<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
-------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 1-7604
------
CROWN CRAFTS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0678148
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Riveredge Parkway, Suite 200, Atlanta, Georgia 30328
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(770) 644-6400
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common Stock, $1.00 par value, of the Registrant
outstanding as of August 6, 1997 was 7,963,955.
<PAGE> 2
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
JUNE 29, 1997 (UNAUDITED) AND MARCH 30, 1997
<TABLE>
<CAPTION>
June 29, March 30,
(in thousands) 1997 1997
- --------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 355 $ 602
Accounts receivable, net:
Due from factor 19,995 30,866
Other 7,134 7,496
Inventories 74,838 56,860
Deferred income taxes 2,318 2,392
Other current assets 4,887 3,307
-------- --------
Total Current Assets 109,527 101,523
-------- --------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Land, buildings and improvements 46,195 44,903
Machinery and equipment 68,423 68,435
Furniture and fixtures 1,635 1,487
-------- --------
116,253 114,825
Less accumulated depreciation 44,129 41,809
-------- --------
Property, Plant and Equipment - net 72,124 73,016
-------- --------
OTHER ASSETS
Goodwill 17,651 13,192
Other 2,202 1,825
-------- --------
Total Other Assets 19,853 15,017
-------- --------
TOTAL $201,504 $189,556
======== ========
</TABLE>
See notes to interim consolidated financial statements.
1
<PAGE> 3
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS
JUNE 29, 1997 (UNAUDITED) AND MARCH 30, 1997
<TABLE>
<CAPTION>
June 29, March 30,
(dollars in thousands, except par value per share) 1997 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,150
Accounts payable 17,831 $ 13,212
Income taxes payable 901 1,336
Accrued wages and benefits 4,176 4,312
Accrued royalties 975 1,369
Other accrued liabilities 3,395 3,429
Current maturities of long-term debt 100 100
--------- ---------
Total Current Liabilities 28,528 23,758
--------- ---------
NON-CURRENT LIABILITIES
Long-term debt 79,200 71,200
Deferred income taxes 7,752 7,877
Other 745 1,026
--------- ---------
Total Current Liabilities 87,697 80,103
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock - par value $1.00 per share;
50,000,000 shares authorized; 9,057,912 and
9,050,636 shares issued 9,058 9,051
Additional paid-in capital 34,504 34,438
Retained earnings 56,573 57,005
Less: 1,111,435 and 1,106,435 shares of common
stock held in treasury (14,856) (14,799)
--------- ---------
Total Shareholders' Equity 85,279 85,695
--------- ---------
TOTAL $ 201,504 $ 189,556
========= =========
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 4
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF EARNINGS
JUNE 29, 1997 AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
June 29, June 30,
(in thousands, except per share data) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 52,644 $ 44,400
COST OF PRODUCTS SOLD 42,079 37,488
----------- -----------
GROSS PROFIT 10,565 6,912
MARKETING AND
ADMINISTRATIVE EXPENSES 9,650 8,214
----------- -----------
EARNINGS (LOSS) FROM OPERATIONS 915 (1,302)
OTHER INCOME (EXPENSE):
Interest expense (1,304) (1,258)
Other - net 78 193
----------- -----------
(LOSS) BEFORE INCOME TAXES (311) (2,367)
PROVISIONS (CREDITS) FOR INCOME
TAXES (117) (1,024)
----------- -----------
NET (LOSS) $ (194) $ (1,343)
=========== ===========
NET (LOSS) PER SHARE $ (0.02) $ (0.17)
=========== ===========
AVERAGE SHARES OUTSTANDING 7,946,340 7,944,201
=========== ===========
DIVIDENDS DECLARED PER
SHARE $ 0.03 $ 0.03
=========== ===========
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 5
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 29, 1997 AND
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
June 29, June 30,
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (194) $ (1,343)
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation and amortization of property, plant
and equipment 2,396 2,437
Amortization of goodwill 224 143
Deferred income taxes (51) 24
Gain on disposal of property, plant and equipment (21) (112)
Changes in assets and liabilities:
Accounts receivable 12,622 14,645
Inventories (15,951) (8,950)
Other current assets (1,510) (169)
Other assets (658) (330)
Accounts payable 4,566 775
Income taxes payable (435) 48
Accrued liabilities (808) 68
Other liabilities 13
-------- --------
Net Cash Provided by Operating Activities 180 7,249
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (1,313) (1,647)
Acquisitions, net of cash acquired (7,383)
Proceeds from sale of property, plant and
equipment 36 331
-------- --------
Net Cash Used For Investing Activities (8,660) (1,316)
-------- --------
FINANCING ACTIVITIES:
Payment of long-term debt (2,500)
Increase (decrease) in bank revolving credit 8,000 (19,000)
Increase in notes payable 455 15,570
Exercise of stock options 16
Cash dividends (238) (239)
-------- --------
Net Cash Provided By (Used For) Financing Activities 8,233 (6,169)
-------- --------
NET DECREASE IN CASH
(carried forward) $ (247) $ (236)
======== ========
</TABLE>
4
<PAGE> 6
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 29, 1997 AND
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
June 29, June 30,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
NET DECREASE IN CASH
(brought forward) $ (247) $ (236)
CASH, beginning of period 602 517
------- -------
CASH, end of period $ 355 $ 281
======= =======
Supplemental Cash Flow Information:
Income taxes paid $ 369 $ 68
======= =======
Interest paid net of amounts capitalized $ 1,336 $ 1,220
======= =======
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 7
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim financial information and the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, such interim consolidated financial statements contain all
adjustments necessary to present fairly the Company's financial position as
of June 29, 1997 and the results of its operations and its cash flows for
the periods ended June 29, 1997 and June 30, 1996. Such adjustments include
normal recurring accruals and a pro rata portion of certain estimated
annual expenses.
2. On March 31, 1997, the Company acquired all of the outstanding stock of
Hamco, Inc., a manufacturer and marketer of infant soft goods, for a total
purchase price of $7.5 million. This acquisition has been accounted for
using the purchase method of accounting based on the estimated fair value
of assets acquired and liabilities assumed resulting in the recording of
approximately $4.7 million in goodwill. Operating results of Hamco, Inc.
from the date of acquisition are included in the accompanying Consolidated
Statement of Earnings for the period ending June 29, 1997.
3. The computation of net loss per share for the periods ended June 29, 1997
and June 30, 1996 was computed using the weighted average number of common
shares outstanding.
4. Major classes of inventory were as follows (in thousands):
<TABLE>
<CAPTION>
June 29, March 30,
1997 1997
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<S> <C> <C>
Raw materials $31,740 $27,415
Work in process 4,909 1,961
Finished goods 38,189 27,484
------- -------
$74,838 $56,860
======= =======
</TABLE>
5. Operating results of interim periods are not necessarily indicative of
results to be expected for the year.
6
<PAGE> 8
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996
On March 31, 1997 the Company acquired all of the outstanding stock of Hamco,
Inc. ("Hamco"), a manufacturer and marketer of infant soft goods. The impact of
the Hamco acquisition on the Company's consolidated results of operations for
the quarter ended June 29, 1997 included net sales of $2.3 million and earnings
before income taxes of $0.2 million.
Excluding Hamco, consolidated net sales increased $5.9 million or 13.3% in the
current year quarter. The increase was attributable to increased net sales of
adult bedcoverings and infant/juvenile products partially offset by a decline in
net sales of adult throws.
Gross profit as a percentage of net sales increased to 20.1% for the quarter
ended June 29, 1997 from 15.6% for the quarter ended June 30, 1996 primarily due
to increased sales of higher margin products.
Excluding Hamco, marketing and administrative expenses increased $1.0 million or
12.2% in the current year quarter. The increase is primarily due to increased
employee costs, professional fees, bad debt expenses and promotional costs.
The effective income tax rate decreased to 37.6% for the quarter ended June 29,
1997 from 43.3% for the quarter ended June 30, 1996. The decrease was due to
lower effective state income tax rates as a result of various state tax credits
earned.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company maintains unsecured committed revolving credit facilities totaling
$30 million with two commercial banks at interest rates based on the London
Interbank Offered Rate (LIBOR). At June 29, 1997, borrowings of $29.0 million
were outstanding under these facilities at a weighted average interest rate of
6.1 percent. The Company pays facility fees on the unused portions of these
committed credit lines. The Company also maintains uncommitted lines of credit
totaling $40 million with two commercial banks at floating interest rates. At
June 29, 1997, borrowings of $1.2 million were outstanding under these lines.
Among other covenants, these bank facilities contain a requirement that the
Company maintain minimum levels of shareholders' equity, one effect of which is
to restrict the payment of cash dividends. At June 29, 1997, retained earnings
of approximately $9.0 million were available for dividend payments. Other
covenants place restrictions on the amounts the Company may expend on
acquisitions and purchases of treasury stock.
7
<PAGE> 9
On March 31, 1997, the Company acquired all of the outstanding stock of Hamco,
Inc., a manufacturer and marketer of infant soft goods, for a total purchase
price of $7.5 million. This acquisition is consistent with the Company's
strategy of growing infant and juvenile products to about one-third of its total
business. The acquisition was financed by borrowings under the Company's
revolving credit facilities. The Company continues to review appropriate
acquisition opportunities as a significant part of its growth strategy. Although
the Company cannot predict when, or if, further acquisitions will occur, the
Company's various credit facilities or other forms of debt will likely continue
to provide the funds necessary to finance its growth by this method.
Working capital increased to $81.0 million at June 29, 1997 from $77.8 million
at March 30, 1997. Total debt outstanding increased to $80.5 million at June 29,
1997 from $71.3 million at March 30, 1997. The ratio of debt to equity was
0.94:1 at June 29, 1997 compared to 0.83:1 at March 30, 1997. The increase in
this ratio was primarily attributable to the increase in debt resulting from the
acquisition of Hamco, Inc. and growth in inventories partially offset by a
decrease in accounts receivable and an increase in accounts payable.
Total inventories increased to $74.8 million at June 29, 1997 from $56.8 million
at March 30, 1997. The Hamco acquisition accounted for $1.7 million of the
increase. The remainder of the increase is a seasonal pattern to build
inventories to meet heavier shipping demands in the second and third quarters of
the fiscal year. The increase in the current year first quarter is larger than
in prior years due to increased demand for some of the Company's imported
products which have a longer lead time for delivery than domestically produced
products.
OTHER MATTERS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share which changes the
method of reporting earnings per share by requiring a computation of basic and
diluted earnings per share. This statement will become effective for the
Company's fiscal 1998 third quarter. The computations required by this Statement
would have had no impact on the loss per share reported for the quarters ended
June 29, 1997 and June 30, 1996.
8
<PAGE> 10
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In order to resolve certain disputes which have arisen between
them, the Company and its Israeli supplier of Royal Sateen(R) fabric
and products, Kitan Consolidated Ltd. ("Kitan"), have entered into
binding arbitration before a three-person panel in Israel. In
connection with the arbitration, the Company and Kitan exchanged
claims documents on June 9 and 10, 1997. The Company's claims include
a request for payment of $9.9 million in damages stemming primarily
from Kitan's failure to make timely deliveries over a three-year
period. Kitan's claims include a request for payment of $8.5 million
for damages allegedly suffered primarily as a result of differences
between the Company's forecasts of demand and its actual orders for
Kitan's fabric and products. Each party's claims also request
reimbursement of attorneys' fees and payment of interest from the
respective date on which its claim was filed. The Company believes
Kitan's claims are without merit, and the Company intends to
vigorously pursue its claims and its defenses. Normal commerce between
the companies is continuing during the arbitration process.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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<S> <C>
10(e)iii Letter Agreement dated July 29, 1997 with The
Prudential Insurance Company of America
27 Financial Data Schedule (for SEC use only)
</TABLE>
There were no reports on Form 8-K during the quarter ended June 29,
1997.
9
<PAGE> 11
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
JUNE 29, 1997
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CRAFTS, INC.
Date: August 12, 1997 /s/ Robert E. Schnelle
--------------- --------------------------
ROBERT E. SCHNELLE
Treasurer
(Chief Accounting Officer)
10
<PAGE> 1
EXHIBIT 10(e)iii
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
c/o Prudential Capital Group
One Gateway Center, 11th Floor
Newark, New Jersey 07102-5311
July 29, 1997
Crown Crafts, Inc.
1600 Riveredge Parkway
Suite 200
Atlanta, GA 30328
Attention: Paul A. Criscillis, Jr.
Vice President
Ladies and Gentlemen:
Reference is made to that certain Note Agreement dated as of October 12,
1995 between Crown Crafts, Inc. (the "Company") and The Prudential Insurance
Company of America ("Prudential"), as heretofore amended (the "Note Agreement").
Terms not otherwise defined herein have the meanings given such terms in the
Note Agreement.
Pursuant to paragraph 11C of the Note Agreement and as holder of all of
the Notes, Prudential hereby agrees with the Company as follows:
1. For the purposes of calculating the Financial Ratios described in
paragraph 6A of the Note Agreement, the Company may disregard the
following non-recurring charges:
(a) the actual costs associated with the product recall by the Company's
subsidiary, Hans Benjamin, in an amount not to exceed $780,000;
(b) the actual expenses associated with Hans Benjamin's exit from the
furniture business and the Company's decision to cease providing it with
financial support, in an amount not to exceed $370,000; and
(c) the actual costs related to closing down another subsidiary, Benn
Corporation, in an amount not to exceed $450,000.
2. Prudential further agrees that the December 18, 1990 note agreement by
and between Prudential and the Company is hereby amended to the same
extent as the Note Agreement is amended in paragraph 1 above.
3. Except to the extent amended by the provisions hereof, all of the terms,
conditions and obligations of the Note Agreement shall remain in full
force and effect.
If you agree to the foregoing, please sign each copy of this letter
enclosed and return two of them to Prudential, at which time this letter shall
become a binding agreement between us as of the date first above written.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ ROBERT R. DERRICK
-----------------------
Name: Robert R. Derrick
Title: Vice President
Agreed to and accepted
as of July 29, 1997
CROWN CRAFTS, INC.
By: /s/ ROBERT E. SCHNELLE
-----------------------
Name: Robert E. Schnelle
Title: Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CROWN CRAFTS FOR THE THREE MONTHS ENDED JUNE 29, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 355
<SECURITIES> 0
<RECEIVABLES> 27,129
<ALLOWANCES> 0
<INVENTORY> 74,838
<CURRENT-ASSETS> 109,527
<PP&E> 116,253
<DEPRECIATION> 44,129
<TOTAL-ASSETS> 201,504
<CURRENT-LIABILITIES> 28,528
<BONDS> 0
9,058
0
<COMMON> 0
<OTHER-SE> 76,221
<TOTAL-LIABILITY-AND-EQUITY> 201,504
<SALES> 52,644
<TOTAL-REVENUES> 52,644
<CGS> 42,079
<TOTAL-COSTS> 42,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,304
<INCOME-PRETAX> (311)
<INCOME-TAX> (117)
<INCOME-CONTINUING> (194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (194)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
