<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 September 28, 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 Identification No.)
incorporation or organization)
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 November 7, 1997 was 8,091,315.
<PAGE> 2
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1997 (UNAUDITED) AND MARCH 30, 1997
<TABLE>
<CAPTION>
September 28, March 30,
(in thousands) 1997 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 749 $ 602
Accounts receivable, net:
Due from factor 37,040 30,866
Other 12,738 7,496
Inventories 87,294 56,860
Deferred income taxes 2,377 2,392
Other current assets 6,107 3,307
-------- --------
Total Current Assets 146,305 101,523
-------- --------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Land, buildings and improvements 45,465 44,903
Machinery and equipment 71,466 68,435
Furniture and fixtures 1,907 1,487
-------- --------
118,838 114,825
Less accumulated depreciation 46,522 41,809
-------- --------
Property, Plant and Equipment - net 72,316 73,016
-------- --------
OTHER ASSETS:
Goodwill 25,440 13,192
Other 2,390 1,825
-------- --------
Total Other Assets 27,830 15,017
-------- --------
TOTAL $246,451 $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
SEPTEMBER 28, 1997 (UNAUDITED) AND MARCH 30, 1997
<TABLE>
<CAPTION>
September 28, March 30,
(dollars in thousands, except par value per share) 1997 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 31,582
Accounts payable 21,043 $ 13,212
Income taxes payable 3,011 1,336
Accrued wages and benefits 5,844 4,312
Accrued royalties 2,050 1,369
Other accrued liabilities 3,968 3,429
Current maturities of long-term debt 30,206 100
-------- --------
Total Current Liabilities 97,704 23,758
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt 50,257 71,200
Deferred income taxes 7,752 7,877
Other 745 1,026
-------- --------
Total Non-Current Liabilities 58,754 80,103
-------- --------
SHAREHOLDERS' EQUITY:
Common stock - par value $1.00 per share;
50,000,000 shares authorized; 9,185,839 and
9,050,636 shares issued 9,186 9,051
Additional paid-in capital 35,924 34,438
Retained earnings 59,771 57,005
Less: 1,114,111 and 1,106,435 shares of common
stock held in treasury (14,888) (14,799)
-------- --------
Total Shareholders' Equity 89,993 85,695
-------- --------
TOTAL $246,451 $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
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- --------------------------
(in thousands, except Sept. 28, Sept. 29, Sept. 28, Sept. 29,
per share data) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 86,334 $ 74,848 $ 138,978 $ 119,248
COST OF PRODUCTS SOLD 65,478 59,469 107,557 96,957
----------- ----------- ----------- -----------
GROSS PROFIT 20,856 15,379 31,421 22,291
MARKETING AND
ADMINISTRATIVE EXPENSES 13,764 10,760 23,414 18,974
----------- ----------- ----------- -----------
EARNINGS FROM OPERATIONS 7,092 4,619 8,007 3,317
OTHER INCOME (EXPENSE):
Interest expense (1,646) (1,308) (2,950) (2,567)
Other - net 72 98 150 292
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 5,518 3,409 5,207 1,042
PROVISIONS FOR INCOME
TAXES 2,078 1,488 1,961 464
----------- ----------- ----------- -----------
NET EARNINGS $ 3,440 $ 1,921 $ 3,246 $ 578
=========== =========== =========== ===========
NET EARNINGS PER SHARE
PRIMARY $ 0.41 $ 0.24 $ 0.40 $ 0.07
FULLY DILUTED $ 0.40 $ 0.24 $ 0.39 $ 0.07
AVERAGE SHARES OUTSTANDING
PRIMARY 8,357,950 7,944,201 8,152,145 7,944,201
FULLY DILUTED 8,613,545 7,944,201 8,279,943 7,944,201
DIVIDENDS DECLARED PER
SHARE $ 0.03 $ 0.03 $ 0.06 $ 0.06
=========== =========== =========== ===========
</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 SEPTEMBER 28, 1997 AND
SEPTEMBER 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 28, September 29,
(in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 3,246 $ 578
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation and amortization of property, plant
and equipment 4,906 4,927
Amortization of goodwill 481 286
Deferred income taxes (50) 24
Gain on disposal of property, plant and equipment (51) (118)
Changes in assets and liabilities:
Accounts receivable (7,249) (150)
Inventories (23,866) (10,577)
Other current assets (2,463) 307
Other assets (846) (365)
Accounts payable 5,540 6,891
Income taxes payable 1,678 805
Accrued liabilities 1,610 2,542
Other liabilities 26
-------- --------
Net Cash Provided by (Used For)Operating Activities (17,064) 5,176
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (3,464) (2,908)
Acquisitions, net of cash acquired (15,415)
Proceeds from sale of property, plant and
equipment 80 336
-------- --------
Net Cash Used For Investing Activities (18,799) (2,572)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 27,005 2,270
Increase (decrease) in bank revolving credit 9,000 (2,000)
Payment of long-term debt (46) (2,500)
Exercise of stock options 531
Cash dividends (480) (477)
-------- --------
Net Cash Provided By (Used For) Financing Activities 36,010 (2,707)
-------- --------
NET INCREASE (DECREASE) IN CASH
(carried forward) $ 147 $ (103)
======== ========
</TABLE>
4
<PAGE> 6
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 28, 1997 AND
SEPTEMBER 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 28, September 29,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH
(brought forward) $ 147 $ (103)
CASH, beginning of period 602 517
-------- --------
CASH, end of period $ 749 $ 414
======== ========
Supplemental Cash Flow Information:
Income taxes paid $ 24 $ 79
======== ========
Interest paid net of amounts capitalized $ 1,416 $ 1,187
======== ========
</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 September 28, 1997 and
the results of its operations and its cash flows for the periods ended
September 28, 1997 and September 29, 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. ("Hamco"), a manufacturer and marketer of infant soft
goods, for a total purchase price of $7.5 million. On August 18, 1997,
the Company acquired all of the outstanding stock of Noel Joanna,
Inc.("NoJo"), a manufacturer and marketer of infant goods, for a total
purchase price of $9.2 million, consisting of $8.2 million in cash and
$1.0 million in common stock of the Company. Operating results for
Hamco and NoJo from their respective dates of acquisition are included
in the accompanying Consolidated Statements of Earnings for the three
and six month periods ending September 28, 1997.
Both of these acquisitions were accounted for as purchases.
Accordingly, the net purchase price was allocated based upon the
respective acquisition date fair market values of assets acquired and
liabilities assumed as follows:
<TABLE>
<CAPTION>
(in thousands)
-------------
<S> <C>
Assets acquired, other than cash $11,903
Goodwill 12,729
-------
Total assets acquired, other than cash 24,632
Less liabilities assumed 8,217
-------
Purchase price, net of cash acquired 16,415
Less stock issued in acquisition 1,000
-------
Net cash paid for acquisitions $15,415
=======
</TABLE>
6
<PAGE> 8
3. The computations of net earnings per share for the three month and six
month periods ended September 28, 1997 include the dilutive effect of
stock options outstanding. Net earnings per share for the corresponding
periods ended September 29, 1996 are based on the weighted average of
actual shares outstanding as stock options outstanding did not have a
material dilutive effect during these periods.
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. Had
the computations required by this Statement been applied for the three
and six month periods ended September 28, 1997 and September 29, 1996,
the Company would have reported net earnings per share as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
Net Earnings Per Share 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic $0.43 $0.24 $0.41 $0.07
Diluted $0.41 $0.24 $0.40 $0.07
</TABLE>
4. Major classes of inventory were as follows (in thousands):
<TABLE>
<CAPTION>
September 28, March 30,
1997 1997
---- ----
<S> <C> <C>
Raw materials $33,824 $27,415
Work in process 6,649 1,961
Finished goods 46,821 27,484
------- -------
$87,294 $56,860
======= =======
</TABLE>
5. Operating results of interim periods are not necessarily indicative of
results to be expected for the full fiscal year.
7
<PAGE> 9
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 SEPTEMBER 28, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 29, 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. On August 18,
1997, the Company acquired all of the outstanding stock of Noel Joanna, Inc.
("NoJo"), a manufacturer and marketer of infant goods. The impact of the Hamco
and NoJo acquisitions on the Company's consolidated results of operations for
the quarter ended September 28, 1997 included net sales of $5.3 million and
income before income taxes of $0.5 million.
Excluding NoJo and Hamco, consolidated net sales increased $6.2 million or 8.3%
in the current year quarter. The increase was attributable to increased net
sales of infant/juvenile products and adult bedcoverings, partially offset by a
decline in net sales of adult throws.
Gross profit as a percentage of net sales increased to 24.2% for the quarter
ended September 28, 1997 from 20.5% for the quarter ended September 29, 1996
primarily due to increased sales of higher margin products. During the quarter,
the addition of Hamco and NoJo sales caused total sales of infant and juvenile
products to comprise approximately 29% of total net sales, whereas sales of this
product category represented 17% of total net sales in the year-earlier quarter.
Infant and juvenile products typically earn a higher gross margin than the
Company's adult products, but the Company's infant product subsidiaries also
typically have a higher ratio of operating expenses to net sales.
Excluding NoJo and Hamco, operating expenses increased $2.0 million or 18.8% in
the current year quarter. The increase is primarily due to increased employee
costs, professional fees and bad debt expenses, partially offset by a decrease
in promotional costs.
Interest expense for the quarter ended September 28, 1997 increased $0.3 million
or 25.8% from the prior year quarter due to increased debt levels partially
offset by a decrease in interest rates.
The effective income tax rate decreased to 37.7% for the quarter ended September
28, 1997 from 43.6% for the quarter ended September 29, 1996. The decrease was
due to lower effective state income tax rates as a result of various state
employment and investment tax credits earned.
8
<PAGE> 10
SIX MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER
29, 1996
The impact of the Hamco and NoJo acquisitions on the Company's consolidated
results of operations for the six month period ended September 28, 1997 included
net sales of $7.6 million and income before income taxes of $0.8 million.
Excluding NoJo and Hamco, consolidated net sales increased $12.2 million or
10.2% in the six month period ending September 28, 1997. The increase was
attributable to increased net sales of infant/juvenile products and adult
bedcoverings, partially offset by a decline in net sales of adult throws.
Gross profit as a percentage of net sales increased to 22.6% for the six months
ended September 28, 1997 from 18.7% for the same six months last year primarily
due to increased sales of higher margin products. During the current year six
month period, the addition of Hamco and NoJo sales caused total sales of infant
and juvenile products to comprise approximately 29% of total net sales, whereas
sales of this product category represented 19% of total net sales in the
year-earlier corresponding period. Infant and juvenile products typically earn
a higher gross margin than the Company's adult products, but the Company's
infant product subsidiaries also typically have a higher ratio of operating
expenses to net sales.
Excluding NoJo and Hamco, operating expenses increased $3.1 million or 16.2% in
the current six month period. The increase is primarily due to increased
employee costs, professional fees and bad debt expenses partially offset by a
decrease in promotional costs.
Interest expense for the six months ended September 28, 1997 increased $0.4
million or 14.9% from the prior year due to increased debt levels partially
offset by a decrease in interest rates.
The effective income tax rate decreased to 37.7% for the six month period ended
September 28, 1997 from 44.5% for the six month period ended September 29,
1996. The decrease was due to lower effective state income tax rates as a
result of various state employment and investment 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 September 28, 1997, borrowings of $30.0
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. These credit lines are scheduled to expire on
August 25, 1998; accordingly, such borrowings are included with other current
maturities of long-term debt in the September 28, 1997 balance sheet. The
Company also maintains uncommitted lines of credit totaling $40 million with two
commercial banks at floating interest rates. At September 28, 1997, borrowings
of $31.5 million were outstanding under these lines at a weighted average
interest rate of 6.1 percent. 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
September 28, 1997, retained earnings of approximately $12.2 million were
available for dividend payments. Other covenants place restrictions on the
amounts the Company may expend on acquisitions and purchases of treasury stock.
9
<PAGE> 11
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 in cash. On August 18, 1997, the Company acquired all of
the outstanding stock of Noel Joanna, Inc., a manufacturer and marketer of
infant goods, for a total purchase price of $9.2 million, consisting of $8.2
million in cash and $1.0 million in common stock of the Company. These
acquisitions are consistent with the Company's strategy of growing infant and
juvenile products to about one-third of its total business. The cash portion of
the purchase price for these acquisitions 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.
Total debt outstanding increased to $112.0 million at September 28, 1997 from
$71.3 million at March 30, 1997. This increase was primarily attributable to the
Hamco and NoJo acquisitions, purchases of capital assets and growth in
inventories and accounts receivable, partially offset by an increase in accounts
payable. The ratio of debt to equity was 1.25:1 at September 28, 1997 compared
to 0.83:1 at March 30, 1997. Working capital decreased to $48.6 million at
September 28, 1997 from $77.8 million at March 30, 1997. The decrease in working
capital was attributable to the change in classification (from long-term debt to
current maturities of long-term debt) for the $30.0 million outstanding under
the Company's committed revolving credit facilities. The Company presently
intends to negotiate new long-term committed facilities prior to the August 25,
1998 expiration date of the currently effective arrangements.
Total inventories increased to $87.3 million at September 28, 1997 from $56.8
million at March 30, 1997. The NoJo and Hamco acquisitions accounted for $6.6
million of the increase. Inventories for Red Calliope, an infant products
subsidiary, increased $3.7 million from March 30, 1997 in preparation for
anticipated heavy shipping demands in October 1997. The remainder of the
increase is a seasonal pattern to build inventories to meet heavier shipping
demands for adult products in the third quarter of the fiscal year. The increase
in the current year second quarter is also due to increased demand for some of
the Company's imported products which have a longer lead time for delivery than
domestically produced products. Accordingly, Crown Crafts is warehousing more of
these products to enable it to meet expected demand.
10
<PAGE> 12
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to Vote of Security Holders
The following directors of the registrant were elected for a three
year term:
E. Randall Chestnut
Roger D. Chittum
Marvin A. Davis
Alfred M. Swiren
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
27 Financial Data Schedule (for SEC use only)
There were no reports on Form 8-K during the quarter ended September
28, 1997.
11
<PAGE> 13
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
SEPTEMBER 28, 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: November 12, 1997 /s/ Robert E. Schnelle
----------------------------------
ROBERT E. SCHNELLE
Treasurer
(Chief Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CROWN CRAFTS, INC. FOR THE SIX MONTH PERIOD ENDED
SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 749
<SECURITIES> 0
<RECEIVABLES> 49,778
<ALLOWANCES> 0
<INVENTORY> 87,294
<CURRENT-ASSETS> 146,305
<PP&E> 118,838
<DEPRECIATION> 46,522
<TOTAL-ASSETS> 246,451
<CURRENT-LIABILITIES> 101,523
<BONDS> 0
0
0
<COMMON> 9,186
<OTHER-SE> 80,807
<TOTAL-LIABILITY-AND-EQUITY> 246,451
<SALES> 138,978
<TOTAL-REVENUES> 138,978
<CGS> 107,557
<TOTAL-COSTS> 107,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,950
<INCOME-PRETAX> 5,207
<INCOME-TAX> 1,961
<INCOME-CONTINUING> 3,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,246
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
