the expansion of the Steinbach store in Brick, New Jersey
by approximately 11,000 square feet (25% of previous size) and the
remodeling of the Crowley's store located in the Macomb Mall. The Macomb
store remodel will increase the selling area by 8,000 to 10,000 square feet.
In addition, a portion of the $1.3 million was used to fund the cost of the
conversion of the Company's computer systems.
Net cash provided by financing activities increased during the first quarter
of 1998 ($5.1 million) when compared to the net cash provided by financing
activities during the first quarter of 1997 ($3.7 million). This increase
is attributable to increased borrowings on the Company's revolving line of
credit in order to fund merchandise purchases and the losses incurred during
the quarter.
At May 2, 1998, the Company's working capital decreased to $2.9 million from
the $9.3 million available at May 3, 1997. At May 2, 1998, the Company's
working capital ratio was 1.05, down from the 1.22 reported at May 3, 1997.
During the three-month periods ended May 2, 1998 and May 3, 1997, the
Company has not paid or declared any cash dividends.
Other Developments
Effective June 10, 1998, the Company amended its Loan and Security Agreement
with Congress Financial Corporation (Central) to increase its revolving line
of credit to $43 million from $35 million, with an additional borrowing
capacity up to $50 million during the peak borrowing periods of September 1
through November 30 of each year. In addition, the borrowing base has been
increased to 34% of eligible retail inventory from 30% and a LIBOR pricing
option was added. The Company believes that this expanded facility,
together with cash provided by operating activities, will be sufficient to
meet the current funding needs, as well as the needs for renovation of its
current stores, and funding of the Company's "Year 2000" solution. The
Company was charged a fee of $40,000 to implement these amendments, which
will be expensed in the second quarter.
With respect to the Company's "Year 2000" solution, in the first quarter of
1998, the Company continued, for all of its systems, a year 2000 date
conversion project to address all necessary code changes, testing, and
implementation . Based on an extensive study completed in August 1997, the
Company budgeted approximately $2.5 million during the period of fiscal year
1998 through fiscal year 1999 to modify its computer information systems
enabling proper processing of transactions relating to the year 2000 and
beyond. Currently, the Company estimates that the actual cost of the
project will be approximately $2.6 million. The estimated funding needs of
$2.6 million anticipate a "total solution" to the "Year 2000" issue, which
includes hardware, software, and all related collateral support. The
Company financed the total solution through a third party hardware vendor,
and has a portion of the financing collateralized by a letter of credit in
the amount of $1.3 million.
The timetable for the Company to convert from its current management
information system to one which is "Year 2000" compliant anticipates a "go
live" date of August 1998, and the Company is on schedule to meet that
deadline. There can be no assurance that the systems of other companies on
which the Company's systems rely also will be timely converted or that any
such failure to convert by another company would not have an adverse effect
on the Company's systems.
The Company is in discussions with the landlord for a store located in
Wilton, New York, for which it entered into a lease in December 1997.
Shortly after signing the lease, the Company determined not to commence
operations at this location and so informed the landlord. The landlord has
informed the Company that the Company is in breach of the lease agreement;
however, the landlord has a duty to mitigate any damages caused by the
Company's failure to operate this store by re-leasing the premises to
another tenant. The Company has proposed a settlement to the landlord,
which was rejected. The Company believes that the landlord is negotiating
with another prospective tenant, and until such negotiations are completed
the Company cannot estimate the amount of any liability that may be
incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
- --- ------------
27 Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended May 2, 1998.
<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
DATE: June 15, 1998 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
<LEGEND> This schedule contains certain summary financial information
extracted from the unaudited consolidated statements of income and
consolidated balance sheets, and is qualified in its entirety by reference
to such unaudited consolidated financial statements.
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
<CASH> 737,669
<SECURITIES> 0
<RECEIVABLES> 2,401,035
<ALLOWANCES> 66,658
<INVENTORY> 50,296,186
<CURRENT-ASSETS> 55,387,249
<PP&E> 29,846,155
<DEPRECIATION> 15,676,382
<TOTAL-ASSETS> 74,405,968
<CURRENT-LIABILITIES> 52,485,120
<BONDS> 4,365,000
<COMMON> 1,544,462
0
0
<OTHER-SE> 7,308,623
<TOTAL-LIABILITY-AND-EQUITY> 74,405,968
<SALES> 42,774,922
<TOTAL-REVENUES> 42,825,451
<CGS> 29,482,269
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,709,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 944,876
<INCOME-PRETAX> 3,311,128
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,311,128
<EPS-PRIMARY> (2.14)
<EPS-DILUTED> (2.14)
</TABLE>
